PNG's PM defends loan from China's Exim Bank | Pacific Beat

PNG's PM defends loan from China's Exim Bank

PNG's PM defends loan from China's Exim Bank

Updated 24 September 2012, 11:36 AEST

Papua New Guinea's Prime Minister, Peter O'Neill, says his country now has a golden opportunity to overhaul its crumbling infrastructure and to improve delivery of services to its people, particularly those in rural areas who have been missing out.

The Pacific's tiger economy has been growing at eight per cent a year, for a decade, but more than three quarters of its population still does not have access to electricity and many have to walk for hours, or even days, to get to a road.

To fund his planned infrastructure overhaul, Prime Minister O'Neill has turned to China's Exim Bank for a huge loan.

At the same time major new resources projects are set to come on line.

Presenter: Jemima Garrett

Speaker: Peter O'Neill, Prime Minister Papua New Guinea

 

GARRETT: Papua New Guinea has the PNG LNG project coming on stream and a host of other resource projects on line. Just how much of an historic moment is this for your country?

O'NEILL: It is obviously not the first resource project that we are developing in Papua New Guinea but the size of it is such that it is going to double our economy and it will be a great influence on the way we run out country in the years to come. So we look forward to that but we are learning from past mistakes we have mismanaged some of the opportunities that such projects presented to the country and that is why we have established the Sovereign Wealth Fund through legislation through parliament which is going to help us manage some of the revenues coming for these major projects and they will also manage these projects so there will be some amounts of revenue that will benefit the future generation of our country.

GARRETT: You've set a very big agenda for this term of office, with service delivery and so forth, what are you aiming to achieve exactly?

O'NEILL: Well, basically I am trying to improve the quality of living standards of our people, where basic services have not reached the bulk of our population. Eighty-five percent of our population live in the rural communities, they still lack basic educational services. They still lack decent health care, they lack the transportation to get their goods to market and law and order continues to become a major issue in some of those communities. And those are the issues we are focussing on as we enter this term of parliament. And our government is very much focussed on those areas that, we as a government, must make it priority that we deliver those services so that it will improve the standard of living for our people.

GARRETT: Papua New Guinea has had other booms in the past. What makes you think that this time you will be able to get the services down to the people/

O'NEILL: Well, I think if we continue to provide good stable leadership at the political level and also improve on the performance of the public service, establishing laws that will protect the revenue stream of our country including, as I said, the Sovereign Wealth Fund, and making sure that we have prudent management of our economy, I think we will be able to overcome many of the mistakes that we have made in the past and that is why I strongly believe that this is the golden opportunity for our country to make sure that we correct the mistakes of the past.

GARRETT: You've just announced a 500 million kina deficit - which is around 230 million Australian dollars - and commodity prices too are weakening. Is the moment slipping through your fingers?

O'NEILL: Well, we know there have been some unexpected expenditures in the recent times, including a very prolonged election process of over 3 months, which has been costly. Also, we have had an increase in the number of employees some of the provinces have been putting on their payroll. That has increased the payroll expenditure of government. So those two particular issues have really pushed the government expenditures beyond the appropriations we have set in parliament but we are making corrections to it, cutting back on non-priority areas. We are making sure that the expenditures are within the appropriations that we have passed through the budget so we are confident that we will deliver a balanced budget by the end of the year.

GARRETT: You've just announced a 6 billion kina loan from China's Exim bank - that's worth almost 2.7 billion dollars. Critics say that is too big for PNG's budget. How do you respond?

O'NEILL: I think they underestimate Papua New Guinea's growth that is happening in the country. We are growing at an average of 8% over the last 10 years. We expect that growth to continue. We expect our economy to double by 2014. Our infrastructure in the country is declining to a state where some infrastructures are not able to cope with the demands of our people and our ecomomy. So when you look at this what solutions do you have? We need to program a massive overhauling and redevelopment of many of these infrastructures, particularly the transport systems in the country, and we are doing that by borrowing large sums of money. It sounds large but the draw down will not be in one single year. We are managing it prudently through our fiscal strategies that we have put in place and the projects are not going to be completed in one single cycle of a budget. So I don't think the stress levels will be that noticeable as the economy continues to grow. So I think our critics that are out there now stating that we are not able to manage such a large loan that has been sought through the Exim Bank of China we say this 'Do you want us to allow our infrastructures to continue declining? Do you want us to allow the economy to slow down and that there is no economic growth in the country? Do you want us to allow the unemployment figures to continue to rise?' Because when the economy does not grow the unemployment increases, all the other social sectors will decline. That is not a responsibility this government is prepared to accept. That is why the onus is on myself and the government to make sure that we rebuild the infrastructure in the country .

GARRETT: Nevertheless, the total PNG budget is around 10 billion Kina. You are not worried about the extent of debt you are getting into?

O'NEILL: Well, let me say this! Over the next ten years the economy is projected to grow and at the same time the economy is expected to double by 2015. Now it is capable of refinancing this loan but this is a financing facility that is made available, as I said the drawdown will not be done in a single year. We want to make sure that when we give contracts out to contractors to build this infrastructure that they don't run out of money. We have a financing facility that is available. By 2014-15 we will have the first revenue from the LNG and the other major projects we have in the country. They will provide sufficient cash flow that will finance many of these projects. The loan that we are seeking is just a standby arrangement where if we run short we can be able to use that facility to finance the infrastructure development in the country. So the matching process will continue as the government continues to develop the budget over the coming years.

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