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Analysing the PNG budget for 2010-11

BY MATTHEW MORRIS

MOST PAPUA NEW GUINEANS are simply trying to get by: earn a living, pay school fees, get medical care for loved-ones.

Many will also be wondering how, or if, their government will deliver critical services to help them along. The 2011 Budget provides some indications.

The budget of $3.5 billion is the country’s biggest yet and is equivalent to about K1,500 for each person in PNG. How confident are you that the government will use taxpayers money wisely? The rest of this article is based on publicly available data from PNG Treasury documents.

Economic growth. Before looking further at how to spend K1,500 per person, let’s take a quick look at the economic growth forecasts.

The good news is that the growth numbers in the budget documents are more or less consistent with the targeted 8.5% p.a. average growth between now and 2015 – making PNG probably the fastest growing economy in the Pacific.

But averages can be deceptive, and this average depends on the LNG project proceeding on schedule and a consequent 23% growth in 2015. Moreover, this growth will only benefit most people indirectly. And there is very little in the way of LNG tax revenues flowing by 2015.

So, from an individual perspective, it’s probably more relevant to focus on what is happening to non-mineral growth. The news is good. With forecast growth 4.6 % p.a. between now and 2015, non-mineral GDP per person that was just over K3,000 last year would reach K4,000 by 2015.

Mineral revenues. Turning to mineral revenues, the picture is mixed. The government collects revenue from the mineral sector through taxes and dividends, both forecast to fall sharply over the medium term. This is partly a reflection of Treasury’s tendency to be conservative in its forecasts, but there are other factors in play.

It is possible that the financing of the LNG project will impact on receipts, or perhaps Treasury is assuming the Ok Tedi mine will close. That might explain why mining and petroleum dividends, about K300m this year, disappear in 2013 and 2014.

Government spending. There are two perspectives on the level of spending. One is that spending is too high, and PNG should be running a budget surplus to mitigate the risk of revenue losses later and to deal with capacity constraints. The second view is that, with LNG revenues expected to come in 2018, and pressing development constraints, PNG needs to spend more now.

Both views have merit. The critical issue, though, is not whether to save or spend but how effectively to spend.

Additional recurrent spending is welcome given the chronic underfunding of basic services in PNG, but are the extra resources getting to where they are needed?

Education. Education is a key basic service and accounts for 15% of total spending. The biggest increases were for non-teacher recurrent spending and the Development Budget, while the allocations for teacher salaries and provincial function grants got only a small increase.

While there was more money allocated to teacher salaries, this was only a tiny increase and falls a long way short of what the government has previously estimated is needed. Moreover, adjusted for inflation, funding for teacher salaries is flat, and lower than in previous years.

Based on this analysis, it is not clear where the funding will come from to pay for the extra teachers the government plans to recruit. Though, in the past, Treasury has pulled money for pay increases out of its miscellaneous allocation.

School fee subsidies, a topical issue at this time of year, will provide a 11% (real) boost for parents in 2011, but there are no increases thereafter. Given the challenges of service delivery in PNG and sharing mineral wealth, school fee subsidies are arguably the most effective way to indirectly reach the majority of Papua New Guineans.

Budget analysis. As the government prepares for a $31 billion inflow of LNG revenues, it is everybody’s business to check on how it is managing taxpayers money – starting with the K1,500 for each Papua New Guinean that will be spent this year. Will it deliver the services that people need?

Matthew Morris is a Research Fellow at the Crawford School and Deputy Director of the Development Policy Centre.

Source: Development Policy Newsletter, January 2011

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