The government of Papua New Guinea earlier said it will; finance its current deficit through domestic borrowings. This is according to the budget documents PNGLoop has from the 2013 budget session.

However, it seems the government will be relying on the revenue from PNGLNG gas to service that deficit budget.

The Treasury however remains quiet on the government’s domestic borrowings, which of course has been problematic in the past.

The World Bank country report cautions: “The budget deficits will raise debt to around 35 percent of GDP by 2014, compared with gross public debt near 25 percent of GDP in 2012.

“In 2015, the government expects that a 26 percent increase in nominal GDP (as production at PNG-LNG starts) will return the debt-to-GDP ratio to below 30 percent of GDP.

“With the projected temporary increase in the debt-to-GDP ratio, the government is expected to revise the Medium-Term Debt Strategy (MTDS), from the current 30 percent ceiling, to target debt-to-GDP below 35 percent in 2013 and 2014, before returning the target debt ceiling to 30 percent of GDP from 2015”

Importantly, given the size of off-balance-sheet liabilities, the revised MTDS also targets capping the government’s gross liabilities at less than 60 percent of GDP.

These targets will act as the key medium-term fiscal anchor, limiting the size of deficits and scope to accumulate liabilities through off-balance sheet transactions.

Meanwhile the new medium-term fiscal strategy focuses more on shifts in the composition of spending, as well as the longer-term goal of returning the budget to balance by 2017.