IMF explains K3.2 billion loan to PNG

PHOTO: DevPolicy/Johan10 (Adobe Stock)

The International Monetary Fund (IMF) has dismissed reports that it had imposed income and corporate tax increases and devaluation of the Kina as conditions for the Government to acquire the K3.2 billion (US$908 million) loan.

IMF country representative Sohrab Rafiq said the terms and conditions for the loan programme were set by the Government, not the fund.

“The programme’s 13-year budget repair, including revenue mobilisation efforts, is set in accordance with the Government’s existing medium-term fiscal strategy, targeting a balanced budget by 2027,” he added. Rafiq said the IMF programme’s deficit target was the same as Government’s target set in Budget 2023.

Rafiq told The National that the Government had made a commitment, supported by the IMF, for a gradual move to a market-determined exchange rate over the medium-term, as part of a set of reforms, with IMF technical assistance aimed at tackling long-standing foreign exchange shortages.

“PNG faces substantial development needs to tackle high poverty, with most of the population living in hard-to-reach rural areas and lacking access to basic infrastructure and services.

“The country was hit by multiple shocks including low commodity prices in 2014-20, a severe drought in 2015-16, a major earthquake in 2018, and the pandemic in 2020-21.

“These shocks softened growth and led to an aggravation of foreign exchange shortages and a build-up of public debt.

“The speculations that the IMF programme will raise income and corporate taxes are not something we specifically requested.

“The Government plans further consolidation as part of their medium-term budget strategy, and we support these efforts, including through raising revenues,” he added.

Rafiq said PNG was at high risk of debt distress and needed to narrow the fiscal deficit, but not immediately because that would impact economic growth.

“The Government will have to borrow to execute its budget. Nearly all countries do.

‘If they do not borrow at all, many important functions like security, education, health care, and projects will be reduced.

“Sudden cuts like this are best avoided or they can cause undue hardship to the people.

“Rather, what the Government is doing is gradually reducing the need to borrow and avoid disruptions. “The Government must borrow under the best terms possible,” he added.