PNG’s China and Australia loan requests

By Stephen Howes - DevPloicy Blogs 

Media reporting of Papua New Guinea’s efforts to access foreign loans to finance the government’s budget has been far from accurate or complete. But the efforts themselves are real. And they pose significant challenges for both the country’s suitors, China and Australia, and most importantly for PNG itself.

As reported in official PNG documents, PNG has been trying to obtain a loan from China since last year. The government is seeking K1 billion from China’s National Development Bank. In principle agreement was reached at APEC last year, but the deal is still not yet done. The sticking points are the interest rate, and that China normally lends for projects, whereas PNG wants the money not be earmarked. It needs the loan to pay salary bills and interest. Given the length of time the negotiations have taken, it is not clear when or indeed if China will come to PNG’s aid.

It’s not that China never provides non-earmarked budget support, but it is certainly the exception rather than the rule. Given the difficulties PNG is experiencing in obtaining K1 billion from China, talk of China refinancing PNG’s K27 billion of government debt is fanciful.

What about Australia? Australia used to provide all its aid to PNG as budget support but that was phased out over the 1990s and discontinued by about 2000. PNG asked Australia to reconsider budget support in 2017. Australia said no then. That Australia has responded more positively this time round shows how things have changed. Australia, like China, is not predisposed to providing budget support, but does have a history of helping out at times of crisis – for example, during the East Asian crisis of the late 1990s. But Australia doesn’t go it alone. We get in behind an IMF or World Bank program, and that’s where the problem starts for PNG.

PNG is actually on a World Bank program, the first instalment of which was disbursed last year. But that program is badly off track. One of the main conditions is that PNG’s deficit (technically, its non-resource primary deficit) is meant to be falling. In 2018, the year in which the Bank program was negotiated, that deficit measure was meant to fall to 1% of GDP. Instead, it increased from 1.6% in 2017 to 2.8% in 2018 (Figure 11). Another key target is that the salary bill should not increase by more than 5% in any one year. Last year it increased by 19% (Table 11). Some of this was the payment of salary arrears, but even taking arrears out, it was a double-digit blowout.

However sensitive Australia is to China’s influence, there is simply no way that Australia would move forward with lending to PNG while the latter was in non-compliance with its World Bank program. That would undermine everything we say about the importance of multilateralism. Indeed, one would hope that the same thing is true of China. After all, China is also an important shareholder in the World Bank.

The PNG government is certainly facing a difficult fiscal situation. With revenue weak, it needs to borrow. But, more importantly, it needs to get serious about reform. This does not only mean improved fiscal performance. The underlying problem is the lack of economic growth. Reforms need to be put in place to address what the new PNG Prime Minister has called the “bleeding and struggling” economy, and what his new Treasurer has more diplomatically termed “very subdued domestic business conditions.” Australia’s Foreign Minister Marise Payne has said that “the new Government [of PNG] is looking at a comprehensive reform program.” That’s encouraging. Perhaps after today’s Australia-PNG Ministerial Forum we’ll know more.  Comprehensive reform would unlock funding from numerous sources, not only Australia, but also, importantly, the International Monetary Fund. Without it, new foreign loans are not only less likely but also unlikely to make a difference.

Go to this link for more: https://www.devpolicy.org/png-china-and-australia-loan-20190826/

Australia sends largest ministerial delegation to PNG in years

Posted by Radio New Zealand

Australia is sending its largest ministerial delegation in more than a decade to Papua New Guinea as part of an annual bilateral forum.

The Foreign Affairs Minister Marise Payne is leading the group of six cabinet ministers to take part in the 27th PNG-Australia Ministerial Forum today.

Ms Payne will co-chair the forum alongside her PNG counterpart Soroi Eoe.

The forum follows a July visit by PNG Prime Minister James Marape to Australia and comes hot on the heels of the Pacific Islands Forum meeting in Tuvalu where Australia's interaction with regional leaders was controversial.

After the meeting Australia was called condescending by a number of Pacific leaders and its attitude was described as "neo-colonial"

However, Ms Payne said Australia's relationships with its Pacific neighbours remained deep and strong.

Go to this link for more: https://www.rnz.co.nz/international/pacific-news/397471/australia-sends-largest-ministerial-delegation-to-png-in-years

Australian loan aims to keep Marape happy

By Phillip Coorey and Andrew Tillett - Financial Review

The Morrison government is set to extend a short-term loan to help Papua New Guinea refinance its debt, as the Pacific neighbour threatens to go to China or elsewhere for assistance.

A delegation of six ministers, including Finance Minister Mathias Cormann and Foreign Minister Marise Payne, visited Port Moresby on Monday for talks, less than a week after PNG said publicly it wanted $1.5 billion from Australia.

It is understood PNG Prime Minister James Marape has walked back that number to about $300 million.

A senior government source said that while normally such countries would go to the World Bank or IMF looking for loan assistance, there was "a time issue'' involved, meaning PNG was in a hurry and would go to another country for the money.

Mr Marape confirmed this, telling the ABC: "Whether it is China, India or Australia – the cheapest help that we can get and the best help that we can get in terms of the loan – I'm in the business of refinancing my entire loan portfolio."

A government source said helping PNG via a loan was preferable because there would be no impact on the budget bottom line.

Canberra is open to considering PNG's request, with officials noting that Mr Marape, who became Prime Minister in late May, has emphasised making PNG more economically independent and improving trade relationships.

However, any loans would likely be offered on the proviso of PNG undertaking economic reforms, while long-term financing options also include the Asian Development Bank as well as the World Bank and IMF.

Lowy Institute Pacific Islands program director Jonathan Pryke said PNG's economy had been struggling since 2014 when a collapse in oil and gas prices meant resources projects did not deliver revenue, forcing the government to borrow to plug the budget hole.

The government owes 27 billion kina, or $11.8 million, with public debt making up about 30 per cent of its gross domestic product.

With PNG emerging as a battleground between Australia and China for influence, Mr Marape's office earlier this month said the government had asked Beijing for assistance with its debt but he later back-pedalled and gave assurances that other partners had been asked to help.

"It's been a slow-moving crisis for PNG. They've found it very heavy going to rein in expenditure and implement austerity over the last couple of years," Mr Pryke said.

He said PNG had borrowed at high interest rates from domestic banks and refinancing its loans would ease the strain of debt repayments, which now made up 15 per cent of government expenditure.

Interest on domestic treasury bills is 1.97 per cent for 63 days and 5.3 per cent for 364 days, while bonds are 8.1 per cent for two years and 11.98 per cent for 10 years.

But a stumbling block had been Port Moresby's unwillingness to undertake reforms, Mr Pryke said.

The World Bank had provided $US150 million ($222 million) but PNG's inadequate performance had led the bank to hold back on the second tranche.

The delegation of ministers, which also included Defence Minister Linda Reynolds, Pacific Minister Alex Hawke, Immigration Minister David Coleman and Assistant Trade and Investment Minister Mark Coulton, is the biggest Australian contingent in more than a decade to visit PNG.

Talks also progressed on elevating the relationship between PNG and Canberra to the status of a Comprehensive Strategic and Economic Partnership, with an agreement expected to be signed later this year.

Go to this link for more: https://www.afr.com/politics/federal/australian-loan-aims-to-keep-marape-happy-20190826-p52kp8

The changing dynamics of Australia, PNG and the Pacific

By WATNA MORI- The Interpreter

The visit by Papua New Guinea Prime Minister Marape signalled a new chapter in a historical relationship.

Prime Minister Scott Morrison showed he was serious about the Pacific “step up” when he ensured that his first overseas visit was to the Solomon islands and the first foreign dignitary he invited to host was Papua New Guinea Prime Minister James Marape. The visit by Marape represented a significant shift in the Australia-PNG relationship, from a largely paternalistic one to one of equals.

Marape set the tone by announcing before his arrival that closing down Manus would be on his agenda, but China would not – that PNG under his leadership was ready to exercise its sovereignty on all matters, without bowing to Australian pressure. Morrison did not make the mistake of taking this lightly; instead, he chose to meet Marape eye-to-eye and show him in both words and action the prominence in which Australia now views its relationship with PNG.

The press statement following their official meeting on 22 July stated:

Prime Minister Marape’s visit to Australia marks the beginning of a new chapter for Australia and Papua New Guinea, as equal sovereign partners with a shared history and an ambitious vision for the future.

It made several announcements, most of them unsurprising: the funding for the electrification program committed to during APEC in November 2018, more funding for the PNG Police, a revisited secondary school scholarship program, and several strategic security announcements – a way of talking about China without talking about China. The tone of the press conference itself amicable and respectful, the power imbalance less obvious than on past occasions.

Morrison did not raise any concerns with Marape, at least not publicly, about the pending Papua-LNG gas project, in which Oil Search, listed on the ASX, is a major player. It was a question some might have thought relevant, but given the tone set by Marape, Morrison was again wise not to revert to the paternalistic approach of the past.

Marape went on to give a significant speech at the Lowy Institute on 25 July, setting out his policy platform for the first time since becoming PM. The contents of the speech and the hurdles Marape faces in executing his plans are well-discussed by my colleagues Jonathan Pryke and Shane Mcleod in a previous article.

Marape proposed a greater focus on the agriculture sector, creating a “food bowl for Asia”, and elevating Papua New Guineans from “rural entrapment”. He spoke frankly about the historical focus on extractive industries and its failure to deliver the development required or promised by both government and industry. And for the first time for a PNG prime minister, he spoke about environmental sustainability and climate change.

Marape reiterated that the government’s shift in policy focus should not alarm the extractive industries, a point he repeated at a lunch hosted for him the day after his Lowy speech. Further announcing that his policies would be officially released in September. Pacific Trade Invest’s Caleb Jarvis, who co-hosted the lunch with AusTrade, welcomed the focus on agriculture, emphasising its potential socio-economic impact, and he further highlighted other growth areas for PNG such as tourism and the tech sector.

All this didn’t prevent some in the media from sounding alarms for the extractive industries – almost justified when, after initial reports that PNG was ready to go ahead with the Papua-LNG project, the office of the Minister for Petroleum and Energy released a press statement on 15 August announcing that the state negotiating team was off to further negotiate the Papua-LNG project with Oil Search and Total, and that “the negotiations could work out well or even disastrously”.

The statement was released while Marape was in Tuvalu for the Pacific Islands Forum (PIF) Leaders meeting, joining the rest of the Pacific in taking Australia to task on climate change.

It’s unclear what Marape’s views are on the minister’s press statement and whether it was vetted by the PM’s office before being released, but its immediate effect was seen in Oil Search’s share value suffering a “stumble”. On the face of it, it seems that the Marape’s government’s motto of “take back PNG” is not yet consistently defined within his cabinet.

Marape, of course, is not the only one having issues with keeping his cabinet on message. Morrison’s seriousness in “stepping up” in the Pacific was severely challenged by the rest of the Blue Pacific at the PIF meeting on the issue of climate change. Adding a grenade into a brewing conflict that Morrison was struggling to handle diplomatically, his Deputy Prime Minister was recorded giving a speech condemning the Pacific Islands for burdening Australia with their climate-change demands. Deputy PM Michael McCormack stated that there was no question the Pacific would survive with all the aid Australia was giving them and their ability to come to Australia and “pick our fruit” under the Pacific Labour Mobility Scheme.

Marape has challenges on the home front in exacting his promises, but what he has already instigated is a change in the Australia-PNG relationship. The rest of the Pacific are also pushing for a different relationship with Australia. One of equal sovereign partners. One of a Blue Pacific. And that’s a tough pill to swallow for a country whose position in the region has never been seriously challenged since the end of colonisation.

Go to this link for more: https://www.lowyinstitute.org/the-interpreter/changing-dynamics-australia-png-and-pacific