While Cambodian households saw their debt increase just 2 per cent last year, rural household borrowings to service existing loans nearly doubled, new government research shows.

Both total and disposable incomes across the 3.3 million Cambodian households rose 16 per cent year-on-year in 2014, with total monthly income reaching an average of $352 per household.

On the flip side, outstanding loans reached $993 per household, with Phnom Penh showing the highest increase from $1,324 in 2013 to $1,616 in 2014, according to the Cambodia Socio-Economic Survey 2014 (CSES).

The annual survey was conducted by the Ministry of Planning’s National Institute of Statistics in collaboration with the Swedish International Development Cooperation Agency, spanning 12,000 households and used a combination of recall and diary methodology to collect the data.

Grant Knuckey, CEO of ANZ Royal Bank, said it was encouraging that while household indebtedness was rising, incomes have kept pace with these increases.

Given that the CSES shows that the average time to pay off a loan averages just under 12 months, Knuckey said there still was not a “huge over-indebtedness on the surface”.

“However, the data also implies that Cambodian households are on average spending about 45 per cent of their disposable income on debt servicing – [and] you would not want to see this ratio rise any higher than that,” Knuckey said. “That debt-servicing ratio will be one to watch.”

Of this outstanding debt taken on by households, the survey shows that the amount borrowed to service existing debt has increased significantly in both the capital and rural areas. Rural households on average borrowed $1,482 to service this existing loans, up from the $896 borrowed in 2013.

Economist Srey Chanthy said that this cycle of borrowing to pay off existing loans could be troublesome, especially among farmers.

“If this trend continues, farmers could be in serious trouble, and it can affect the microfinance and rural financial sector,” he said. “It can also setback poverty-reduction momentum.”

But, one encouraging sign, Chanthy said, was the increase in the contribution of salary and wages to the incomes of Cambodians, with self-employment still making up the biggest contribution to incomes.

According to the CSES 2014, wages and salaries accounted for around 46 per cent of primary monthly income in 2014, compared to 52 per cent contribution from self employment, which includes both agriculture and non-agriculture incomes.

“I think this started perhaps four to five years ago as evidenced by the increase in agricultural and farm wages, increasing use of agricultural machinery, et cetera,” Chanthy said.

“A good agricultural and economic strategy must be in place to make the transition [from self-employment income to wage income] smooth and successful.”

While debt has increased across most segments, there has also been a substantial increase in disposable income among Cambodians, which signals the growth in the country’s middle class, according to Hiroshi Suzuki, senior economist at the Business Research Institute of Cambodia.

“Based on the growth of disposable income, it seems that the middle class is growing in Cambodia,” he said. “Also, the middle class seems to now be enjoying their life.”

This rising income is illustrated in the survey’s estimation that Cambodia’s GDP per capita increased to $1,123 in 2014 from the $1,042 in 2013, not adjusted for inflation.

As Cambodia nears the low-middle income bracket, Suzuki said it will not have to worry about falling prey to the middle-income trap any time soon.

“Cambodia has some time to prepare for this issue,” he said. “The most important measure is to make good investment in human development.”