“The starting point at the time of my appointment as Treasurer on 27th of August 2019 has now been revealed as a debt to GDP ratio of 42 percent,” he said.
“The debt to GDP ratio will be reduced from 42 percent down to 38 percent in just five years. Clearly, getting debt back under control is a long-term task given the mismanagement during the ‘lost decade’.”
The Treasurer said the government was committed to working within the existing legal framework governing borrowing.
“The financing requirement for 2020 will result in total Government debt reaching K37.185 billion by the end of 2020.
“This is equivalent to 40 percent of GDP, a huge number but a good improvement from the O’Neill legacy of 42 percent. The figure is well within the prescribed revised Fiscal Responsibility Act target range of 40 to 45 percent of GDP. We need to maintain some fiscal space in case of adverse international economic developments or natural disasters.
“The government will continue to pursue all avenues of cheap and concessional financing from trusted partners to ensure compliance with the Fiscal Responsibility Act and to reduce the major burden of debt interest costs.
“The starting point was a budget deficit equivalent to 5.8 percent of our economy. Budget deficits directly add to debt. The size of this increase was totally unacceptable.”
He further clarified that the record K4.631 billion deficit in the 2020 budget included a planned K1,050 million pay-down of arrears and a K500 million expansion of capital expenditure from concessional loan drawdowns. Removing these two “non-core” factors, the “core” budget deficit is K3.081 billion in 2020. Repayment of arrears and higher loan drawdowns will depend on financing availability.
The Treasurer said the Marape-Steven government will reduce the fiscal deficit from the starting point of 5.8 percent to 5 percent this year, including arrear payments and additional multilateral project financing, or 3.3 percent excluding such non-core payments.
“The process of fiscal consolidation will continue and by 2024, the cash deficit would have fallen to a much more sustainable rate of 1.9 percent,” the Treasurer said.
“This is a serious pace of fiscal consolidation. This is a move to responsible budgeting. In many ways, I wish more could have been done quicker.”
However, the Treasurer said balance must be sought between faster debt reduction, the reality of the former Government’s legacy and the needs of the people of PNG.