Economist: Align debt with growth

Business, Normal

The National, Wednesday December 9th, 2015

 HIGHER levels of Government debt are acceptable as long as the debt is managed and controlled and does not have a self-stimulating trigger which causes it to go on rising, an economist says.

Executive director of the Institute of National Affairs Paul Barker was asked by The National to comment on the Government debt which now stands at K17 billion. 

This was announced by the Bank of Papua New Guinea in its June Quarterly Economic Bulletin.

“There’s a legal limit for debt under the Fiscal Responsibility Act (35 percent of GDP),” Barker said.

“But there’s no sacred, or right limit, as that depends more upon the sustainability of that debt.” 

He said if the economy was growing steadily, then higher levels could be acceptable, “so long as the debt is managed and controllable and doesn’t have a self-stimulating trigger, which causes it to just go on rising”.

He warned that the debt levels had been pushing above the legal limits in the official figures, but in reality the debt levels were higher than that.

He said “there are other liabilities not recorded within the official debt levels, such as resource financing debts which have been conveniently placed under the SOEs (notably the IPBC/Kumul Holdings family), and major growing debts to the superannuation funds (notably Nambawan Super)”.

“Because the GDP figures for PNG have been imputed rather than calculated for several years, we don’t really know what they are,” he said.

“But they do not seem to have taken into account the fall in resource prices, including petroleum/LNG, in their calculation.”


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