The National, Tuesday March 1st, 2016
By ERIC BALARIA
PAPUA New Guinea should look at external financing to aid its economy, economist Paul Flanagan says.
Flanagan, director of Indo-Pacific Public Policy and Economics Pty Ltd, told The National that financing programmes like the Solomon Islands programme with the International Monetary Fund (IMF) would improve Papua New Guinea’s economic management and attract increased budgetary support from donor agencies.
He said IMF’s Extended Credit Facility (ECF) was an appropriate programme with cheap source of funding.
The Extended Credit Facility is the International Monetary Fund’s main tool for medium-term financial support to low-income countries.
It provided for a higher level of access to financing, more concessional terms, enhanced flexibility in programme design, and more focused, streamlined conditionality.
Financing under Extended Credit Facility currently carries a zero interest rate, with a grace period of 5.5 years, and a final maturity of 10 years. Flanagan said the International Monetary Fund financing was possible for Papua New Guinea of up to US$822.5 million (K2.44 billion).
“Papua New Guinea has received such IMF financing in the past,” he said.
“This was in the mid-1990s and then the late 1990s.
“Next door, the Solomon Islands has been receiving assistance and cheap loans from the International Monetary Fund for many years, with the latest credit facility is still in place.
“What generally happens is that if the International Monetary Fund is on board and helping guide improvements in economic policies, then other donors also provides increased support.
“This was the case with the Solomon Islands where a number of donors provided either budget support (i.e budget grants) or concession loans from the Asian Development Bank.
“It also provides a reassurance to other lenders – so it lowers the risk rating and can lower interest costs more widely.”