Barker warns of borrowing

ECONOMIST Paul Barker has warned that international borrowing at a time when there is a continued decline in the value of the kina will further raise the debt servicing cost.
He was commenting yesterday on Treasurer Patrick Pruaitch’s announcement of a Government loan deal with the Asian Development Bank for US$120 million (K368.58 million).
It is to be used on the rehabilitation of the Highlands Highway.
“Clearly, international borrowing at a time of continued declining kina value to international currencies, will further raise debt-servicing costs,” Barker said.
He however said loans from the international financial institutions such as the World Bank and ADB  (Asian Development Bank) were largely of a long-term nature and at a very low interest rates.
He noted that Papua New Guinea had slipped back from lower-middle income into the lower income and fragile-state category again.
“But the time this loan has to be repaid, or substantially serviced, there’s a fair chance that the kina might be stronger again if the economy is managed competently, unlike with the shorter-term overseas commercial borrowing PNG’s been doing of late, which clearly have high interest rates and short term duration,” he said.
“But once more, it goes back to management and maintenance. Invest in infrastructure is critical for the nation’s future, along with investment in human capital (quality health and education).
“But if the infrastructure is poorly built and maintained, the country has to go around just a few years later and undertake the task again, even while it’s paying back the cost of the last loan.
“Construction work funded and supported, and overseen, by the development partners is generally considered to have been of a higher standard and within budget, than locally-funded infrastructure (although perhaps not always).
“However, even if the contract includes clauses over ongoing obligations of the contractor, in the end the State of Papua New Guinea must once again provide the ongoing maintenance, which requires adequate funding, whatever the institution that performs the function.”