In an exclusive interview with Business Advantage PNG, ratings analyst Rebecca Hrvatin says PNG’s fiscal imbalances will improve—provided the Papua LNG project continues as planned.

LNG exports

Melbourne-based S&P Global Ratings analyst Rebecca Hrvatin tells Business Advantage PNG she expects improvement in PNG’s financial situation over the next 12 months.

S&P Global’s Rebecca Hrvatin

‘PNG’s B/Stable rating reflects the country’s low-income economy with weak institutions and limited monetary flexibility. We expect that fiscal and external imbalances will continue to improve during the next 12 months. We will continue to monitor its effect on foreign direct investment (FDI), the budget and the economy,’ she says.

‘The government will need to balance better budget outcomes with the economy’s needs for foreign direct investment to sustain economic growth and the B/Stable rating,’ she told Business Advantage PNG.

She said the stable outlook reflects ‘our expectations that the current Papua LNG project continues as planned’, indicating the economic outlook could be reviewed if the government led by Prime Minister James Marape renegotiates the terms of the country’s second LNG plant, the Papua LNG project.

‘The move could have negative consequences for the rating on PNG if a deal was to include significant commitments from the government not currently in our base case, such as large collateral or non-financial demands.’

The government is already exploring its options for improving revenue, including having a larger ownership share of the Porgera gold mine—the lease for which expired earlier this month—and increasing royalties to the central and provincial level governments.

‘These negotiations currently have no impact on the credit rating,’ says Hrvatin.

Loans and refinancing

Prime Minister Marape has allegedly requested help from China and Australia. Credit: RNZ

The Marape government has reportedly indicated it may refinance K27 billion (A$11.8bn) of loans with China. The government has also requested help from Australia but, so far neither country has made an official statement about a possible loan to Papua New Guinea.

Hrvatin says the impact on the country’s B/Stable rating of any refinancing agreements will depend on the government’s motivation, terms and conditions for the government, and existing bondholders.

‘We understand there has been no Treasury advice on this path, nor is the government currently in a debt-distressed situation.

‘The move could have negative consequences for the rating on PNG if a deal was to include significant commitments from the government not currently in our base case, such as large collateral or non-financial demands.’