O'NEILL RACKS UP RECORD DEBT: K25 BILLION

by BRYAN KRAMER

Papua New Guinea's economy will become the central issue in 2016. The recent IMF Report highlighted that there has been a significant increase in overall public debt, which amounts to about 56 percent of GDP (K25 billion) once arrears to a superannuation fund and other liabilities are taken into account. This is the highest level of debt in PNG's history.

Prior to Peter O'Neill taking office in 2011, the country's total debt reported in the Treasury Mid-Report was only K6.3 billion and foreign reserves were at K9.3 billion at end of December 2011. In a space of just four years, Peter O'Neill has almost quadrupled our debt to K25 Billion and depleted our foreign reserves to just $US1.8 Billion.

O'Neill recently praised an IMF report for presenting a frank assessment of the economy. Both the Prime Minister and the Post Courier highlighted that the IMF report had commended the Government for achieving impressive economic growth in recent years however both failed to highlight many other serious issues raised in the report. These include:

PNG's Debt to GDP ratio was expected to be has high as 56%, up from just 23% in 2011.

The Debit levels exceeding legal limit of 35%.

Economic growth is expected to plummet from 9% in 2015 to 3% in 2016 and as low as 1.7% in 2018.

Insufficient Foreign Cash Reserves, confirmed by Bank of PNG to be only US$1.8 Billion as of 31 December 2015, providing less than three months' cover according to the IMF report.

The Kina has depreciated by 16% since 2014 and is expected to depreciate further.

On 13 January 2016, the Post Courier published an article "PM: All must pay debt to state." The article reported on Prime Minister's press conference, where he admitted that the cash flow situation of the country was “tight” on account of the world economy.

“Of course cash flow has always been tight,” O'Neill said. "All the warrants will be tightly controlled this year so that we do not over-extend our warrants when we don’t have the money to make those payments.”

For the first time O'Neill has gone on record confirming we have a cash-flow crisis after months of ignoring the issue and claiming PNG is still enjoying strong growth. He went on to state that it does not mean our economy is not growing, "in fact it was expected to grow well over 10 percent and it will continue to grow over the coming years,” he said.

So the Prime Minister claims the economy is expected grow well over 10%. Really? Based on what assumption? The very IMF Report he has gone on record to praise and endorse clearly states our economy's growth is expected to shrink to 3% in 2016 and 1.7% in 2018.

On account of the Post Courier senior journalist reporting on the IMF report, one would think that perhaps they should have raised this fact while at the Prime Minister's press conference. Or the paper could have noted it in its report to ensure it was balanced.

While O'Neill will try to justify his mishandling of the economy by boasting about free education, health and grand infrastructure, the contentious issue will be the inflated contracts awarded to his close associates and the country ending up bankrupt over reckless spending.
The recent deal struck between the US and Iran lifting sanctions will see Iran back to selling oil on the world market. This is expected to have further negative effects on the oil price and PNG's revenue earnings in the medium term.

With our currency depreciating further, it will mean costs of goods and services will also go up. Statutory agencies are already imposing increased fees. For example MVIL has increased its registration base rate by 100%. With Government running out of money it is desperate to raise US$1 Billion through the proposed Sovereign Bond. Unfortunately, due to our negative outlook, and Government's mishandling of the economy, it's my view that the international financiers are reluctant to lend PNG the funds. To-date the O'Neill Government has kept afloat by borrowing domestically from Commercial Banks and Superannuation Funds. However, the IMF report highlighted that given that the banks and superannuation funds have mostly reached their internal limits on sovereign exposure, there is a limited appetite for holding additional government securities, which has led to a sharp rise in Treasury-bill yields.

Ordinary PNGians will bear the brunt of the economic downturn while those who have enriched themselves on public funds will enjoy their spoils parked in offshore accounts.

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