“A respected business friend of mine was excellent at keeping people’s feet on the ground. If businesses started becoming wildly optimistic about increased sales or lower costs, he’d look at them and say “Mate, you’re hallucinating”. Tough advice, but good advice from a real friend. Unfortunately, in reviewing recent statements from the Treasurer, I am compelled to provide the same caution to Minister Abel. PNG’s economy has not been doing well for many years now. Our friends from the outside are telling us that there are serious problems – Standard & Poor (S&P)-a well respected international credit ratings agency downgraded our credit rating on 16 April 2018, the Asian Development Bank downgraded our 2018 growth forecast to a faltering1.8% the same day and Moody’s credit rating service put our rating on ‘negative watch’ on 23 March 2018. PNG has never faced such downgrades in such a short period of time. As I indicated in the response to the 2018 budget, the first step in fixing a problem is to acknowledge that there is a problem! The O’Neill/Abel government needs to be more honest with the people of Papua New Guinea about our economic crises” said the Shadow Minister for Treasury & Finance Ian Ling-Stuckey.
“In an extraordinary presentation to parliament on 5 April 2018, Treasurer Abel refused to acknowledge the concerns being raised by Moody’s when it moved PNG onto a negative watch, only the fourth time this has happened since 1999. Instead, he just talked about how the outlook for PNG is very positive. The outlook is positive, but only if the right economic policies are put in place in an environment of increased honesty. Possibly because he failed to even acknowledge the problems, another major credit ratings agency called S&P actually downgraded our credit rating on 16 April 2018. Let me be more specific of examples of developments over the last month that means PNG’s economic leaders must stop hallucinating:
- PNG’s National Statistics Office took nearly 10% off the estimated size of the PNG economy for 2015, reducing it from K62.3 billion (PNG 2018 Budget figure) down to K57.1 billion.
- Nominal GDP growth was slashed from 9.8% to only 0.7%, and after allowing for PNG LNG exports increasing by K4.2 billion, this means the non-resource sector must be in a severe recession – probably going backwards by well over 5% after allowing for inflation. But the government is hiding these figures and refusing to release the full set of tables.
- For 2018, the central bank governor in his Monetary Policy Statement said GDP growth should be higher than the PNG Treasury estimate at 3%, but Moody’s international rating agency expected the figure would be only 0.5% in 2018, and the Asian Development Bank released a growth estimate of only 1.8% in the latest Asian Development Outlook publication.
- The S&P credit rating agency downgrade is a real knock to the PNG economy. It is only the second time that PNG’s credit rating has been downgraded by S&P – the first time was in August 2001 as the PNG economy struggled in dealing with the late 1990s economic crisis.
- The government is ignoring the foreign exchange crisis. Once again, there is smooth talk from the BPNG Governor claiming their will be a balance of payments surplus of K1.5 billion in 2018. But this was before the earthquake, and after allowing for the loss of 2 months of PNG LNG exports of K2 billion, the most likely outcome is now a loss of K500 million in foreign exchange reserves.
- Treasurer Abel is claiming the IMF has endorsed its medium-term fiscal strategies, but the 2018 budget over-spent the IMF’s understandings by K2 billion, and then invented fake revenue of at least K1.5 billion above its optimistic scenario.
- Then the Treasurer says they kept to the 2.5% deficit figure in 2017, but this is a total fiction and reflects an increasing tendency to fiddle the books. For example, over the last week of Parliament, we have had two government ministers admit that there are massive unpaid bills – over K700 million in public works alone – and this leads to mis-representing the true state of PNG’s public finances.
- And as a true sign of how the private sector is still struggling and has lost confidence in the word games of this government, private sector credit-loans for business investment and housing, decreased by 3.4% in 2017 even before allowing for inflation. Indeed, the entire monetary base shrank in 2017 by 0.7%.
“Now I want to be careful in commenting directly on statements by our generally professional public servants. However, Secretary for Treasury’s response to the S&P credit downgrade was frankly, poor. As explained by S&P, there were three major reasons for the credit downgrade. First was the unmistakable increases in government debt and debt interest costs – who could disagree with that fact? In March, even the Treasurer admitted that even in 2017, debt interest costs has soared to over K1.6 billion. Second was the drop in revenues – how could anyone dispute this – even the 2018 Budget acknowledged revenues had dropped dramatically as a share of the economy. Third was PNG’s poor economic growth rate relative to peers – PNG is sitting at the bottom of the growth rate pile in all years from 2017 to 2019,including projections, according to the World Bank. The 2018 budget tried to present a rosier picture, but as I said at the time, these international agencies such as S&P and Moodys are smart enough to look through fake budget figures with excessively optimistic forecasts. The downgrade, despite the government’s actions in the 100 Day Plan and the 2018 Budget, indicates that the international community just does not trust the government’s figures” said the Shadow Treasurer.
“There were some positive starts in the 2017 Supplementary Budget and some elements of the 100-Day Plan, but things have gone seriously off-course over recent months. The Treasurer talks in very condescending terms to these agencies – saying that they are ignoring all the good things being done. These agencies, with their armies of highly skilled and experienced personnel actually know really well, the things that are being done, and they have the skills to look through many of the delusional stories that have been included in recent government documents including the 2018 Budget and the 2017 Final Budget Outcome (FBO). This poor economic performance is now clearly affecting even our banks, with BSP’s credit rating also having just been down-graded on 30 April 2018 from B+ down to B” said Mr Ling-Stuckey.
“The government simply didn’t want to tell the people in the lead-up to the election that apart from turning on the PNG LNG gas taps, the rest of the economy was in a severe recession. And now it is trying to hide the true state of the economy in the lead-up to APEC! Indeed, it seems too much effort is going into planning for this big international meeting rather than in fixing PNG’s true economic problems hurting its people.
“We need to be balanced when we talk about the economy. It is important that we do not talk it down, but we also just can’t hallucinate with good stories. PNG has a bright future, but it needs an Alternative Government to help acknowledge our problems, to reach out for friendly foreign support, to genuinely start living within our means, to urgently review our foreign exchange policy and release more foreign exchange reserves, to take some tough medicine but then to rebuild our growth rate back above 5 per cent again, the minimum we should be aiming at to start improving the jobs and income opportunities of our people” said the Shadow Treasurer.
Shadow Minister for Treasury & Finance
18 May 2018
Following is the 9 March 2018 preliminary release of the 2015 GDP figures from the PNG National Statistical Office – the full details to know how bad the recession have been have not been released over two months later:
Contrast the K57.1 billion figure with a 0.7% nominal growth rate to the figures in the 2018 budget document showing 2015 GDP was estimated at K62.157 bn with a 9.8% growth rate:
Source: 2018 Budget Volume 1 Appendix 3 Table 1 p129 – report available at http://www.treasury.gov.pg/html/national_budget/files/2018/Volume%201.pdf
Latest Credit Rating Changes – https://tradingeconomics.com/papua-new-guinea/rating
The S&P downgrade flowed into a downgrade for BSP – report available at http://www.bsp.com.pg/Investor-Relations/Investor-Resources–Stock-Information/Credit-Rating-Documents/BSP_PUBLISHED_RU_2018APR30_.pdf
Latest Asian Development Bank Growth Forecasts for PNG: 2018 Asian Development Bank Outlook released April 2018. PNG’s growth should be above population growth of 3.1% and preferably above 5% – the growth rates in 2017 and 2018 are too low:
Moody Assessment was even lower:
Bank of PNG – private sector credit growth of minus 3.4% – the private sector is struggling under poor government policies and too much lending being diverted to the government