| PNG Economics
THE Papua New Guinea Treasury’s final budget outcome for 2016 provides frank numbers on the O’Neill government’s inexcusably poor management of its revenues, expenditures and debt.
The document confirms a budget deficit and debt blow-out during 2016.
PNG has never before -even during much worse falls in commodity prices – had such an appalling string of huge budget deficits. The government has no credible path out of the budget mess. Deficit levels are getting larger, not smaller.
PNG Treasury states the debt to GDP ratio is 32.6% and so exceeds the 30% limit set out in the Fiscal Responsibility Act (using the GDP series when this benchmark was created, the ratio is now 42.7% of GDP).
As a result of the failure to manage this fiscal crisis, PNG’s debt in 2016 is 258% of its 2012 levels. This will be a painful legacy for PNG’s future as little of the debt blow-out has been properly invested.
The 2016 supplementary budget assumed that revenues would increase by K928 million but the fnal budget outcome indicates revenue actually fell by K1,237 million – a difference of K2,165 million.
The supplementary budget also assumed that expenditures would be cut by K928 million but they were only cut by K262m. Staffing costs exceeded the supplementary budget by an extraordinary K471 million, mainly due to poor planning around teachers.
There is a risk that some of the nearly K1,103 million reduction in goods and services expenditure late in 2016 is simply a deferral of bills.
The blow-out in deficits and debt results from excessive expenditure expansion in 2013 combined with a dramatic collapse in revenues to the lowest levels since Independence.
The revenue collapse mainly results from the poor performance of the PNG economy and the diversion of revenues to Kumul Petroleum – less than 30% of the revenue fall is due to the fall in commodity prices.
The poor budget outcome in 2016 also means revenues will be lower and expenditures higher than shown in the 2017 budget.
This Treasury report confirmed what Treasurer Pruaitch said on the same day when “spilling the beans” on economic mismanagement in PNG.
Possibly for political reasons, the Treasurer agreed to release some rather damning numbers that I did not think would come out before the election.
The frankness of this release reveals a split between the treasurer’s National Alliance Party and the prime ministers’ Peoples National Congress. Even then, I expected the PM’s minders to catch these embarrassing numbers.
There is little doubt that the 2017 budget is now significantly off-track and a much larger deficit is inevitable.
The 2017 budget needs to be redone.