Fleming: Stability key

By SHIRLEY MAULUDU
STABILITY in Government leadership will be a key consideration for project developers when making a deal with government, and this further influences project timeframes, according to Bank South Pacific Financial Group Ltd (BSP).
Group chief executive officer Robin Fleming said the delivery of these large projects represented a significant injection into the Papua New Guinea economy and would ultimately impact government revenue, gross domestic product (GDP), and the nation’s debt servicing capabilities in the long-run.
“Key downside risks include a change in government priorities from fiscal consolidation to fiscal expansion,” he said.
“There have been serious efforts made by government in recent years to correct fiscal inefficiencies, although the onset of the Covid-19 (Coronavirus) has changed fiscal and monetary priorities over the last two years.”
Fleming added that the country’s high cost of government borrowing coupled with perceived inefficiencies in government fiscal outlay through the years have presented downside risks to the sovereign credit rating.
“The Government has largely succeeded in reducing the interest on its domestic borrowing from 11.8 per cent on a 10-year bond during the pandemic, to 7.9 per cent as at the latest auction in April 2022,” he said.
“Short-term Treasury bills have also followed a similar trend falling from 7.2 per cent in January 2020 to 3.4 per cent in May 2022.
“The Central Bank is likely to continue supporting the Government in its endeavour to reduce the interest on its borrowing even lower.
“The focus is now on whether the Government will continue to prioritise narrowing the fiscal deficits and stabilising national debt levels after the election.
“As it stands, PNG’s debt-to-GDP is projected at 52 per cent for 2022 and is expected to persist above 50 per cent through to 2025, before reducing to pre-pandemic levels (45 per cent) in 2027.
“Increased levels of government spending during the height of the pandemic, as well as the dependence on government spending to drive the recovery and unlock the economic potential in non-mining sectors, poses some downside risks to fiscal consolidation efforts.
“Recent measures taken by the government to support household spending in the face of rising inflation will also impact government revenue and factor into debt servicing capabilities in the short run.
“However, the commencement of new resource projects and the knock-on effect this will have in the economy makes consolidation feasible with the Government’s timeframe, given that this is accompanied by prudent cost management. With the political will behind fiscal consolidation, and the uplift in PNG’s GDP prospects, S&P (Standard and Poor) Global has revised their outlook which bodes well for a potential upgrade in our sovereign credit rating should fiscal consolidation efforts continue after the 2022 election cycle.”