Posted By Staff Reporter
![]() The two previous posts have covered the O’Neill debt and deficit legacy. Debt increasing from K7.2 billion in 2011 to K34.5 billion by the end of 2018. For every One Kina in debt, he left Five Kina in debt. The debt growth was driven by irresponsible budget deficits – of nearly 10% of GDP. So what would have happened if O’Neill had stayed in power? “Of course, this can only be an estimate – but probably a fairly accurate estimate. History reveals that the best predictor for someone’s future actions is their past actions. So what were O’Neill’s past actions in trying to deal with the five-fold increase in debt? These are best revealed by his actions on reducing the budget deficit and how expensive were his loans. “What was the budget repair performance of the O’Neill government? He was able to move the budget deficit from K3,579m in 2014 to the revised IMF estimate of K4,936m in 2019. “Yes – the budget deficit got bigger despite all the promises to the PNG people and organisations such as the World Bank. No wonder PNG lost its international credibility. This lack of ability to reduce the budget deficit is why PNG’s debt kept going higher and higher.
“A country’s debt level depends most on its level of budget deficits. So the budget deficit amount has to be borrowed, and gets added to the debt stock. “Let us be nice and assume that a continuation of the O’Neill government would have finally started reducing the deficit by K500 million per year (rather than his legacy of increasing it by K300 million per year). And let’s assume he didn’t try and do it through further tricks such as building up hidden arrears. So in 2020, a deficit of K4,436m. In 2021, a deficit of K3,936m. In 2022, a deficit of K3,436m. In 2023, a deficit of K2,936m. These on-going deficits would have lifted PNG’s debt level by K14,744 million by the end of 2023. And this extra debt would have also required extra interest costs to be financed – a further K3,898m using the high cost of average borrowing under the O’Neill years of around 9 per cent interest and fee costs. “So by the end of 2023, assuming that O’Neill was in fact able to start reducing his deficits, the end debt level would be K38.8 billion from end of 2019 to an extra K14.7 billion in deficit debt and a further K3.9 billion in extra interest costs – so a total of K57.4 billion. At end 2011, PNG’s debt was K7.2 billion. An increase in debt due to O’Neill’s direct actions and on-going deficit legacy of K57.4bn less K7.2bn or K50.2bn. O’Neill is the K50 billion debt deficit man! “This is all O’Neill’s debt and deficit legacy. And this is without even taking account of the extraordinary impact of COVID-19 on the economy. A conservative estimate of the additional debt costs of COVID-19 from 2020 to 2023 is K10.2 billion. This consists of the K2.73 billion loss in revenues in 2020, slowly recovered by 25% each year through to 2023, the K600 million modest increase in expenditures to meet direct budget support costs for health, security and the economy for 2020 to 2022, and additional interest costs. So under O’Neill, the likely debt legacy by 2023 would be a K57.4 billion debt deficit legacy plus COVID-19 shock of K10.2 billion totaling K67.6 billion. How does this compare with the Marape debt estimates for 2023 of K55.1 billion? This is the figure in the Budget Strategy included in the 2021 Budget which includes the COVID-19 impacts. K67.6 billion under O’Neill or K55.1 billion under Marape – K12.5 billion less in debt. It is based on: • a much more rapid fiscal consolidation of reducing the deficit by over K1 billion per year; • at the same time paying down all of the K4.1 billion in arrears; • lower average interest rates on good cheap debt rather than expensive debt on roads to no-where; • working hard to repay the O’Neill debt but doing so at lower interest rates. “So by 2023, after repaying all verified arrears, the nation under the Marape Government would likely have a debt level K12.5 billion lower than if O’Neill continued. “Slowly escaping from O’Neill’s debt and deficit legacy. The Marape Government starting to turn the ship around under a steady hand in the most difficult of circumstances. Hon. Ian Ling-Stuckey, CMG. MP Minister for Treasury next : PNG Needs To Get New Investments To Boost Economy : Mackellar Comments are closed.
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