Sovereign bond deal ‘risky’ for PNG: Opposition
21 September, 2018, 2:15 pm
PORT MORESBY, 21 SEPTEMBER 2018 (POST COURIER) – Papua New Guinea shadow treasurer Ian Ling-Stuckey has called on the government not to burden PNG’s children and future generations with risky sovereign bond deals.
Ling-Stuckey said this following the return of Treasurer Charles Abel from overseas attempting to secure international interest in its proposed K640 million sovereign bond issue.
“Mr Abel is not admitting that a sovereign bond is now the wrong path for fixing the foreign exchange crisis crippling economic growth,”Mr Ling-Stuckey said.
“The alternative government has better and less risky options because a sovereign bond is just a fancy word for debt, more national government debt and more dinau.”
He warned of a further devaluation of the kina as a result of weak commodity prices if no interest is expressed on the proposed bond issue on top of an already downward grading of PNG’s debt standing internationally.
“For countries with most of their exports dependent on commodities, such as PNG, there will be massive pressure to devalue,” he said.
“In addition, most economic experts consider that our currency is also not at the right price – something we should have a national conversation about.
“This risk of massive devaluation does not appear to have been considered by Abel and again, I caution Abel for taking on the wrong types of debt.
“If our currency was forced to devalue by 25 per cent say, a figure close to those being suggested by the ANZ, UPNG and ANU, then the bond could immediately cost PNG people an extra K1.1 billion, so a US$1 billion bond at an exchange rate of US$0.30 would provide K3.33bn but at US$0.225 would provide K4.44bn (US$1.3 billion).
“Over an extra K1 billion (US$307 million) being stripped out of our health and education budgets is an unacceptable level of risk.”
Ling-Stuckey said sovereign bonds may be cheaper than commercial loans, however, they were much much more expensive than the concessional loans available from the World Bank and other friendly institutional sources.
“If international markets can deliver a significantly lower interest rate, after including expensive fees, and allowing for massive foreign exchange risks, then possibly it would be a deal worth supporting.
“If not, Treasurer, please do not burden our children with a risky deal,” Ling-Stuckey said.