Here’s a small factoid: Cambodian private debt is 180% of GDP. 180%! In layman’s terms, this means that the average private Cambodian is in debt up to their eyeballs. All those new cars and new houses are not paid for, and as far as I can see, will never be paid for. They will all be repossessed, and Cambodia will to belong to the banks, if it doesn’t already. Or, perhaps more common, the debtor will sell the land or car to some entrepreneur in order to settle the debt. Even someone who can afford a $30,000 car will borrow more to buy a $50,000 car.
According to a Licadho study, over a quarter of all households spend more than 70% of their income on debt repayment. And 93% of microloan recipients are required to pledge at least one land title as collateral. Those microloans have insanely high interest rates.
On the other hand, Cambodian GDP is growing at over 7% per year. The economy is booming. Or is it?… What the heck is going on?
On my street in Battambang, there is a constant turnover of restaurants. Capital is invested, but then there are no customers night after night, so that in 3-6 months, the place closes, and within a day or two, the place is being remodeled for yet another new restaurant. Outside of town, there are literally thousands of new housing developments that are empty, or that have ‘for sale’ or ‘for rent’ signs. Doesn’t sound like a booming economy to me.
However, there appears to be plenty of venture capital floating around to finance new restaurants and new housing developments. Every time a new house goes up, the GDP goes up, regardless of whether anyone will actually live in the house. The banks evidently have plenty of money to lend, knowing that the land will serve as adequate collateral.
Where is all this capital coming from? In a word: China. In 2023, China experienced record-breaking capital outflows at $53 billion. I follow the Chinese stock market, and it has gone down at least 10% in recent months. All that sold stock money must be going somewhere. And Cambodia has had a reputation of being an easy country to launder money. Just look at that plethora of different banks — eight of them right in a row in Battambang. Where do you think all that money is coming from?
What does the economic future hold? I’d guess pretty much the same, as Chinese capital continues to flow into Cambodia, building new empty housing developments and businesses. So the GDP will continue to rise.
One thing that could change is the Cambodians’ optimistic attitude that you can just borrow money and not worry about the consequences. Too many Cambodians are losing their shirts in risky ventures. Maybe they will begin to learn that you can’t just borrow money that you probably can’t pay back.
Or maybe there’s something else at play here. All those 3-6 month restaurants on my street might be planned failure, for some reason that I can’t fathom. Surely those investors have a pretty good idea that their restaurants will fail. Any developer can see all those literally thousands of empty houses, yet still they invest in more of the same. I don’t get it, but I suspect that money laundering has something to do with it. But still, why would a money launderer intentionally lose money?
The Cambodian economy is an enigma.