The downgrading of the PNG economy has affected the largest financial institution in the country, (BSP) according to Standard & Poor’s (S&P) ratings.
Institute of National Affairs (INA) Director Paul Barker told Loop PNG via email that it’s not the result of any action or inaction on BSP’s part, but it’s really the reflection of the poor economy growth.
BSP’s long-term rating has been downgraded from stable to negative, and Papua New Guinea has fallen four places in the World Bank ranking.
Barker said the rating was also due to the higher perceived risk for banks and some other businesses from the lower commodity prices and reduced production from many projects and agricultural crops, with the El Nino drought, but also reflecting the government’s large accumulating fiscal deficit.
“S & P would be ready to restore the higher rating if the economy improves, with higher commodity prices/production and sound policies to constrain burgeoning public debt and address the backlog of foreign exchange transactions, plus to create more sustainable and stable business and investment environment,” says Barker.
He said BSP and other banks and financial institutions had been providing much of the government’s funding shortfall, “ but they’ve reached about their limit on exposure, leaving the government to seek other further financing measures (such as a proposed Sovereign Bond).”