THE midyear update in Papua New Guinea’s budgetary position is “a frightening document” says a leading Australian expert on the country’s economy.
The outlook published this week on the 2015 budget reveals that the government deficit is set to blow out this calendar year from the planned 4.4% of gross domestic product to 9.4%.
Public debt is now projected to soar from a forecast 27.8% of GDP to 41.3%.
Paul Flanagan, a former senior Australian Treasury official and adviser to the PNG Treasury and now a visiting fellow at the Development Policy Centre at the Australian National University, said “in Australia such a rapid change in the estimated fiscal position would go well beyond being termed a ‘budget crisis’.”
He said the causes of this rapid deterioration include the fall of commodity prices, a growth slowdown and sales of public assets not proceeding as rapidly as planned.
Resource revenues are now expected to be $800 million below budget estimates, worsened by the temporary closure of the Ok Tedi mine — attributed to a drought triggered by El Niño conditions.
Mr Flanagan said the fall in non-resource revenues was surprising. Overall, government revenues were expected to be down on expectations by $1.25bn, or 20.7% of the revenue base.
He said that the “silent path” — not issuing warrants to government agencies and thus preventing them from spending — “does nothing to rebuild confidence in the economy, and just delays the near-inevitable political pain, with the 2016 budget due in three months.
“Making the required cuts will be extremely challenging. With the 2017 election looming, political choices need to be made now and in the 2016 budget.”
Mr Flanagan said he was concerned that “financing a deficit of 9% of GDP will be next to impossible”.