Debt-to-GDP ratio at risk of rising over 40%, says report

DEBT-to-GDP (Gross Domestic Product) ratio is at risk of rising over 40 per cent in the next several years if certain measures are not undertaken by the government according to International Monetary Fund staff report.
The current Debt-to-GDP ratio is already in excess of the legal maximum of 30 per cent due to fiscal deficits coupled with slow economic growth.
“Fiscal deficits together with slow growth have pushed the government debt-to-GDP ratio over the statutory ceiling of 30 per cent,” the staff report said.
“The capacity of the domestic financial sector to finance the deficit is over-stretched, and external financing options are limited, so an important part of the budget deficit has been financed through central bank purchases of government securities and, to some extent, payments arrears.
“Without corrective measures, the fiscal deficit is likely to narrow slowly, pushing the debt-to-GDP ratio above 40 per cent and severely straining the capacity of the financial system to absorb government debt.
“The debt sustainability analysis indicates a moderate risk of external debt distress and the overall risk of public debt distress is heightened.”
Debt repayments has also been linked to foreign exchange shortage, said a statement from IMF executive directors.
“Large financial account outflows related to project debt repayments have contributed to a shortage of foreign exchange. In these circumstances, Directors recommended that decisive steps be taken to strengthen Papua New Guinea’s fiscal and balance of payments positions.
“Directors underlined that a strong commitment to fiscal consolidation over the medium term is essential to reduce the debt-to-GDP ratio and lower the risk of debt distress.
“They welcomed steps taken by the authorities in 2017 to reduce the deficit.”