Transcript
PAUL FLANAGAN: I have gone through both the 2017 Final Budget Outcome document that was released in March 2017 as well as the update for how the 2018 Budget is going, that was released on the 31st July. I go through some of the details on the revenue side and the expenditure side and the figures in there seem to be very hard to reconcile with other
numbers in the report. It seems to be very hard to reconcile with underlying economic trends we know are occurring in PNG. We know that the gross performance in the non-resource part of the economy have been very poor over the past couple of years. So we don't expect many increases in revenue but these documents are claiming there have been increases.
DON WISEMAN: Where are these increases?
PF: One is the Goods and Services Tax where they predicted a very large increase in those collections. When looking at in detail in the Final Budget Outcome it looks like a lot of that is driven by simply not making some GST payments to the various provinces that are required. It also looks as if the government isn't paying refunds of GST that are legitimately owed to businesses. So if you do those two things you can have an increase in your GST net collections, which looks good for the Budget but in fact it's not an increase really in your levels of revenues.
DW: And there are some other areas where expenditure has been kept down artificially.
PF: Well there is no doubt that the operational budget hasn't been kept under control in 2017 and this media update confirms that they still don't have it under control in 2018. This means where they are keeping expenditure down is entirely on the capital side, and also on the side of concessional loans. So they are not paying counterpart funds required to get the cheaper funds from the World Bank and the Asian Development Bank, which means that key development projects aren't proceeding, which means in the longer term they are trading off short term budget numbers looking good at the cost of losing possibilities of longer term growth, and better revenues in the longer term because of that higher growth. So there are some difficult trade-offs that have been made by the government, and ones that probably don't look in the best interests of PNG's long term sustained development.
DW: Alright we have looked at expenditure - what about revenue - is that getting better or not?
PF: So there are certainly some areas where the government is claiming very significant increases in revenue. Some of the most questionable areas there are in the area of what's called 'other revenues.' So that's dividends and other payments that come through the government. They assumed that they would have collected from the National Fishery Authority 400 million kina - what is called a sweep operation - as well as another 400 million kina in dividend. So that was in the 2018 Budget. 800 million kina, or about seven percent of total government revenue from that one agency. They media update is totally silent as to whether any of those funds are flowing. We saw that there was a payment of 60 million kina in August last year - that's well below the 800 million predictions. These sorts of shortfalls raise questions on the credibility of the revenue forecast.
DW: The government though has indicated that it is going to take loans from the IMF and World Bank hasn't it?
PF: The level of funding that has been talked about - US$100 million from the ADB and the updated figure from the World Bank at US$150 million in 2018. They are positive steps but I think Charles Abel [PNG Treasurer] in parliament last week indicated that he is having difficulty negotiating the loans with the World Bank because they are looking for some economic changes - from ones to deal with the underlying problems in the PNG economy. The key one is the exchange rate. There are massive exchange rate shortages in PNG. The World Bank believes that requires a devaluation, as do most commentators, external commentators. PNG is refusing to do that and as long as the PNG government refuses to take that difficult economic medicine, the level of funding that would be provided is likely to be delayed, and certainly will never match the levels you will get in other countries such as Mongolia, where you are not talking about US$150 million, you are talking more like US$6,000 million. It's part of a structural adjustment programme and that is the sort of programme that PNG now requires because of the economic mismanagement over so many years.
DW: You have been tough on this economy for a fair while but are seeing any light at the end of the tunnel, at all? I mean there are increases in commodity prices aren't there?
PF: Yes that certainly is a positive element in terms of the movement in oil prices. So the prediction they had at the Budget was just over US$50 a barrel, their updated prediction is more like US$65 a barrel, so that will increase some revenues. But even that increase in 2018, that will account for another 140 million kina - but in a Budget of 14,000 million kina that is only a one percent increase in revenues that flow from those improved commodity prices. So that may increase in future years. That's certainly a positive, but it doesn't deal with the other huge expenditure issues they've got. They don't have that public expenditure bill under control, wage increases are many, many times greater than that. Interest costs have ballooned too. The current Budget has figures somewhere between 1.8 billion and 2 billion out of a total for a Budget of 14 billion - these are very, very large figures and four or five times as high as what they were just a few years ago. My belief is that PNG has great economic prospects if the right economic policies are put in place. So the real challenge is up to the PNG government to realise that future but to do so they need better policies in place than are there at the moment.
