Concern over growing debt level

By CLARISSA MOI
GROWING debt levels and associated debt servicing costs over the past decade has been a concern, exacerbated further during the Covid-19-induced recession over the past year, an economist says.
Institute of National Affairs executive director Paul Barker said the level of debt had to be restrained through a prudent fiscal and debt management regime, as well as through transparency and prudent expenditure for priorities.
But particularly by growing the economy and in turn boosting tax and other revenue and the tax base.
Barker said this when The National asked about the Government’s aim to raise K1 billion through Government-inscribed stocks.
He explained that the Government had been using inscribed stock as a means for budget funding since about 2004.
Prior to that, Treasury Bills which are relatively short-term loans from the market, were the only domestic financing method to make up the interim shortfall of revenue from taxation, dividends, rental, licence fees and other such sources.
“These loans by the State are constantly concluding, repaid to the lenders and released again by the Government in amounts depending on the Government’s prevailing financing need,” Barker said.
“And at prevailing rates largely determined by the market’s readiness to release funds to the Government, based upon returns from alternative investments and levels of risk and exposure.
“Revenue has been very tight over the past year, particularly, and the pressure on Government to honour its various financial obligations is immediate, from paying salaries, debts and releasing school subsidies and managing health services and the pandemic control measures.
“Government has secured substantial international loans over the past year on very concessional terms, although repayment will cost more as the Kina weakens.
“The domestic market remains the most readily available funding source, and it avoids foreign exchange risk, although interest rates have risen over the past two years.”
Meanwhile, when asked whether Bank South Pacific Financial Group Ltd had taken part in the auction, group chief executive officer Robin Fleming said BSP was a successful bidder in last week’s auction for a large component of the tender.
He said BSP was an active and significant participant in the auction together with the super funds and other investors.
Fleming said BSP was successful with the majority of its bids across the various tenors but as Treasury were looking to avoid having all new debt in the longer dated tenors, some bids were not successful.
“The inscribed stock auction and process is part of the Government’s debt strategy to support its 2021 Budget for recurrent expenditure and development projects,” he said.
“During a period of lower economic activity due to the Covid-19, Government would take on more debt.
“But is important that projects such as Papua LNG, Porgera, Wafi Golpu and P’nyang progressed to introduce foreign capital and investment, and reduce the need for economic stimulus to overly reliant on government borrowings.”