Papua New Guinea has developed a much closer relationship with Australia than with Indonesia, its only land border.
Launching from Future Directions, Thursday (9/24/2020), in the case Papua New Guinea, reports the economy the government recently estimated that, the economy will contract by three percent this year due Covid-19.
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“The nominal drop in GDP is enough to lift the 2020 Budget debt-to-GDP ratio from 40.3 percent to 45.6 percent,” the report wrote.
Going forward, the impact of Covid-19 is expected to continue until 2021, with a scenario of a debt-to-GDP ratio of more than 55 percent.
The majority of this debt comes from China.
And given Papua New Guinea’s slow payments, it has kept Papua New Guinea choked on debt for decades.
Not to mention, the country’s Police Minister said that his country would be destroyed because the police agency was involved in massive corruption, drug smuggling, arms smuggling, and land theft.
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A recent report funded by the Australian Government through the Papua New Guinea-Australian police partnership stated that the Papua New Guinea police force is chronically underfunded.
The Papua New Guinea government is under extreme budgetary pressure at the moment, which has been ravaged by Covid-19.
In the supplementary budget passed by parliament, the government has cut spending by 2.3 billion kina (Rp. 9.54 trillion), as well as extended its temporary loan with the Bank of Papua New Guinea fivefold.
Meanwhile in Timor Leste, the sharp fall in oil prices earlier this year, due to Covid-19, and the oil price war between Saudi Arabia and Russia, has put the country’s economy in ruins.
Timor Leste’s economy, which was previously vulnerable, is now at greater risk. Given that the oil revenue sector contributes about eighty percent of government spending.
In addition, the political deadlock has prevented the government from approving the 2020 state budget, meaning the country must operate under a duo-decimal system.
This same system has been used and blamed for Timor Leste’s economic contraction in 2017 and 2018.
Local media, The Oekui Post said, a trimestral report from Banco Central Timor Leste (BCTL) recently announced that, the amount of Timor Leste petroleum funds stored in Bank New York was US $ 18.4 billion (Rp.273 trillion)
Starting in 2021, the Timor Leste Government will use the savings for its state expenditure amounting to US $ 1.4 billion or Rp.20.77 trillion.
In this regard, many people have started to think and be concerned about the sustainability of the financial condition of Timor Leste.
Going forward, the Timor-Leste Government will also spend a significant amount of resources on the Tasi Mane project, which aims to build onshore oil development facilities in Timor Leste.
Funding required for such a project is enormous, with estimated costs ranging from Australian 10 billion (Rp. 105 trillion) to Australian 20 billion (Rp. 210 trillion).
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However, as of this writing, no private investors are willing to join the project.
For Australia, the project is worrying, given that China has expressed interest in the project.
A recent meeting between the Foreign Minister of Timor Leste and his Chinese counterpart also led the two sides to discuss closer cooperation in the Belt and Road Initiative.
This has the potential to strengthen China’s position as an investor for Tasi Mane.
Upon completion, the project will be responsible for providing most of the wealth of the East Timorese people, and includes the construction of a port, shipbuilding and ship repair facility located some 700 km from the Port of Darwin.
The project will later be managed by a Chinese company under a 99 year lease.
From this vulnerability, the entry of the Chinese Government to Papua New Guinea and Timor-Leste has been strengthened.
Meanwhile the Australian Government recently lent IDR 1.4 billion to Papua New Guinea to help finance the shortfall.
Australia is not in a strong position financially to further assist the country’s economy.
In addition, having poor trade relations with China, the Australian Government may be pressured not to act ‘lighthearted’ in dealing with its close neighbors. (Serambinews.com/Agus Ramadhan)
This article has been published on serambinews.com with the title “Australia is starting to be reluctant to help its two neighbors because it is dragged into debt and investors from China”