S&P Global Ratings affirmed Papua New Guinea's ratings with a negative outlook on its long-term ratings.
The rating agency said it affirmed the country's foreign- and local-currency long-term rating at B+ and its short-term rating at B.
The ratings take into account Papua New Guinea's lower middle-income economy, weak institutions, limited monetary policy flexibility and high external debt, S&P said. The weaknesses are balanced by the country's sound medium-term growth prospects, which are underpinned by energy and mining activity.
S&P expects the country's US$19 billion LNG project, being operational now, to contribute to both export receipts and government revenues and unwind the sovereign imbalances. The sovereign imbalances may unwind very slowly mainly due to the current weakness in global energy prices.
The rating agency said it sees a one-in-three chance of a rating downgrade within the next 12 months, due to a possible failure of the government to meet its debt levels. A rating downgrade is also expected if large fiscal and external imbalances remain slow to ease or commodity prices weaken further.
S&P could upgrade the outlook to stable if the sovereign's fiscal deficits narrow further and the government's debt stabilizes. A significant improvement in the sovereign's external position supported by solid economic growth and export receipts could also lead to an upgrade of the outlook to stable.
S&P Global Ratings and S&P Global Market Intelligence are owned by S&P Global Inc.