Refinancing is not repaying: the bad 2018 bond and the Treasurer's alibi

by PAUL L. KEBAIJA

Treasurer Ian Ling-Stuckey wants Papua New Guineans to see the K2.25 billion bullet payment due in 2028 as a mess left behind by "the previous government." The record is less convenient. The US$500 million sovereign bond was priced in late September 2018, when James Marape was Minister for Finance, a post he held from 2012 until April 2019. Marape has said as much in Parliament: "I was his finance minister." The government now in Washington looking for cheaper money is led by a man who sat in the Cabinet that took the expensive money.

Seven years have passed since Marape became Prime Minister in May 2019, and Ling-Stuckey has been Treasurer for nearly all of them. The bond's terms have not moved in that time: an 8.375 per cent coupon and a single repayment of the full principal on 4 October 2028. (TVWAN's report gives 8.35 per cent and August; the bond's listed terms say otherwise.) At about US$42 million a year, the State has paid roughly US$314 million in interest on this bond since Marape took office, more than a billion kina, and the principal is still owed in full. Two years from maturity is not "early action." It is the last sensible moment.

The kina has made the bill bigger, and that happened on this government's watch. When the bond was sold, US$500 million was worth about K1.7 billion. The Treasurer now prices it at K2.25 billion; at Reuters' October rate of K4.63 to the US dollar, it is nearer K2.3 billion. More than half a billion kina of that increase has come since May 2023, when the kina began its managed depreciation under the IMF program this government signed. That part of the burden dates from 2023, not 2018, and it also inflates the near-K200 million annual interest bill.

The bond is less than 4 per cent of what the State owes. A World Bank and IMF debt sustainability analysis shows public debt climbing from about K24 billion in 2017 to almost K58 billion in 2023, and the Treasurer told Parliament last year the stock would reach K65 billion by the end of 2025. The same analysis stress-tests for state-owned enterprise debt that never appears in the official figures. A single 2028 repayment may produce the spike that trips the risk rating, but it does not explain how the debt stock more than doubled.

Refinancing does not repay a toea. It swaps one creditor for another and pushes the due date out, past the 2027 election and onto governments not yet elected. A World Bank guarantee may well lower the interest rate, but it is not a gift. The government whose borrowing is guaranteed signs a counter-guarantee to repay the Bank if the guarantee is ever called, and the policy-based version is tied to a program of reforms. The risk does not leave Papua New Guinea. It moves from bondholders to the World Bank, with PNG still liable.

The IMF's Extended Credit Facility and Extended Fund Facility, approved in March 2023, have reached their final review, which would take disbursements to about US$1.19 billion. Reuters reported in October that PNG missed its fiscal deficit target in the first half of 2026 and needed a supplementary budget in September. Ling-Stuckey's budget repair plan targeted a surplus by 2027. Now, with an election months away, he is discussing further IMF financing, including a standby facility as a cushion against future shocks. A government that had repaired the budget would not be shopping for a new safety net.

Papua New Guineans are owed answers before technical talks open in Port Moresby in the week of 9 November. What interest rate and term are on offer, and what conditions and fees come with the guarantee? Will every kina borrowed go to retiring the 2018 bond, or will some of it fund new spending? Will Parliament see the terms before the State signs? And what has Treasury done about this bond since 2019, other than blame it?

The 2018 bond was a bad deal. Marape helped make it, Ling-Stuckey has had seven years to deal with it, and more than half a billion kina has been added to its cost on their watch. Blaming "the previous government" is not debt management. It is an alibi.