S&P Global Ratings lowered Papua New Guinea's long-term foreign and local currency sovereign credit ratings to B- from B amid increasing government debt levels and fiscal deficits, which could be exacerbated by the coronavirus pandemic.

Based on the rating agency's estimates, Papua New Guinea's general government net debt would climb above 38% of GDP in 2020 amid slow economic growth and wider-than-expected fiscal deficits following a supplementary budget passed in November 2019.

S&P Global Ratings said general government net debt is forecast to hit about 42% of GDP in 2023 as the fallout from the pandemic delays the government's fiscal consolidation efforts. General government deficits are also projected to increase between 2019 and 2021 to an average of 5.4% of GDP.

"We expect recent COVID-19 developments to put further strain on government finances," the rating agency said. It noted that potential containment measures could curb economic activity and tax collection.

The country's real GDP is expected to fall 0.2% in 2020 before picking up in 2021 with growth of 3.3%, according to S&P Global Ratings.

The rating agency affirmed Papua New Guinea's short-term sovereign credit ratings at B. The ratings outlook is stable.

This S&P Global Market Intelligence news article may contain information about credit ratings issued by S&P Global Ratings, a separately managed division of S&P Global. Descriptions in this news article were not prepared by S&P Global Ratings.

READ MORE: Sign up for our weekly coronavirus newsletter here, and read our latest coverage on the crisis here.