Warning over growth of debt

By GYNNIE KERO
THE Asian Development Bank (ADB) has warned the country to “cautiously” manage the growth of its debt.
The bank’s Pacific Economic Monitor said while the country’s debt-to-GDP ratio was below that of other countries, its cost of interest paid as a percentage of government revenue was higher than average.
It said this indicated that PNG should continue to cautiously manage growth in debt, alongside continued efforts to raise government revenue.
ADB country economist Edward Faber when reviewing data on PNG’s debt profile said debt limits were determined by how much creditors were willing to lend.
“On the domestic front, PNG has already hit a temporary threshold, which necessitated a switch to foreign borrowings,” he said.
“While the government has done this successfully, foreign currency borrowings come with elevated risks and will require PNG to continue to be careful in managing government finances, including the ongoing reduction of the fiscal deficit, to maintain the confidence of international investors.
“PNG remains vulnerable to shocks from changes in commodity prices and natural disasters and, given that these will occur again, PNG must continually work towards building fiscal buffers and flexibility in its debt profile.”
According to the monitor, finding the right debt balance for a sovereign nation is not straightforward.
“On the one hand, debt is needed to spur economic and social development, through funding infrastructure such as schools, hospitals, electricity, and transport,” Faber said
“But, on the other hand, governments can only borrow as much as creditors are prepared to lend and, if borrowings are used unwisely or become too burdensome, countries may struggle to service debt and can end up paying more in interest than is put towards important social imperatives.”