The rating agency affirmed Indonesia’s eastern
neighbor’s current long-term rating at B+, and its short-term rating at
B. PNG’s rating is four steps below investment grade, on par with other
countries including Bolivia, Nigeria and Ukraine.
resolved the stalemate that existed for nearly a year,” S&P credit
analyst Yee Farn Phua said in a statement on Monday. Phua was referring
to competing claims for the prime minister’s post between Peter O’Neill
and previous premier Michael Somare.
The PNG parliament elected
O’Neill as prime minister in August 2011 during Somare’s absence due to
illness. The Supreme Court then ruled in December that the removal of
Somare from office was unlawful. But both O’Neill and parliament
rejected the ruling. S&P changed the country’s outlook to negative
Yee said O’Neill’s People’s National Congress
Party won the July elections, allowing him to form a cabinet. “Somare’s
decision to participate in a coalition with the PNCP should boost
political stability,” Yee said.
The rating agency expected the
coalition would result in a more efficient legislative process that
could smooth changes to mining laws and bring closer an agreement on a
proposed liquefied natural gas project.
US oil giant Exxon Mobil
is developing a $15.7 billion LNG plant, the country’s biggest-ever
resource project. Rio Tinto Group and Newcrest Mining are among miners
and explorers with operations in the resource-rich country.
also said that PNG has moderate fiscal deficits, low government debt, a
modest net external liability position and strong potential for the
minerals and allied sectors to boost economic growth.
vulnerabilities associated with the country’s weak institutional
frameworks and shortcomings in governance continue to constrain the
ratings, the agency said.
“There is a lack of transparency in
the activities of statutory authorities, trust accounts, and other
government-controlled entities, which contribute to the government’s
off-balance-sheet liabilities,” Yee said. “Further constraining the
ratings are infrastructure shortcomings and security risks impeding
investment required to diversify the economy, which is highly
concentrated in the resources sector.”
S&P said it may lower
the country’s ratings should weakening in global economic conditions
continue, cutting demand and prices for PNG’s mineral exports. That
would worsen country’s external position and government finances,
The agency added that PNG’s rating upgrade would
likely occur by 2015, when its LNG project starts earning revenue,
“given the project completion risks.”
Rival rating agency
Moody’s has assigned PNG a B1 rating, also four notches below investment
grade, with a stable outlook, while Fitch does not formally assess the
Indonesia’s trade with PNG is small despite the two countries sharing the island of Papua between them.
from the Indonesian Trade Ministy shows that trade between the two
countries fell 39 percent to $154 million in the first seven months of
the year compared to the same period in 2011. Indonesia’s total trade
during January-July period this year was $113 billion.
S&P rates Indonesia at BB+ long-term, one notch below investment grade.