Gov­ern­ment fi­nances

Business Advantage Papua New Guinea - - Economic update -

Dur­ing the slow­down, the econ­omy has been re­ly­ing on gov­ern­ment in­vest­ment to keep things tick­ing over. As Ian Taru­tia, Chief Ex­ec­u­tive Of­fi­cer of su­per­an­nu­a­tion fund Nas­fund, ob­serves:

‘It has been fund­ing all ma­jor eco­nomic ac­tiv­ity in the past year, while the pri­vate sec­tor has down­sized.’

As well as in­creased ex­pen­di­ture on health and ed­u­ca­tion, the PNG Gov­ern­ment has set out a wel­come pro­gram of in­vest­ment in in­fras­truc­ture de­vel­op­ment, in­clud­ing the re­lo­ca­tion of the cap­i­tal Port Moresby’s port and the ex­ten­sion of the busiest port in Lae, im­proved elec­tric­ity gen­er­a­tion and trans­mis­sion, de­vel­op­ing a na­tional fi­bre­op­tic ca­ble net­work, road con­struc­tion, and ur­ban im­prove­ments ahead of Port Moresby’s host­ing of the 2018 APEC Eco­nomic Lead­ers Meet­ing. Mean­while, stim­u­lus mea­sures to drive much-needed hous­ing con­struc­tion are al­ready bear­ing fruit, par­tic­u­larly in Port Moresby.

While much of this in­vest­ment is pro­gress­ing, the sharp falls in gov­ern­ment rev­enues dur­ing 2015 have in­evitably led to a more con­strained Na­tional Bud­get for 2016, as the O’neill gov­ern­ment en­deav­ours to re­turn to sur­plus by 2020, while con­tin­u­ing to pro­tect key de­vel­op­ment pri­or­i­ties.

The Gov­ern­ment—which faces na­tional elec­tions in mid2017—has also taken other mea­sures to sta­bilise its fi­nances into the longer term.

It is cut­ting ex­pen­di­ture ju­di­ciously.

‘If the gov­ern­ment doesn’t have money, that af­fects the whole econ­omy,’ ob­serves Taru­tia.

Since June 2014, Pa­pua New Guinea busi­nesses have been strug­gling to gain ac­cess to for­eign ex­change, with an es­ti­mated K1.2 bil­lion wait­ing to be con­verted as of the end of 2015.

But the CEO of Bank South Pa­cific, Robin Flem­ing, is op­ti­mistic that ac­cess will be­gin to flow dur­ing 2016.

‘With the Ok Tedi mine re­open­ing in March—and that in it­self will start pro­vid­ing an­other US$30 to US$40 mil­lion into the mar­ket per month—the pres­sure will start to ease,’ he told Busi­ness Ad­van­tage PNG.

‘And there is talk that the Wafi-golpu [gold] project will be get­ting close to agree­ment on fi­nan­cial terms, and that could in­tro­duce an ad­di­tional US$200 to US$300 mil­lion dur­ing 2016. There is also pos­si­bly some early works for the [To­tal-led] Pa­pua LNG to­wards the end of 2016.

‘And there are big­ger sums com­ing in 2017 and 2018,’ he says.

Flem­ing says the Bank of Pa­pua New Guinea has taken a ‘con­ser­va­tive’ ap­proach to man­ag­ing its re­serves, still about US$1.9 bil­lion or seven-to-eight months of im­port cover (or Flem­ing is pos­i­tive about the PNG Gov­ern­ment’s planned US$1 bil­lion Sovereign Bond is­sue.

‘It should al­le­vi­ate con­cerns in terms of busi­nesses crowd­ing out of in­vest­ment op­por­tu­ni­ties, and also pro­vide some re­lief on in­ter­est rates.

‘It would cer­tainly be a cheaper way for the Gov­ern­ment to raise debt, and be at­trac­tive to international in­vestors.

BSP’S Robin Flem­ing ‘The feed­back I get talk­ing to po­ten­tial over­seas in­vestors is that they feel that there is cer­tainly an ap­petite for this type of debt.

‘And, in an emerg­ing mar­ket, debt has been one of the per­form­ers in the bonds mar­kets over­seas, and there­fore it con­tin­ues to re­main of in­ter­est, par­tic­u­larly when you do the anal­y­sis and see the fu­ture rev­enue streams that are avail­able to PNG, with two world-class LNG projects with lives of 40-to-50 years.’ 

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