Fiscal consolidation efforts stabilises public debt level

PAPUA New Guinea’s fiscal consolidation efforts have stabilised the public debt level, which has already reached its legislated limit, says the World Bank.
According to the World Bank’s PNG Economic Update Jan 2019, as the fiscal deficit has narrowed, it has helped to stabilise public debt at about 35 per cent of GDP, which is the legislated threshold set in the medium-term development strategy (MTDS).
Since 2014, there has been a shift in the composition of Government debt towards external debt.
The latter was driven in large part by authorities resorting to external commercial borrowing from Credit Suisse and a recent debut issuance of a USD-denominated sovereign bond.
According to the MTDS, the Government plans to rely more on concessional financing from bilateral and multilateral partners, including budget-support operations provided by the Asian Development Bank (ADB) and the World Bank.
As part of development-focused budget support to PNG, the ADB provided its first tranche (out of three) of US$100 million (K336 million) in Aug 2018, and the World Bank disbursed its first development policy credit (out of two) of US$150 million (K505 million) in Dec 2018.
As part of the MTDS implementation, the Government intends to use a portion of external borrowing proceeds to retire most outstanding expensive short-term domestic debt.
The risk of public debt distress remains moderate.
The 2017 IMF-World Bank Debt Sustainability Analysis (DSA) raised the risk of public debt distress from low to moderate.
The 2018 DSA left the debt distress risk unchanged.
This elevation in the debt distress classification derived from the increasingly short-term profile of Government debt, which raises rollover risks.
However, this assessment crucially depends on whether public finances can be brought under control.