PNG Vulnerable, Says Leading Index Provider
The increase in debt levels and limited fiscal maneuverability leaves PNG vulnerable to a unstable global backdrop.
This is according to Standard and Poor’s Global, a leading index provider and data source of independent credit ratings.
It is the provider of the popular S&P 500 Index as well as several other global market indices. Standard and Poor’s Global (S&P) has lowered its long term foreign and local currency sovereign credit ratings on PNG to ‘B-’ from ‘B’ but have affirmed that that the outlook is stable.
It says that it is expected that the Covid-19 pandemic will further weaken PNG’s economic growth prospects and fiscal metrics. The stable outlook reflects our view that economic growth and fiscal deficits will remain under pressure for the next 12-18 months, the report stated.
However, the weaker metrics are unlikely to lead to a sovereign default during this period, it said.
Meanwhile, Bank South Pacific who has been credit rate by this external rating agency since 2005 says since it’s a PNG owned business and majority of its business is PNG based the Standard & Poor credit rating of PNG strongly influences BSP’s credit rating.
This means that BSP’s credit rating cannot be higher than the sovereign credit rating.
However BSP group chief executive officer Robin Fleming said the downward movement in the credit rating does not affect BSP’s share price, its cost of deposit raising or its management directly.
Mr Fleming said the movement of PNG’s credit rating to B- does reflect some key changes in the global economy following economic slowdowns associated with Covid-19 and the reduction in energy prices and other commodity prices which influence government revenues.
“With economic activity in PNG having slowed down due to travel and movements restrictions to reduce the prospect of transmission of Covid-19, BSP and its relationship managers will be in much more regular contact with our customers to understand the impact on their businesses,” he said.
Standard and Poor’s global have also confirmed that PNG’s banking system is stable, with limited competition.
According to S&P, it relies heavily on deposit funding, which is supported by high levels of liquidity. It also has a small net external asset position and limited linkages to global markets.
“That said the country’s low income levels and credit concentrations increase banking system risks. Legal infrastructure and judicial system delays also pose challenges to enforcing creditor rights,” it says. “Our Banking Industry Credit Risk Assessment for PNG is 9 (with 1 being the highest assessment and 10 being the lowest).”
It is also expected that there are several downside risks to economic growth specific to PNG going forward.