External Drivers of Credit Cycles in Cambodia

This paper investigates the external drivers of Cambodia’s credit cycles using a dynamic factor model. Results indicate that common global and regional factors explain over 60 percent of credit growth variance, reflecting one of Asia’s highest sensitivities to external conditions. The analysis reveals that external shocks, including US monetary policy, global risk sentiment and China’s growth, transmit primarily through a common global credit channel rather than direct bilateral linkages. This high exposure to the global financial cycle highlights the necessity of macroprudential policies to manage domestic volatility in Cambodia’s highly dollarized economy.