“There are rumours that the NEC is to meet as soon as this Thursday and consider accepting a $US500 million Sovereign Bond at an 8 per cent interest rate for 10 years. If this is true, then the cost of the bond would be too high for the people of PNG. This decision does not need to be rushed and there should be discussions with the Alternative Government to help ensure that PNG gets a good deal” said Ian Ling-Stuckey, PNG’s Shadow Minister for Treasury and Finance.
”Why do I say that an interest rate of 8 per cent would be too expensive? There are three reasons. First, the Treasurer has stated that “$US300 million will convert short term (less than 12 months) domestic debt into long term debt”. Current short-term domestic interest costs are only 4.73 per cent for 182 day Treasury Bills. So $US300 million of PNG’s public debt will now be paying 8% instead of 4.73%. Over ten years, this additional interest cost of 3.27% per year will amount to an extra $US98.1 million (so 3.27% times 10 years times $US300m) or K327 million. What a foolish way to throw away over K300 million!” somebody talk to me! said Mr Ling-Stuckey.
“Second, if the proposal is indeed for an 8 per cent interest rate, then this does not include the costs of extra fees or the foreign exchange risks. These costs are likely to be very high. For example, one Kina moved from US dollar 0.48 in 2012 down to 0.30 currently – so a move of 37 per cent over 6 years or just over 6 per cent per year. Fees are likely to be at least 1 per cent. So realistically, the full cost of the sovereign bond is much more like 15 per cent per annum – 8 per cent interest, 6 per cent foreign exchange rate losses and fees of 1 per cent. This is just too expensive and risky.”
“Third, there are better options available. Even the Treasurer and the Secretary for the Treasury have talked about Mongolia’s experience. The biggest lesson which PNG can learn from Mongolia is that there are better and cheaper sources of finance available. After facing a crisis in repaying its own sovereign bond taken out only a year earlier, Mongolia approached the IMF and agreed on a program that totalled $US5,500 million in cheap, concessional financing. Mongolia has less than half the population of PNG, so a similar sized package of concessional loans, at interest rates of below 4 per cent, should be available. This would require PNG to gets its economic house back in order, but we should be doing this anyway.
“Treasurer, if you are indeed considering a 10 year sovereign bond at 8 per cent interest cost, talk to the Alternative Government first-Lets not just talk about restructuring our national debt, perhaps we should be talking about restructuring the entire government as well! Any such deal would be equivalent to immediately throwing away over K300 million in extra costs, would more likely have a total cost of 15 per cent per annum once fees and exchange rate risks are considered, and ignores concessional loan options available from traditional sources. Let’s not burden our budget for the next decade with such a bad deal.” said Mr Ling-Stuckey.
Shadow Minister for Treasury & Finance
26 September 2018
Debt-saddled Mongolia agrees $5.5 bn IMF bailout
AFPFebruary 20, 2017
Heavily dependent on copper exports, Mongolia’s economy grew by 1.0 percent in 2016 (AFP Photo/MARK RALSTON)
Mongolia has reached an agreement with the International Monetary Fund on a $5.5 billion bailout package, officials announced, as the debt-wracked country tries to stabilise its economy.
The landlocked north Asian nation has been hit hard by a more than 50 percent fall over the past five years in the price of copper, its main export.
Billions of dollars’ worth of natural resources lie buried beneath Mongolia’s sprawling steppes, but development has been delayed for years and slowing growth in its biggest customer China has hobbled the economy.
Mongolia’s economy grew 1.0 percent in 2016, while its budget deficit exploded to 3.7 trillion tugrik ($1.5 billion) according to its national statistics office.
The rescue package will include a $440 million loan over the next three years, Koshy Mathai, the IMF’s Asia-Pacific deputy division chief, said in a statement issued Sunday.
The Asian Development Bank, World Bank, Japan and Korea are expected to provide another $3 billion in support, while the People’s Bank of China will extend its 15 billion yuan ($2.2 billion) swap line for another three years.
The bailout package is intended to “restore economic stability and debt sustainability as well as to create the conditions for strong, sustainable, and inclusive growth, while protecting the most vulnerable citizens”, Mathai said.
It will help the cash-strapped country make a $580 million bond payment due in March.
The loan is subject to approval by the IMF’s executive board, which is expected to consider it in March.
“Fiscal consolidation is a key priority, as loose fiscal policy in the past was a major driver of Mongolia’s current economic difficulties and high debt,” Mathai added.