Development financing remains a big challenge especially for frontier markets such as Cambodia. The amount of resources needed to lift the country out of poverty before 2020 continues to increase.

A recent report published by the World Bank (“Where have all the poor gone?”- Cambodia poverty assessment 2013) praises the pro-poor growth that Cambodia was able to achieve between 2004 and 2011. It means that the country was not only reducing inequality but also proportionally boosting poor people’s consumption bringing down the poverty rated from 52.2 to 20.5 percent. The report also emphasizes that this trend could only be sustained with significant investment in rural infrastructures (roads, irrigation, electricity, clean water and sanitation), agriculture productivity, access to education, health infrastructure and enhancement of the social protection system. Estimates put the resources needed at several US$ billions a year in the next 10 years.

Cambodia will need to make progress on all these fronts and create hundreds of thousands of jobs to reduce poverty, accelerate development and meet the expectations of its population.

Access to capital markets is a proven opportunity

Access to capital markets is one recent phenomenon used among frontier countries in Asia and Africa that is being facilitated by the Federal Reserve’s quantitative easing policy of injecting money into the U.S. economy.

Only in 2013, the Fed purchased more than $3.5 trillion in bank debt, mortgage-backed securities and Treasury notes. As a result, the market is flooded with excess liquidity and unprecedented low interest rates suppressing returns in the U.S. and other developed markets. Investors have turned to emerging and frontier markets for better yields.

As a result, the number of international bond issuances by frontier countries in recent years has accelerated and is set to increase in the next 5 years. In Asia, in addition to the middle income countries such as Thailand, Indonesia and Vietnam, countries such as Sri Lanka, Mongolia and Papua New Guinea have financed their infrastructures with government bonds issues. In addition to South Africa, eight countries in Africa have tapped the international capital markets in recent years, including first-time issuers Ghana, Gabon, Senegal, Namibia, Nigeria, Tanzania, Zambia and Rwanda.

Cambodia’s turning point with regards to development assistance while ASEAN integration is getting closer

Cambodia is reaching a point when domestic fiscal resources and official development assistance are inadequate to meet its substantial needs of economic and social infrastructure. The international bond market provides an avenue, especially considering that the initial regulatory framework has already been set.

In its blueprint for long term financial sector development (Financial Sector Development Strategy 2006-2015), the Royal Government of Cambodia already identified the development of capital markets as a pillar to the country’s development and, following the recommendations of this report, has enacted the law on government securities. This initiative was part of a regional bond market initiative endorsed by ASEAN+3 Finance ministers. With the economic integration approaching in 2015, this topic is gaining momentum.

Regulatory framework and control mechanisms are still challenges

On a continent where access to markets is a novel phenomenon and where it is still difficult to attract investors due to legacy issues of poor macroeconomic management and fiscal discipline as well as persistent corruption and weak institutions, attempts to raise capital from the markets is a laudable goal. The discipline required by the process has no doubt helped countries who have been successful in recognizing the importance of market perceptions and the need for better macro-fiscal discipline.

Innovation in development financing has the potential to be a determining factor for rapid, sustainable and inclusive growth over the medium term.