“PNG is in a deep financial crisis. In such circumstances, it can be difficult to find a way out. Sometimes, going back to basics is the key – back to the fundamentals of good economic management leading to improvements in confidence. Better confidence can stimulate more investment and then higher growth and then more revenue which can help the budget. Improved confidence can also have other positive impacts on the budget. This government has lost the confidence of markets, and it is being penalised with interest costs having increased by around 5%. Getting debt interest rates back to 2012 levels with better economic management would save the budget K870 million” said the Shadow Minister for Treasury & Finance Ian Ling-Stuckey.

“The government’s debt interest costs have exploded by over K1.2 billion between 2011 and 2017. Behind public service costs, this is the largest area of increase in government spending – double the size of the K600 million in so-called tuition-fee free education policy. Some of this massive increase represents the trebling in the size of known public debt from K8 billion to over K24 billion. However, there are other sources of increase.

“There has also been a major increase in the level of interest rates charged to government over the last five years. For example, 1 year Treasury Bills interest rates have increased from 2.55% in 2012 to 8.04% currently – an increase of 5.5%. 3 year Inscribed Stock fees have increased from 5% in 2012 to 9.5% currently – a 4.5% increase. Overall, interest rates have increased dramatically under this government – reflecting both higher levels of demand but also greater uncertainty and declining confidence in this government’s economic management.

“If the government had the economic management skills to have kept interest rates back at their levels when they formed government in 2012, even with the same level of debt of K24 billion, there could been annual budget interest savings of K870 million. This figure is based on 5.5% saving on K9.4 billion of short-term Treasury Bills and 4.5% saving on K8 billion of Inscribed Stock” said the Shadow Treasurer.

“This K870 million in extra interest costs every year, even with the same explosion in public debt, is just another reflection of the economic mismanagement of this government. An improvement in confidence could help reduce these interest costs once again, providing savings of hundreds of millions of Kina every year. These savings could be split between reducing the size of the deficit and improving support for vital health, education and infrastructure services. It is time for a bipartisan approach or an Alternative Government to step in” said Mr Ling-Stuckey.

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

  14 March 2018

 

Source: PNG Treasury Budget documents including 2017 FBO interest.

 

Source: PNG 2018 Budget Volume 1 Appendix 3 Table 15 p144.