PNG To Borrow $1.2 Billion To Cover Budget Deficits

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Majority to be raised domestically via Central Bank

By Isaac Nicholas

PORT MORESBY, Papua New Guinea (PNG Post-Courier, Feb. 5, 2013) – The national government of Papua New Guinea will borrow up to K2.6 billion [US$1.2 billion] both domestically and internationally to fill the deficit in the 2013 budget, Treasury Minister Don Polye said yesterday.

Mr. Polye, who was speaking at an Implementation conference in Port Moresby, said cabinet has given its approval for Treasury to look at the internal domestic financial market to raise the capital needed to finance the K2.6 billion budget deficit for 2013, as well as other accrued debts over the years totaling K6.4 billion [US$3 billion].

"First we will raise K1.6 billion [US$757 million] within the PNG financial capital market, and the second strategy is through the international sovereign bond to raise the finance (the balance of K1 billion [US$473.1 million])," Mr. Polye said.

Prime Minister Peter O’Neill also confirmed the move to borrow to finance the budget deficit.

"When we talk about the deficit of K2.6 billion, we are trying to finance it by raising K1.6 billion in the domestic market through the Central Bank," he said.

Mr. O’Neill said the Central Bank governor has indicated to cabinet that the financing environment in PNG is sufficient to finance that level of funding so the government is capable of refinancing its current debts and also the K1.6 billion debt to the total deficit of K2.6 billion.

"For the other K1 billion which we require to finance the budget deficit, we are going to the international bond market," he said.

[PIR editor’s note: Meanwhile, the government is facing mounting debts from litigation against it, amounting to millions of kina. Attorney General Kerenga Kua has taken the opportunity to remind officials and government officers to seek proper legal advice in government business in order to avoid unnecessary lawsuits brought against the state. O'Neill has also said that politicians and public service employees must tighten management and accountability processes in order to avoid cost blowouts, particularly after more than US$141.9 million in extra wages was paid out in the last fiscal year.]

The PM said it was an opportunity for PNG to tell the international community that the country has enjoyed economic growth over the last 8-9 years due to foreign reserves being at an all-time high, stable exchange rates and stable interest rates, which are very good indicators that the economy is doing well.

"We need to tell that story to the international financial community to be able to raise future funds we may need to develop our country," he said.

Mr. O’Neill said it was a good mixture to borrow internally and internationally, to spread the risk and not put stress on the local economy.

He said it was the first time that the government is front-loading warrants to districts and local-level governments for infrastructure development and programs in key priority areas.

Treasurer Polye earlier in his state of the economy statement at the Gateway conference said the 2013 budget is a deficit budget of 7.2 percent of GDP, which is about K2.6 billion.

Mr. Polye said the deficit budget was necessary to increase expenditure in the key areas of health, education and other core sectors including law and order at the sub-national level.

He said the size of the PNG economy stands at K33 billion [US$15.6 billion] and must grow over the next five years to around K58-K60 billion [US$27.4 billion to US$28.4 billion].

"The 2013 budget is a major paradigm shift in moving resources away from Waigani to the sub-national level at provinces, districts and local level governments," the Treasurer said.

Mr. Polye said all state-owned enterprises and government entities must ensure that they achieve the primary objective of maximizing investments and returns at minimal cost.

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