IMF Push Reforms in PNG with $918 million Short and Long Term Loans

The International Monetary Fund (IMF) has approved a 38-month Extended Credit Facility (ECF) and Extended Fund Facility (EFF) for Papua New Guinea (PNG) in the amount of SDR684.3 million, equivalent to $918 million, to address the economic impacts of multiple shocks, including low commodity prices, drought, earthquakes, and the COVID-19 pandemic.

See the definitions of ECF and EFF at the end of this article.

Reforms

The program aims to protect vulnerable groups and promote inclusive growth through debt sustainability, foreign exchange (FX) shortage alleviation, and enhanced governance and anti-corruption efforts. 

The IMF believes that the program will support and enhance PNG's credibility and improve its access to international financial markets.

What is not clear is what 'exactly' is/are changing and how the changes will affect the institutions and the people they serve.

Key Rates

The IMF loan will be subject to a 2.4% interest rate, lower than the current weighted average interest rate for external loans (2.8%) and domestic loans (7.2%). 

Repayment will be over a ten-year period, with a 5.5-year grace period.

It may seem like a good deal, but a loan is a loan. And, an IMF loan that comes with institutional reformations and conditions has a lot to be desired. 

If it sounds too good to be true, it probably is.

Pros and Cons of the IMF loans

Pros:

• The loan will provide much-needed financial support to the PNG government and enhance its credibility.
• The loan will help repair public finances and alleviate pressure on government spending.
• Priority areas for capital expenditure in the 2023 budget include transport, utilities, education and health.
• The IMF's support will improve PNG's access to international financial markets.

Cons:

• Phased disbursement of the loan will be conditional on progress against benchmarks that are yet to be made public. (This is IMF's secret weapon, it can do what it thinks is best, and as it pleases - not good for PNG.)
• The IMF will seek exchange-rate liberalisation, financial-sector deepening, and state-owned enterprise (SOE) reform under the new program, which may not align with recent steps taken by PNG to protect local industries through higher tariffs and ad hoc tax increases. This will be forced upon the PNG government whether it likes it or not!
• The loan does not significantly change risk around PNG's debt profile, which stands at K48.3bn.
• Continued policy reforms and international support are needed to address PNG's vulnerability to domestic and external shocks. (The details of the reforms are not clear)

 

Read about the 9 structural benchmarks that IMF is setting for PNG, Click Here.

IMF Push Reforms

The IMF's approval of the ECF and EFF is a significant development for PNG, but policy reforms and international support are still needed to address the country's vulnerability to economic shocks. 

While the loan's generous terms will help to contain repayment risk, the government must prioritize debt sustainability and FX shortage alleviation to address PNG's most pressing challenges.

Extended Credit Facility (ECF) and Extended Fund Facility (EFF) 

Notes on: ''The International Monetary Fund has approved a 38-month Extended Credit Facility (ECF) and Extended Fund Facility (EFF) for Papua New Guinea ''

The ECF and EFF are both lending arrangements that provide financial assistance to countries facing balance of payments difficulties. The ECF is a medium-term lending facility, while the EFF is a longer-term lending facility.

The ECF for PNG is designed to provide financial support to the country over a period of 38 months, while the EFF provides support over a longer period of time. The purpose of both facilities is to help PNG address its economic challenges while also implementing necessary structural reforms that can promote sustained economic growth and development.

The recent purported IMF debt facilities are a blended model pegged to 38 months and a further 10 years depending on IMF's ongoing situation analysis.

The policy conditions attached to both facilities include measures to strengthen public financial management, enhance revenue mobilization, improve the business climate, and address governance challenges. These reforms are intended to help restore macroeconomic stability and promote sustained economic growth and development in PNG.

The approval of both the ECF and EFF programs are conditional on IMF reforms in Papua New Guinea.

China Not a Development Partner But Loan Shark in PNG

WHICH DONORS CONTRIBUTE THE MOST TO PNG? While discussing 2020 Budget papers many members of NEC were surprised to find out just how much PNG receives from our donor partners. (Facebook/Kramer Report)

Note: This post was later retracted by the writer)

In 2020 PNG will receive close to K1 Billion in free development funds to assist us in our development goals.

Topping the list was Australia contributing K745m while China only contributes K7m

• Australia K745.0 m (81%)  
• European Union K80.0 m (8.7%) 
• United Nations K41.7 m  
• New Zealand K22.9 m
• China K7.0m
• USA K5.0 m 

In contrast when you look at it from how much we borrow, China tops the list on K450m. 

• China K446.2 m 
• ADB K437.6 m 
• World Bank K185.50 m 
• Japan K181.3 m 
• India K7.7 m 
• Australia K0.0 m 

Some countries are happy to lend us money where they benefit from the interest earned and conditional to their companies being awarded the contracts. Source National Planning Department 2020 Capital Investment Budget.

This piece of article is damning. Read here

O'Neill Referred | 3 Allegations Of Misconduct By Prime Minister of Papua New Guinea

Peter O'Neill [Google Pics]

Referral of the Prime Minister to a Leadership Tribunal was confirmed. The news was a ‘Breaking News’ on Sharp Talk. It was interesting to note that people close to the prime minister didn’t know.

Yet, this particular referral process has taken three months. Ombudsman Commission (OC) referred Peter O’Neill on Tuesday 12^th of August, 2014. 

According to the Public Prosecutor the initial referral did not contain sufficient evidence, credible to request the Chief Justice to appoint a Leadership Tribunal. OC has now provided cogent evidence, convincing to see this judicial process through.

Peter O’Neill referral is based  on 3 allegations reported in the Post Courier on 13^th August 2014:

The Prime Minister failed to comply with administrative and financial processes including the normal overseas borrowing process in the approval of the K3 billion loan from the Union Bank of Switzerland AF (Australia Branch);

The leader having made a media release on the sacking of Mr Don Polye as the Minister for Treasury by saying that Mr Don Polye caused instability in the Government, when the actual reason was to do with Mr Polye’s refusal to sign the UBS Loan deal which the Prime Minister had unilaterally approved on March 6, 2014; and

The leader made a misleading statement on EMTV that he had obtained advice from the state agencies including Bank of Papua New Guinea on the UBS loan to purchase Oil Search shares, which was contrary to the evidence received.

Until Friday 14^th 2014, no one has thought the Public Prosecutor would have made this bold move. To request Chief Justice to call for a Leadership Tribunal is a step in the right direction. The tribunal will deliberate on the process and transparency surrounding the K3 billion loan from Union Bank of Switzerland, the UBS.

Has the Prime Minister, Peter O'Neill, complied with due process? Has he sacked Don Polye for the right reason? Has he obtained advise from appropriate institutions before signing off the loan? Those questions will be tested against the OCs evidence. 

Facing the evidence is what Peter O'Neill has dreaded. That's his great phobia. He must subject himself to this referral.  He can only proclaim his innocence by proving to the contrary any evidence provided to a Leadership Tribunal by the OC.