The decision to change the outlook to stable reflects Moody's view that constraints on government liquidity will continue to ease. In particular, the continuation of the government's strategy to use proceeds from foreign-currency denominated commercial and concessional borrowings to repay short-term and high cost domestic debt will reduce refinancing risk.
This is balanced against Moody's view that the government's fiscal strategy faces risks from a higher reliance on external and foreign currency borrowings that renders the debt burden and debt-servicing costs more vulnerable to a potential local currency depreciation and sudden shifts in international investor confidence.
A materialisation of such risks would damage the government's fiscal strength.
"The decision to affirm the B2 rating incorporates Moody's assessment that PNG's domestic government liquidity risk and external liquidity risk are balanced against credit strengths stemming from prospects for high GDP growth in the medium term as investment in PNG's natural resources wealth is realised and a moderate level of government debt compared to peers.
"The rating is also underpinned by credit challenges related to moderate political risks and weaknesses in governance," Moody's said.
The local currency bond and deposit ceilings are unchanged at Ba2.