Fitch affirms Papua New Guinea

Fitch Ratings said it has affirmed Papua New Guinea's long-term foreign currency rating at B. The local currency rating is affirmed at B+.

The outlook is stable.

Fitch said the Papua New Guinea economy has seen renewed growth and more favorable prospects supported by a recent upswing in commodity prices. More concerted monetary and fiscal management has also reduced macroeconomic imbalances and strengthened the sovereign's external position.

Nevertheless, the agency said, the narrow commodity-dependent $3.4 billion economy remains highly vulnerable to terms of trade shocks and natural disasters. At the same time, a reliance on short-term domestic financing exposes the government to significant interest rate and rollover risks.

Favorable developments in exchange rates and commodity prices have allowed debt ratios to fall from peak 2002 levels, though public debt remains high at nearly 70% of GDP (234% of revenues). Concessional bilateral and multilateral loans make up the bulk of the 61.7% of public debt that is external, limiting annual servicing requirements.

Conversely, domestic debt is largely short-term, and high domestic interest rates have yielded a not insignificant interest-to-revenue burden, forecast at 18% in 2004. Notably, the government of Papua New Guinea has met all external debt service in a timely manner.

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