SHADOW MINISTER FOR TREASURY & FINANCE
8 July 2019
“The 5 July Statement on debt by Treasurer Basil is filled with errors, false claims and mis-representation. However, giving Treasurer Basil some credit, the statement does reveal some new facts. The bottom line is that PNG’s debt to GDP ratio was at least 50% at the end of 2018. This is illegal as it breaches the 35% debt to GDP ratio set in the Fiscal Responsibility Act. It is also fiscally irresponsible and harms PNG’s future” stated the Shadow Treasurer, Ian Ling-Stuckey.
“From pages 9 to 17 of the Treasurer’s recent speech, he provides three updates to previously released debt information. The first covers “valuation” effects which means the market value of PNG’s debt is K1.48 billion greater than officially stated. Second, he covers “contingent liabilities” totalling K1.929 billion (he adds up the figures incorrectly) which are state guarantees for various loans (K600m for the Motukea Port Relocation, K375 million for the Solwara 1/Nautilus loan, K560 million for NCD roads , and K394 million in other guarantees such as to the Central Dairy Farm).
Most of these will clearly move to debts by 2020. And why is all of PNG having to pay an extra K560 million for NCD roads! This is more than half the major new announcement for the entire Highlands Highway! Third, he argues that there are issues with GDP updates produced by the PNG National Statistical Office (NSO) and that “Treasury will continue to use the existing methodology and projection framework”.
On the latter, to be consistent, this would mean excluding the GDP updates done by NSO in 2017 which lifted GDP figures by up to an extra half from 2006 to 2014 as the base. Returning to the PNG Treasury methodology would mean using the original 2018 GDP Treasury estimate of K62.3bn (using the figures from 2017 Budget Table 1 – prepared prior to the NSO updates) and then adjust for the fact that economic growth in 2018 was not the 2.7% forecast but rather minus 0.7% – so K60.2bn (3.4% less which is the growth forecast gap).
“From these updated figures kindly provided by new Treasurer Basil, and adding them to the official level of debt of K26.981 bn at the end of 2018 as stated in the recent 2018 Final Budget Outcome (FBO), we have actual debt at the end of 2018 of K30.39 billion. Dividing this by the Treasury methodology for GDP of K60.2 billion, we have an official debt to GDP ratio of 50.5%” stated the Shadow Treasurer.
“Of course, the situation is even worse. Just as a private business is required, Treasurer Basil should also have provided figures on other known contingent liabilities. This includes the unfunded liabilities on superannuation. It should also include the full level of government payment arrears and unpaid GST refunds. This would add several billion to the official debt figures.
“The greatest unknown hanging over our children’s future is the hidden level of non-guaranteed debt owned by our SOEs. While Treasurer Basil is correct that these are not official government debts, the practical reality is that if an SOE becomes bankrupt, the government is very likely to step in and fund most of those debts. For example, if Water PNG was about to go bankrupt due to bad loans, then a very likely scenario is that the PNG government would step in to help ensure clean water services were provided. Treasurer Abel failed to provide these debt figures, even though he promised to do so in 2018 as part of his 100 day plan. Treasurer Basil failed to provide these SOE debt figures in his debt statement, saying Treasury will provide them sometime later. The people of PNG deserved better, the new Prime Minister deserved better.
“This was a poor debt statement. I will analyse the misleading debt financing strategy in another media release. In terms of official debt, the main omission is that the people of PNG still have not been told about the true state of debt facing this country – especially in regard to SOEs.
However, at least some additional information is revealed. Using Treasury’s preferred GDP methodology and the new numbers on increased debt, PNG’s debt to GDP ratio exceeded 50% by the end of 2018. This is illegal and irresponsible. With all indications that the 2019 budget is out of control, especially with a drop in revenues of at least K2 billion, the only certainty facing PNG with the current economic management team is that our debt to GDP ratio will continue to climb” stated Mr Ling-Stuckey.
Hon.Ian Ling-Stuckey, CMG.MP
Shadow Minister for Treasury & Finance
PO Parliament House
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