Papua New Guinea’s public debt has come under a lot of scrutiny in recent months, with the government in discussions with China and Australia about assistance with servicing that debt. Watch how public debt has grown since 1990, based on central bank statistics.
Since 1990, PNG’s public debt has grown from K1.407 billion to K27.5 billion, according to data used to compiled the Bank of Papua New Guinea’s quarterly economic bulletins.
According to the PNG Government’s recent Mid-Year Mid-Year Economic and Fiscal Outlook total public debt stock is expected to increase to K28.126 billion, or 31.8 per cent of GDP.
Except for brief period during the late 1990s, borrowings from international agencies made up the single largest component of PNG’s public debt until around 2010.
This has changed over the past decade, with an enormous increase in the use of government securities (or ‘paper’)—Treasury Bills and inscribed Stock—to raise money. Debt incurred through the sale of government securities is now 63 percent of public debt, compared to around 29 percent in 1990.
Papua New Guinea’s Public debt as a percentage of GDP Source: Asian Development Bank
Cost of servicing debt
As the recent World Bank economic update on PNG observes, ‘government debt levels have almost doubled since 2012 with interest payments increasing by 2.5 times’.
It also notes ‘a significant shift in 2018 toward external financing, principally from the US$500 million 10-year sovereign bond issued in the last quarter of the year (at an annual interest rate of 8.375 percent)’.
The above chart is based on nominal growth in government debt. Real growth (after you take inflation into account) has been more modest. For example, according to the Asian Development Bank, in 2017, the growth in domestic debt of 4.5 per cent was actually a contraction of 0.2 per cent in real terms because the inflation rate that year was 4.7 per cent.
According to Kina Securities, the government is paying 6.96 percent to those investing in full-year Treasury Bills and 8.04 percent on those investing in Inscribed Stock for 2018 to 2021.
Not all debt is bad debt. Public debt is used to underwrite government deficits and therefore support government spending on items such as health, defence, education and infrastructure. There is strong demand for government paper from the superannuation funds and banks, making the debt relatively easy to serve.
However, the World Bank has expressed concerns that PNG’s public debt as a percentage of its gross domestic product (GDP) may nudge over the statutory maximum of 35 per cent of GDP this year.
If the government cannot reduce its debt in the short-term, it can at least attempt to reduce the cost of serving that debt by refinancing the debt on better terms.
PNG and Fiji raise most of their debt domestically, from superannuation funds and banks. Source: ANU
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