The True State of PNG’s Budget – Public Debt illegally at 41.3% of GDP | MINISTER FOR TREASURY

MINISTER FOR TREASURY

PO Parliament House
Waigani.NCD
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Source: Dilu Dee Okuk
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The True State of PNG’s Budget – Public Debt illegally at 41.3% of GDP

“Yesterday, I released the fact that PNG’s budget deficit had climbed to K4,636 million – the legacy of the former Prime Minister, Peter O’Neill. Budget deficits add to public debt. This means the O’Neill regime’s policies were going to add another K4,636 million to public debt in 2019.

PNG’s public debt was therefore going to increase to an extraordinary K33,045 million. With a population of 9 million people, this means that the O’Neill years were going to leave every single person in PNG with a public debt burden of K3,672. If there are six people in your household, this means that the O’Neill regime debt level for your household is K22,028.

This is money that your family household and your children will eventually have to pay in tax money or other ways of raising money from the land and beauty that belongs to the people of PNG.

“How big was the public debt burden on every family back in 2011, before the start of the O’Neill years? PNG’s total public debt in 2011 was K7,203 million. Dividing this by our population at the time of 7 million gives a debt figure of K1,029 per person.

With six people in the household, this would have been a public debt figure of K6,174. So under the O’Neill regime years, a household of six had their national public debt liability increase by K15,854 – up from K6,174 to K22,028. Over the O’Neill years, the debt level for every single person in the country increased by 356%. This is the O’Neill legacy left for our children.

“At K33,045 million, the public debt figure is by far the biggest in PNG’s history when measured in Kina terms (current prices). Expressed as a share of GDP, it has reached 41.3%. Under the Fiscal Responsibility Act, the legal limit was 35%. Clearly, the former Prime Minister has left an illegal debt legacy.

“Why is the debt to GDP level now so high? There are four main reasons. First and most importantly, this illegal debt level is the direct result of the massive and irresponsible budget deficits of the eight years of the O’Neill regime. Budget deficits need to be funded which means more debt.

This explains almost all of the increase in public debt levels. Second, he allowed a culture of special deals which have seen many unwise “investments” that were clearly non-commercial.

Some of the chickens have come home to roost. With the state now paying interest and other costs on various state guaranteed deals, under our own laws they should have been included in our public debt figures.

This includes the K800 million state backed deal on the Motokea port (of which the state is now paying interest on a K600 million share), the extraordinary agreement to provide a state guarantee for roads in NCD but not in the rest of the country (K201 million still outstanding) and K375 million paid up front for the deep sea mining Solwara fiasco before exhausting avenues to protect PNG’s interests.

There are many other deals which are still hidden in various State Owned Enterprise accounts. However, a lack of transparency nurtured by the O’Neill years means that we still do not know the full extent of SOE debt. Many people consider all SOE debt should be included in the gross public debt figure.

The IMF includes all state-guaranteed debt in its debt sustainability analysis. More work will be done on determining how much SOE debt should be added to our public debt measurement.

Third, debt numbers have excluded the reality that PNG’s exchange rate has depreciated since many of the debt-based loans have been taken out. Good international practice, and the practice required of the private sector, is to include valuations of debt based on current foreign exchange values.

Interest costs and principal repayments are based on exchange rates at the time of payment – so should the measurement of that debt. Finally, the debt to GDP ratio also depends on the measured size of GDP.

The PNG Treasury has refused to follow international practice of using the most recent numbers from the National Statistics Office as the base. The PNG Treasury used a GDP estimate in 2019 of K88.48 billion in its MYEFO.

Using the actual most recent base from PNG’s own National Statistics Office and independent estimates of PNG’s growth rate and deflators since 2016, the IMF has estimated the actual 2019 GDP is K80.1 billion.

PNG will work with others to get better and more updated figures of GDP. Until then the IMF estimate is the most credible figure available and even under the original Treasury estimate, there was still a clear breach of the FRA.

“Now in addition to creating this extra-ordinary blow-out in public debt, the former Prime Minister now has the hypocrisy to start attacking my actions in seeking financing support to deal with the deep economic hole he has dug for this country.

He claims “A smart and strategic government should only borrow for the investment in infrastructure that delivers returns for the economy”. So a quick fact check. Of the K33,045 million in public debt, almost all of it run up by the O’Neill regime, how much has actually gone for infrastructure loans?

This is generously measured by adding the K6,389 million in concessional loans owed to the ADB, World Bank, EXIM and JICA primarily for infrastructure assistance, K600 million for transferring the Motu-Kea port and K201 million for NCD roads – a grand total of K7,190. This is only 21.7 per cent of the stock of public debt.

Less than one-quarter of the public debts racked up in recent years meet the former Prime Minister’s own tests of sensible loans.

So over three-quarters of the O’Neill regime debt is a massive fail even using his own definitions! I will explain in a future release this week the correct approach for meeting the financing challenge left by the economic mismanagement of recent years.

“With the true budget deficit and debt facts now established, I will start explaining the Marape-Steven government’s solutions in preparation for a tough Supplementary Budget on 8-10 October” stated the Treasurer, Ian Ling-Stuckey.

Hon.Ian Ling-Stuckey,CMG.MP
Minister for Treasury
1 October 2019

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