By FRANK ASAELI
PAPUA New Guinea’s public debt plunged impressively from 72% of the gross domestic product (GDP) in 2002 to only 39% the end of 2006.
It was expected to drop further to 34.5% by the end of this year.
This was disclosed last Friday by Finance and Treasury Minister Patrick Pruaitch when he released this year’s supplementary budget in which debt repayments are gearing towards a more sustainable level.
“It (public debt) is moving to around 34.5% by end of 2007,” Mr Pruaitch noted.
When allocating the additional revenue of K1.637 billion, the Government decided to appropriate K297 million to retire public debt, he said.
He said that more debt repayments would further strengthen the Government’s financial position as it reduces weakness in the event of any downturn or any shock to the economy.
The minister also stressed that the appropriation of the K297 million to retire public debt will benefit the country by immediately strengthening the Government’s financial and fiscal position, particularly on the spending side of the budget.
Every year, resources would be freed from debt servicing and redirected to fund priority expenditures.
“For example, repaying K297 million of debt will free up about K15 million of interest savings in a full year.
“These funds could be used for service delivery, new investments, or maintenance of public infrastructure on an on-going basis,” Mr Pruaitch said.
He said debt repayment reduced risk, if interest rates rise, or the currency depreciates, the impact on interest expenses would be smaller.
“This provides the greatest flexibility for future budgets.”
Debt repayment had a positive effect on the economy as it assists to lower interest rates, helping to reduce borrowing costs for all businesses and individuals within the country and creates an environment conducive for private sector led economic growth.
Mr Pruaitch said debt repayment reduced the country’s stock of debt and improved the Government’s balance sheet.