‘Financial maturity shows through PNG bond conclusion’
11 October, 2018, 11:35 pm
PORT MORESBY, 11 OCTOBER 2018 (POST COURIER) – The maturity of the country’s financial markets has shown through the successful conclusion of the sovereign bond by the Papua New Guinea government.
Bank South Pacific CEO Robin Fleming made the comments citing the conclusion announced by Minister for Treasury Charles Abel, late last month, on the important milestone.
“Fiji issued their inaugural bond some years ago and in recent times has also issued a green bond on the international markets. From an international financial markets perspective this is a very good outcome for PNG.”
“Bonds of this nature are often used by developing and emerging markets countries for various purposes including, as is the case with PNG, funding support for approved budget appropriations.
“The Government’s 2018 budget had contemplated one of the funding sources of its deficit as being a sovereign bond and part of the proceeds of the bond will be used for programs and expenditure to support the budget,” Fleming said.
He said funding of the 2018 budget deficit has been from domestic sources primarily historically and ongoing reliance on the domestic market can over time result in funding rates for debt instruments such as Treasury Bills and Inscribed Stock increasing disproportionately to the underlying risk of the debt.
He added that this is due to capacity issues within the domestic markets.
“Treasury Bills that the Government issues for its 364 day term are priced at around 8.07 percent compared to a domestic three year Inscribed Stock is 9 percent, which illustrates that the short term debt pricing on a typical yield curve should be lower than is the case at present, and that the higher rate has been a function of domestic market capacity.
“As the Treasurer and DPM indicated in his MYEO the government was contemplating using up to US$300m of the sovereign bond proceeds to retire domestic debt, which should over time permit repricing of its Treasury Bills which in turn reduces the interest expense associated with domestic debt.
“Given a component of the bond will be used for budget support, business confidence levels relating to the government’s capacity to implement its 2018 budget initiatives and meet its fiscal targets should improve as well,” Fleming said.