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Moody's shifts Papua New Guinea's outlook to negative

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Moody's shifts Papua New Guinea's outlook to negative

Moody's revised Papua New Guinea's ratings outlook to negative from stable, citing increased government liquidity risks stemming from high gross borrowing needs and limited funding sources.

The rating agency said the gross borrowing requirements of the Pacific island nation, which faces challenges in obtaining funding from domestic sources, are expected to remain at about 16% to 17% of GDP in the next few years.

"Liquidity constraints put downward pressure on Papua New Guinea's fiscal strength, despite ongoing fiscal reforms aimed at supporting government revenue in the medium term. As they persist, liquidity constraints raise refinancing risks," Moody's said.

Moody's projected Papua New Guinea's government debt to rise to about 34% of GDP by 2019, up from 32% in 2017. The rating agency said this "provides limited fiscal flexibility in the near term in the event of a significant negative economic shock."

In the longer term, Moody's expects the country's fiscal policy to improve due to reforms and technical support from international financial institutions.

As part of the ratings action, Moody's affirmed Papua New Guinea's credit rating at B2. It also slashed its GDP growth forecast for 2018 to 0.5% from 3% previously due to the potential impact of a recent earthquake.