PNG crisis leads to credit rating downgrade | Pacific Beat

PNG crisis leads to credit rating downgrade

PNG crisis leads to credit rating downgrade

Updated 6 February 2012, 15:31 AEDT

The cost of Papua New Guinea's political crisis which resulted in the failed military mutiny last Thursday has resulted in an immediate economic cost.

The ratings agency Standard & Poor's has revised its outlook for PNG's long-term sovereign credit rating from stable to negative ...

It says the move has been made due to the continuing political uncertainty at the top.

Presenter:Waleed Ali

Speaker:Kyran Curry, lead analyst for PNG, Standard & Poor's

ALI: Can you put this into some context for us, how serious is a negative credit rating?

CURRY: Well a credit rating outlook change to negative really reflects a one-third chance that we'll lower the ratings within the next two years. It's saying to us that there is a heightened political risk in PNG and let's be right, there's always been a significant political risk in PNG and it reflects the tribal nature of the society there. But fundamentally what we've been seeing over the last 12 months has been more political risk than usual and we see it threatening the engagement of investors and donors, which are sorely needed in PNG to diversify its economy and put its growth path on a more stable footing.

ALI: How frequently do you upate these, because I would have thought that the political uncertainty that we've witnessed now really has been with us for at least a month, probably longer?

CURRY: Yeah that's true, we have these ratings under surveillance all the time, but we fully factor in, I mean the rating is B-plus, it factors in significant political risk already, but when we see mutinies of the type that we've been witnessing over the last few days, that is a true trigger for us that the levels of political risk are that much more higher than what we've been witnessing.

ALI: Why is that qualitatively different though from the constitutional crisis that they had?

CURRY: I guess when you've got two claims on the prime minister's job and a bureaucracy that is supporting one prime minister yet the courts supporting another, the police and military supporting one prime minister while at the same time the investment community is looking at investing so much more money in the LNG sector in PNG, it just creates additional risk. And PNG has always had a very fractured political structure and the corollary of that is it's been very difficult traditionally in PNG to develop policy settings at the national level, that when we see PNG weakening, it's made great inroads over the last five years, but those settings are that much weaker than what we were expecting to see at this particular point leading into the election, which is due in June, it's just something that we don't like to see at this point. I mean PNG traditionally at elections turn over up to 75 per cent of their MPs, the outcome of this coming election is uncertain at best that when going into an election cycle like this where there are unresolved claims over the PM's job, it just looks like the settings are so much more fluid than what they would otherwise ordinarily be.

ALI: It might be a really good time to have an election though?

CURRY: Ah possibly.

ALI: Just quickly what are the implications of this revision, I mean there are major projects in PNG, the LNG project being perhaps the most famous example? Is this going to deter international investment?

CURRY: We think at this point it won't, we think that most large investors fully factor in this type of political risk into countries like PNG. There is already a high level of instability at the personal security level, which tends to impact more on the individual space, rather than the large investor space. So basically we're not expecting a significant impact in the oil and gas sector. If there was going to be an impact at this point it would be in small business like tourism, wholesaling, transport, that type of thing.

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