DEVELOPING DOMESTIC

GOVERNMENT SECURITIES
MARKET IN PAPUA NEW GUINEA

ADB SUMMIT
KUALA LUMPUR
3-5 NOVEMBER 2009.
 OVERVIEW
„ Roles of Treasury & FED
„ Context: Macroeconomic trends, debt
composition & laws
„ Objective and Strategies
„ PNG Government Securities
„ Key Issues and Challenges
 PNG MACROECONOMIC
BACKGROUND
GDP Growth vs Budget Deficits
20.0% 10%

8%
15.0%

6%
10.0%
4%

5.0%
2%
GDP Growth % pa

0.0% 0%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
-2%
-5.0%

-4%
-10.0%
-6%

-15.0%
-8%

-20.0% -10%
GDP Grow th Real GDP Grow th Budget (Deficit) Surplus as % of GDP
 T Bill Yields Vs CPI
T Bill Yields and CPI
30.0

25.0

20.0

15.0

10.0

5.0

0.0
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
CPI % T Bill 182 day %
PNG Public Debt Structure
2008 2.9573 3.4577 2008 55% 45%

Composition of Debt
10
8
Kina
Billion
6
4
2
0
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Domestic External

100%
Interest Rate Mix
80%

60%

40%

20%

0%
94

95

96

97

98

99

00

01

02

03

04

05

06

07

08
19

19

19

19

19

19

20

20

20

20

20

20

20

20

Floating Fixed 20
Department of Treasury &
FED
Objectives:
„ To enhance Economic Policy,

Investment Policy and Financial advice

„ Strengthen Governance and

Accountabilities
„ Improve management of the Budget

„ Improve Operational Performance

Department of Treasury &
FED Function
„ The major roles of the Department of
Treasury are the provision of advice to
the GoPNG on Budget, economic,
financial, taxation, debt and investment
policy matters.
„ FED is involved with Debt Policy Matters
 Medium Term Debt Strategy

OBJECTIVE:
Minimize the cost of debt consistent with the
Government’s tolerance to financial risk

STRATEGIES
1. Reduce debt to sustainable levels

2. Reduce financial risks to prudent levels

3. Incremental and sustainable development of debt

markets
Development of Domestic
Debt Market Project
Objectives:
„ Improving coordination between State
Entities responsible for financial obligations
„ Providing investors with data that meets the
IMF’s data dissemination standards and
„ Removing barriers and improving
communication so as to broaden the investor
base
 Functional Structure

SECURITIES ISSUANCE

BANK OF PAPUA NEW GUINEA

„ Issuing Agent

„ Registrar

„ Paying Agent

Note: The Government of Papua New Guinea

reserves the Right to Appoint another Person as its
Issuing Agent, Registrar of Paying Agent
 Issuance Structure

CREATION OF STOCK
„ Treasury Bills – Approved By Minister

„ Inscribe Stock – Created By Head of State

ISSUER
„ Government of Papua New Guinea
 Legal and Regulatory Framework

‰ Loans Securities Act Chapter 134 (1980)

„ Treasury Bills Act (2001)
„ Public Finance Management Act 1995
„ Central Banking Act 2000
„ Fiscal Responsibility Act 2006
„ Financial Instruction as issued by Dept of
Finance
 PNG Government Securities

2. KEY FEATURES - INSCRIBED STOCK

„ Medium to Long Term
„ Denominated in Kina
„ Fixed Coupon Semi-annual Paid In Arrears
 Current Practice

MARKET PARTICIPATION
1. Treasury Bills
„ Individuals

„ Registered Bidders

„ Corporate Entities

„ Sold By Competitive Tender/Auction Process

„ Minimum Parcel of K100,000 (multiples of

K1,000)
Current Practice – Cont’d

MARKET PARTICIPATION
2. Inscribed Stock
„ Registered Bidders Only

„ Sold By Tender/Auction Process

„ Minimum Parcel of K100,000 (multiples of

K10,000)
 Current Practice – cont’d

TENDER & AUCTION PROCESS (Primary Market)

„ Invitation/Offer To Registered Bidders & Public
„ Amount On Offer Per Maturity Term
„ Maturity Term(s)
„ Series
„ Coupon
„ Closing Date & Time
„ Sealed Bid Auction
 Current Practice – cont’d

BIDDING
„ Amount

„ Yield/Rate

„ Maturity Term

„ Series

„ Name Of Bidder
Improvements to Auction
Process
„ Annual Financing Plan Announced
through the Budget
„ Competitive Auction
„ Predictable Fair Auctions
„ Establishment of Domestic Debt Market
Project
„ Introduced Long-dated Bonds
„ Signed MOU with BPNG
Improvements to Auction
Process (con’t)
„ Reduced Short Term Domestic Debt
„ Increased Long Term Domestic Debt
„ Lengthened Tenor of Domestic Debt
„ Domestic Debt
 KEY ISSUES AND CHALLENGES

• Improving coordination within Govt

• Data dissemination Î staff productivity
• ADB Kina denominated bond
• Capacity Development :
• Rigid and ineffective HR processes
• Poor IT and communications infrastructure
• Lack of legal expertise
• Capital Markets expertise
• Specialised CSDRMS skills and debt accounting
 KEY ISSUES AND CHALLENGES

„ Macroeconomic Î focus on development strategies

and fiscal discipline.
„ Commodity boom and bust??
„ Rationality of Rating agencies (last 5 years have each
exceeded their expectations but still no upgrade!!)
„ Sustainability of the appetite of investors for long-
term fixed rate debt
„ Whole of Government Balance Sheet
„ Listing of Gov’t. securities on POM Stock Exchange
„ Raising profile of PNG
RECAP & QUESTIONS?
 Information & Requests
„ Please include our website as a related site in
your website

„ www.treasury.gov.gp

Email us for information:

„ Aloysius Hamou – aloysius_hamou@treasury.gov.pg
„ Roselyn Irum – roselyn_irum@treasury.gov.pg
THE END
THANK YOU