“Treasurer Basil’s recent partial debt and financing update is pushing PNG down a very risky path to the highest levels of foreign commercial debt in our history. How high and risky? During the economic crises of the 1990s, the foreign commercial debt reached a peak of K232m in 1996. This had fallen to K133m by 2005 as part of the economic rescue package led initially by Sir Mekere Morauta, and to zero by 2015. The high risk and high cost of such commercial borrowings is why PNG moved away from this form of financing. However, there has been an extraordinary move back to this dangerous form of financing. Treasurer Basil has endorsed former PNC Treasurer Abel’s Medium Term Debt Strategy to lift the level of commercial foreign financing in 2019 to K2,385.1m. This is over 1,000 per cent higher than any level in the last 25 years. From K0 foreign commercial bank in 2015 to K2,385.1m by 2019. What an unbelievable change! This is reckless and risky” stated the Shadow Treasurer, the Hon. Ian Ling-Stuckey, in his response to the 5 July Treasurer’s Financing and Debt Statement.
“Why has he done this? My only conclusion is that he is not acting to “Take back PNG”. Rather, Treasurer Basil has already been captured by PNC interests and their backers, including local and foreign banks and investors who do very well out of high interest charges and fees. There was a need for a fresh approach in managing the challenges of our economy, in escaping from PNG’s deep economic crisis with falling jobs and incomes. Instead, we are returning to the failing policies of the PNC with the support of appointments of key O’Neill men in key policy positions.
“There are alternatives. There is a need for some fresh thinking, but even more importantly, for a team that can implement the bigger picture in line with Prime Minister Marape’s economic vision.
“PNG is facing a budget cash flow crisis, made all the more urgent because of the collapse in revenues of over K2 billion in 2019. But while the public sector is being squeezed for cash, the banking sector has excess cash. Report after report by international experts refer to the excess liquidity in our banking system. More money is being deposited in banks by the people and businesses of PNG than good “bankable” loans being lent to businesses. This is an extraordinary opportunity, but it will require a team with the practical business experience to tap into this opportunity. BPNG has tried to make its domestic debt financing program more available to the PNG public but this has largely failed. Why? A lack of private sector insights into how to attract customers to this type of financing. Too many complex forms. Not enough advertising and promotion. Wouldn’t the people of PNG prefer to get 6 to 8% interest on their deposits, or even 12% for long-term deposits, rather than the 0 to2% obtained from the private banks? However, this is not in the interests of current banks which are happy with the existing system and its high profit levels. A new Treasurer should place his first budget financing priority on allowing the people of PNG to have more access to the much higher interest rates. There is more than enough cash available to meet fully our debt financing requirements. With more demand for Treasury Bills and Bonds, there is also the likelihood that public interest costs will be brought down much more effectively than the current risky swap out to foreign commercial loans. So why isn’t the new Treasurer really supporting better options such as these – better deposit rates for the people of PNG, less risky and costly funding for the budget?” asked the Shadow Treasurer.
“There are other good alternatives to meeting our financing requirements. The PNC dropped the ball in fully utilising the K7.7 billion in concessional financing loans which have already been approved. The PNC has dropped the ball in establishing the framework to open up financing options to international investors directly in Kina deposits, not risky US dollar deposits. The latter will require actually dealing with the underlying causes of our foreign exchange crisis and moving back to a fully convertible currency rather than the continuing band-aids of simply borrowing more and more foreign commercial loans. Through such loans, we are selling PNG to outside investors at interest rates that are too high and with foreign exchange risks that are too high. Treasurer Basil says this won’t be a problem because of major projects in the pipeline. However, he has not learnt from the experience of former Treasurer’s who have counted the chickens before the eggs have hatched. Treasurer Basil also does not understand how a major increase in foreign debt, especially commercial debt, limits flexibility around PNG’s exchange rate. And locking in a high real effective exchange rate damages the competitiveness of all our rural farmers hoping to sell to the markets of Asia.
“Treasurer Basil has sold out to the influence of PNG’s big banks that don’t want the system changed and to foreign bankers who want the fees and high interest returns from commercial lending. Rich people in bank boardrooms will be toasting with delight Treasurer Basil’s failed debt statement. Personally, I am weeping because of its likely long-term impacts on our children. More and more of our children will be left behind because of poor policies such as these. This is not my understanding of the vision of our new Prime Minister” stated Mr Ling-Stuckey.
Shadow Minister for Treasury & Finance
10 July 2019