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PNG budget needs more discipline, says Nasfund

IN AN article entitled Do We Still Have Our Hands on the Wheel?, PNG’s national superannuation fund, Nasfund, has raised serious concerns about the country’s 2010 budget.

“The recent delivery of the 2010 budget leaves a lot of unanswered questions,” Nasfund wrote in its December newsletter.

“While we applaud a balanced budget, this in itself has been masked by slippage through trust accounts.

“Two years ago, we proudly talked about a surplus in trust accounts of between 3-4 billion kina … now it has been revealed that the trust accounts have fallen to K1.5 billion with lack of full accountability on how and why this money was spent.

“The implications of that expenditure are very clear - an economy that is overheating and the flow on effect of anticipated inflation of 9.5% in 2010.

“The economy needs no further stimulus, in fact remedial action is now required to ensure that public sector largess does not crowd out the development naturally occurring through the private sector.”

Nasfund said the PNG economy requires “a reality check”.

“Evidence of the current exuberance has been the extraordinary credit growth in excess of 30% over the last few years.”

Nasfund concluded that the government must freeze further expenditure from the trust accounts and that the Central Bank must “flex its independent muscle and raise interest rates.”

Nasfund also said that the exchange rate should be allowed to appreciate to 50 toea to the Australian dollar from the current 40.

“This would have a positive deflationary effect, taking some of the steam out of the 2010 expected inflation rate of 9.5%. It will also increase the real purchasing power of urban workers who are facing rising costs of imported goods and fuel.”

Nasfund said PNG is about to move into three to four years of extraordinary development and there can be no room for complacency or undisciplined expenditure.

“To do so, would undo much of the good work already achieved. We need to keep our hands firmly on the wheel.”


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Reginald Renagi

There is also one good way for the PNG government to put its fiscal house in order and exercise sound financial management of its national budget in future years is to draw up a revised and strengthen its Public Tender Act or its equivalent.

All government departments and agencies must be required to comply with a strengthened public tender act aimed at strengthening competition and eliminating costly lawsuits that occur as a result of violations to the act.

Other ways to improve future financial management by governments is to review all government owned and leased space with the objective of rationalizing space requirements. Similarly, all government owned assets must also be reviewed to determined if it can be provided for a lesser cost by the private sector, or if it should be sold.

In addition, the country must also improve its debt collection capacity by strengthening the process for collecting monies owed to government. Coupled with this is to also review all government fees to determined if there are certain barriers to economic development.

So by applying expenditure controls and effective program management the government can eliminate its operating deficits and reduce its debt to a prudent level in future.

Reginald Renagi

Further from my last comment for this government to do more than say it has a balanced 2010 budget and that it will take more than increased revenues is to first of all put PNG's 'Fiscal House' in order. It will always require sound fiscal management of government's current expenses. Its fiscal policies much ensure it keeps a tight rein on government spending, and reoreint new spending to areas that will boost sustainable economic growth.

The government must try to provide real financial management, real transparency and real accountability. We must have a new approach in stabilizing the government's fiscal position.

Some future strategies to use from 2010 onwards by the government is to keep real program spending constant by limiting the annual growth in spending to the anticipated growth in inflation. Any new needs that arise must be reasonably accommodated within this budget constraint.

The government must also ensure value for money by eliminating ineffective and inefficient programs, and by setting objectives for program spending and tracking results. It should also stop the practice of year-end spending to use up unspent budgetary allocations, and assign any unanticipated budget surplus to debt reduction.

So by reviewing financing arrangements to service the country's debt, the government must further immediately review all financing arrangements in all departments to overall cut PNG's debt and reduce interest cost.

For many years now, the government spends some eighty per cent of its budget towards salaries and employee benefits. In the next five to ten years it must use this period to rationalize the workforce to reduce the size of the public sector through natural attrition, and retrained and redeployed for the private sector.

Another strategy is to conduct a review of all government vehicle fleet and determine how many are necessary for government operations and downsize accordingly. It should further do a cost benefit study to determine whether these vehicles should be purchased or leased. All travel expenditures for elected and non-elected officials should also be reviewed and reduced.

Reginald Renagi

Saying that the government has a balanced budget has always been a subjective assessment. Many sectors are complaining next years' Money Plan is far from being a balanced budget. The opposition party has also highlighted many key areas the government has missed out, or given low priority to in its 2010 Money Plan.

The PNG government must do more in future other than say it has a balanced budget as a lot of priority areas have been underfunded from previous years. Every government always say they have a balanced budget. There is no such thing as a balanced budget as many people will always pick holes in it charging that there are always many needy areas every government has missed out on when drawing up its budget.

There are important fundamental areas any government has tried but seems to not do a good job on. I see successive governments having failed over the years to try and compliment a supposedly good budget (from its own point of view anyway) by puting in place a sound financial management and accountability mechanisms.

One of the greatest barriers that has prevented successive PNG Governments from addressing the real world issues of job creation, urban migration, health care and education is the country's weak and fragile fiscal position. It can in future increase the country's revenue stream through the development of new business opportunities in the private sector and targetted government investment.

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