Basil explains fee, interest rise

AN increase in interest payments and fees totalling K973.9 million, up by K142.7 million, is due to the last interest payment to the domestic Treasury bond and on-call guarantees early this year, Treasurer Sam Basil, pictured, says.
In response to a series of questions by Shadow Treasurer Ian Ling-Stuckey, Basil said the 2019 budget appropriation had allocated K1,950.1million.
“That is the limit Treasury will aim at and we have another six months and I ask that you give us the liberty to perform as we are in July now,” Basil said.
In response to questions on increased debt interest costs from K400.4 million in 2012 to a likely outcome of K2.3 billion in 2019, Basil said the total debt was K8.478 billion with interest cost of K433 mil since successive governments had been running larger budget deficits.

He said as a result, they had been building up debt over the years and there was an interest increase in line with the volume of debt.
“But we need to borrow money in order to build our country. Developed countries that have invested in human capital and built their key infrastructure, all have high debt levels and high interest costs,” he said.
“We need to make sure we are using the proceeds of these borrowings to inset in the productive areas.
“Prime Minister James Marape has mentioned that we will change things in the way we do things in terms of borrowed money.
“He made it clear that we want to make sure that whatever money we borrow will produce results and I’ve taken stock of that.”
Basil said another factor that contributed to increasing interest is the deterioration in the exchange rate that affected foreign dollars as well as rebounding of the US dollar which in recent years resulted in the slight increase in global interest rates.
“The third question on why we consider foreign debt commercial loans 8.357 per cent with a foreign exchange risk, it is incorrect to compare an international bond for US$500m (K1,667mil) subscribed by the world’s premier investors to be repaid in 10 years’ time at a cost of 8.357 per cent to the weekly auction where we seek a K125 million from the four banks and the handful of superfunds in the country to be repaid in three months, six months and eight months at the cost of 6.87 per cent.
“We borrowed so heavily from the short term domestic market when times were tough and we didn’t have as many options as we do now that it increased the price of our borrowings and because we have to repay in short amount of time that we fell into the trap where these weekly fortnight pay goes towards paying last week’s dinau (debt),” he said.
“That is a trap that is very hard to break away from and we must at all costs try to avoid this. The shadow treasurer is better off comparing the price of government trying to borrow the equivalent K1.6 billion or US$500 million domestically over the 10-year loan product.
“The price would be above 12 per cent this week and because it is such a large amount, it will drive the closer to 15 per cent.
“By borrowing domestically we also forego the foreign exchange that our private sectors desperately need at this time.
“We intend to pursue on how we are targeting several birds with one stone rather than addressing one issue but causing severe adverse with the others.
“But the Kavieng MP is right in pointing out the issue of exchange rate risks and I appreciate him for pointing that out.
“When you borrow dollars, you have to be mindful of the exchange rate but in my view since we will be pushing ahead with petroleum and mineral projects later this year, the kina will be strong in the medium term as forecast by many.
“If you look back to former treasurer Patrick Pruaitch’s many statements when he talked about the economy, he talked about the future projects including Wafi-Golpu, Papua LNG and the Frieda Mines and we fall back on our hopes on that and we will deliver on those,” Basil said.