PAUL FLANAGAN | PNG Economics | Extracts
CANBERRA – Papua New Guinea’s 2019 budget is being released today and hundreds of people will be analysing it and what it means for the future of the country.
I started analysing PNG’s budgets back in 1978 and once used to attend the media lock-up. So here is a 10-point guide from someone who has been banned from PNG.
- Be prepared
The 2019 budget needs to be looked at in comparison to recent budget documents and reports. So bring along electronic copies of the 2018 budget, the 2018 MYEFO, the 2019 budget strategy (all available from the Treasury website) as well as the 2018-2022 medium term development plan (available from the National Planning Website). Also bring along the latest figures from respectable outsiders – so the latest figures from the IMF and World Bank are probably most pertinent. These are also useful for checking if the budget is doing what the government said it would be doing.
- Don’t start reading the words – start with the numbers
This may sound strange, but I always recommend that you start with Budget Volume 1, go to the last Annex (about page 120 or so) and begin with Table 1 titled “Gross Domestic Product by Economic Activity” – or GDP for short. It is an attempt by economists to measure the size of the economy. This is the first fundamental test of the credibility of the budget, and therefore any of the words in the budget speech and Executive Summary. Table 1 has lots of interesting information for economists and industry analysts, but for budget analysis the key figures are at the bottom of the table – what is the government saying is the size of GDP and how quickly is it growing?
- Stick with the numbers (you can tell I’m a number person!)
Have a quick look at Table 7 in the back of the budget annex on formal sector employment. Hopefully the non-mineral employment index will have moved back to at least its level of 2013 – it’s been falling in recent years.
Have a quick look at Table 8, especially the line on ‘Credit to the Private Sector’. This hopefully will be well above the expected rate of inflation – otherwise a sign of a lack of investment in the economy.
Unfortunately, this went backwards even before inflation in 2017, and the World Bank and IMF expect it will go backwards again in 2018 by another 4.3% before a modest recovery in 2019. This is hard to explain as the earthquake would have been expected to increase investment rebuilding, as well as some APEC-related work.
Now to Table 10 called ‘Statement of Operations for General Government’. This table is absolute gold. As long as it is accurate (there were big errors in the 2018 budget). It gives you a wonderful overview of how things have been going on revenues, expenditures, key fiscal deficit ratios, financing and even a double check on the GDP numbers (the latter can vary between the various tables)
Actually, you almost don’t need to read anything else in the entire budget except for key announcements about any tax changes, expenditure initiatives and sectoral spending composition!
- Gauge the government’s spending priorities
Part of this comes from looking at growth in expenditure on compensation of employees and interest costs. There should also be a table that shows the break-up of expenditures between different sectors. The 2018 budget didn’t have a good table comparing this expenditure through time – it only provided 2018 estimates.
- Actually start reading some words
The Foreword at the start of Volume 1 of the budget tends to include the key announcements and the budget ‘narrative’ in only three or four pages – so much shorter than the typical waffle of the budget speech. It starts to become very interesting to compare the words in the foreword with the analysis of the tables.
Most of the big capital works programs should have been included in the 2018-2022 medium term development plan. So often the main announcements are actually around tax changes – and this often features in the write-up of the budget by the large accounting firms.
- Check on consistency between 2019 budget and MTDP III
For the keen, you can attempt to compare the plans contained in MTDP III with some of the detail in the tables. The capital works programs contained in Volume 2 of MTDP III should match with the programs in Volume 3 of the 2019 budget. A key issue is the link between the operational costs of the MTDP III and the 2019 budget. This involves some hard work going through Volume 2 of the 2019 budget which is huge – so large it has traditionally been printed in four separate volumes.
- Optimise food location
Stand close to the left hand side back door of the parliamentary lock-up when the nibblies come out – or at least that was the case several years ago. But possibly they have gone as a sign of budget austerity?
- Manage the volumes
The stack of budget volumes then somehow have to make it onto over-crowded library shelves. And on that note, if anyone has some old budget volumes (especially prior to 1990) which they no longer want to keep, please let me know. The only thing I like better than numbers is the history of numbers.
- Good luck and good night
Good luck! And I hope some of those hard-working PNG Treasury and National Planning Officers will be able to get some sleep with the 2019 budget finally out of the way. Now just to get ready for the close of accounts and then the process of monitoring. However, many in the private sector now have a long day ahead going through the numbers and reporting their analysis to their customers.