Excessive financial risks in Govt debt portfolio

From left to right- Prime Minister Peter O’Neill, Treasurer Don Polye and Governor Loi Bakani

The government of Papua New Guinea has piled up excessive financial risks in its debt portfolio.

The move by the incumbent government to update the Medium Term Debt Strategy (MTDS) 2013 – 2017 may be regarded by the unsuspecting eyes as a smart move by the O’Neill Dion government to effectively manage its debt at a sustainable level and ensure continues growth in the country’s economy.

To the prying eyes, what is left unsaid speaks volume that the government has piled up excessive risks in its debt portfolio that it must act swiftly to manage the risks. Failure to so could result in appalling consequences.

It has to be critical for Prime Minister Peter O’Neill to pull out the shelved MTDS 2013 – 2017 and update three important strategies which Treasurer Don Polye said would maintain the Government’s debt at a sustainable level, reduce the excessive debt portfolio, and to gradually make improvement in its domestic debt, which has a lot to improve.

A daily paper reported late last year on the government’s budget blow up due to overspending. Treasurer’s statement confirms that the government’s spending has gone out of hand and requires urgent measure to maintain the debt at a sustainable level and to continuously grow the economy.

“The first strategy is to maintain the government’s debt at a sustainable level. The next strategy is to reduce the excessive financial risks in debt portfolio” Treasurer Polye said.

Given the high level of debt the government has, its financials risks are also very high.

While the government brags on uninterrupted economic growth over the years, effective management of the financial risk remains a mammoth task for the government.

The high level of financial risks has forced the government to issue the biggest ever recorded inscribed stocks through Central Bank to collect enough revenue to manage its debts.

This paper was advised by Central Bank governor Loi Bakani that issuance of K1.9 billion inscribed stocks is the biggest ever.

“The IS issuance program for 2014 is a huge one, and gives the opportunity for PNG companies, businesses and ordinary people or mums and dads to participate” Mr Bakani said.

The issuance of the inscribed stocks has already begun according to Mr Bakani and is based on the 2014 projections as Treasurer Polye noted in his statement. Treasury Polye advised that any changes that results will be treated as part of the 2014 supplementary budget.

Despite, the update of the three key strategies of MTDS 2013-2017 and issuance of the historical K1.9 billion inscribed stocks, the financial risks in government’s debt portfolio remains excessive.