By Government Insider
Recently, commentators on social media have been preaching doomsday on Papua New Guinea and comparing it to a ‘Greece-like economy,’ which will be declared bankrupt.
Is Papua New Guinea really on the verge of bankruptcy?
How do we define bankruptcy and when does a country become bankrupt?
Bankruptcy occurs when individuals take on more debt than they are able to service. This means they can no longer can repay their debt and default.
Throughout the World, Governments borrows money locally and internationally to finance its development goals. These borrowing is called ‘Public Debt’ or ‘National Debt.’
There are two standard ways to measure the extent of National Debt: Gross Financial liabilities as a percentage of GDP or net financial liabilities as a percentage of GDP.
The difference between Gross Debt and Net Debt is how the former is very large for some countries, and some analyst believe that net debt is more an appropriate measure of a debt situation for any particular country.
However, not all countries are the same and their financial assets differs therefore, gross debt as a percentage of GDP is the most commonly used government debt ratio.
According to 2015 Budget in June, Papua New Guinea’s Debt to GDP ratio stands at 33.5 percent and on current trend will rise to 41.3 percent. Is this cause for concent? Not so much as we think it should be.
Let’s look around the world, in February 2015 these are the Debt to GDP for 40 countries around the World.
Most analyse says that 50% Debt to GDP ratio is a healthy position for any Government and looking at this chart, Papua New Guinea is way below 50% of the healthy Debt to GDP Ratio.