By BIBIAN BARRENG
PAPUA New Guinea is likely to be upgraded to “BB” territory of credit rating within the next 12 to 24 months if it were to continue on its improved economic management through strong growth, fiscal discipline, and a stable Government.
ANZ Bank’s October Pacific Quarterly revealed this when focusing the quarterly report on the developments of the two largest economies in the region, Fiji and Papua New Guinea.
The credit rating was one of the principle criteria for judging the investment quality of the bond.
Bond ratings are expressed as letters ranging from ‘AAA’, which is the highest grade to ‘C’, the lowest grade.
An individual bond credit quality was determined by private independent rating agencies such as Standard & Poor (S&P), Moody and Fitch.
Through this rating system, investors interested in the safety of their bonds investments should stick to investments grade bonds (AAA, AA, A, and BBB), while other investors willing and able to accept a higher level of risk could consider lower credit quality bonds.
In the report, a graph by S&P through a history of long- term foreign currency, government bond ratings showed PNG sitting on the B grade from August 2001 until September 2007 where it went back up to a grade B+.
The report said that the success of the election, combined with continued macroeconomic stability and falling debt levels prompted S& P to upgrade its rating for PNG last September.
“S&P raised the long-term foreign currency rating from ‘B’ to ‘B+’ bringing its rating on par with that of Moody’s and to the same level at which PNG rates along with Cambodia, Argentina and Pakistan,” the report stated.
It was also noted in the report that if the political situation remains stable over the next few years and economic performance continues at its current level, there would be a strong argument for another upgrade to within the next one to two years.
While Fiji’s creditworthiness had deteriorated as a result of economic stagnation and political uncertainty, the credit rating by S&P was downgraded this year by one notch to B.
The report detailed expectations for the economies of PNG and Fiji for next year.
In PNG, a continued inflow of investment into the mining sector should see growth accelerate to more than 4% this year amidst improving infrastructure and rising wealth.