“PNG must learn to live within its means. PNG is seriously mishandling the explosion in its debt levels, the growth of interest payments as a share of its revenues, an annual debt rollover nearly equivalent to the entire national budget, and its lack of transparency about off-the-books debt. Debt is not bad if it is well used and produces more future income than repayments. However, this government has demonstrated that it is spending too much by fancy “big man” projects concentrated in the big cities, and not enough on really building the country and improving growth” said the Shadow Minister for Treasury & Finance Ian Ling-Stuckey.

“When we examine the details of PNG’s massive known public debt, which has trebled from K8billion in 2012 to at least K24 billion in 2017, there are some very disturbing parts of PNG’s sad debt story. In addition to the shame of the explosion in debt, PNG has been borrowing in ways which increase the chance of debt default due to greater rollover risk. It has also moved away from cheap long-term financing and substituted more expensive short-term financing.

“PNG’s short-term debt financing has exploded from K1.4 billion in 2011 to K9.4 billion by 2017 – an increase of nearly 600%. This is an extra K8 billion in Treasury Bills debt. All Treasury Bills are for borrowings of 12 months or less – some as short as 91 days. You can imagine the challenges of a PNG family if it had loans of say K14,000 Kina in 2011 all of which had to be repaid or refinanced each year. Now if this same family did the same thing as the government and increased this short-term debt by 600% then it would be struggling every year to refinance K94,000 in debt – and some of this up to four times a year. So much short-term debt means that there is a real risk that some of your lenders will say no – possibly not through your fault but just because of something happening on their side. This would be an unacceptable loan rollover risk for any family, and it certainly is for this country. The entire rollover requirement for domestic debt in 2016 was K11.6 billion – almost as much as the entire budget. This is the massive increase in rollover risk of short-term debt now facing this country” said the Shadow Treasurer.

“A notable failing of the government is that it has not been drawing enough on very cheap long-term debt from the Asian Development Bank and the World Bank. This type of concessional financing is at cheap interest rates (less than 2.5 per cent) and over a long time period of up to 30 years. Most Chinese loans are not on as concessional terms. Concessional financing used to be 45% of PNG’s public debt in 2011. This has now more than halved to 21% in 2017. Essentially, the government’s mismanagement means that this valuable concessional financing has been replaced by short-term Treasury Bills. The 24% reduction in the share of cheap concessional financing has been replaced by a 20% increase in the share of short-term Treasury Bills (up from 20% to 40%) and expensive external commercial borrowings (up from 1% to 6%). This reduction in the share of concessional financing is a shameful waste of the opportunities of constructive partnerships with our international partners. PNG is not even drawing down fully on the cheap loans that have bene approved – and then having to pay fees for not doing so.

“If we’d kept the 45% share of cheap, concessional financing, there could have been K6 billion more of this better type of debt meaning much lower interest costs. More importantly, it is likely that such extra debt would have been better supervised to really go into important new infrastructure such as the highlands highway or supporting agriculture and tourism than the proliferation of wasteful spending by this government” said Mr Ling-Stuckey.

“The government has also started to increase expensive forms of financing which have increased from 1 to 6% of debt. This includes the Credit Suisse Loan. This loan appears to be only a five year loan and although the loan costs have not been revealed, they are likely to be at least some 8 to 10 percent per annum. On top of this is the foreign exchange risk – the danger of borrowing in US dollars if the Kina was to rapidly depreciate. The Government is also hoping for a Sovereign Bond – but this is unlikely given the lack of credibility from the government.

“This fundamental shift from cheap long-term concessional financing to short-term and generally more expensive financing is adding to PNG’s problems. The new five year debt management strategy has some good elements, but it is too little too late. As I outlined in my 2018 Budget response in parliament and reiterated time an d time again-the Alternative Governments motto is not to only expose and oppose but to propose! Our policy position is that PNG seriously needs to consider going to the big international financial institutions and ask for a major concessional loan – possibly up to K6 billion using Mongolia as an example. This could help dramatically lower PNG’s debt interest costs by improving confidence, help with a restructuring of debt, deal with the foreign exchange shortage, help to get growth going again including through earthquake rehabilitation, and improving services to our people. It is time for a bipartisan approach and for the Alternative Government to step in ” said Mr Ling-Stuckey.

Hon.Ian Ling-Stuckey,CMG.MP
Shadow Minister for Treasury & Finance

  15 March 2018

 

PNG’s known public debt structure – massive expansion in short-term Treasury Bill debt of less than 12 months of K8 billion

Source: Figures from PNG Treasury Budgets 2013 to 2018 Appendix 3: Table 12 in early years and now Table 15 converted to a column graph

 

PNG’s public debt structure has seen short-term debt increase from 20% to 40% of the portfolio while concessional financing falls from 45% to 21%.

Source: Figures from PNG Treasury Budgets 2013 Volume 1 Appendix 2 Table 12 and 2018 Budget Appendix 3 Table 15