However, in a project done by the National Statistics Office and released after the budget, suddenly the  PNG economy is over one-third bigger.  Wow – that was a rapid growth rate!

The new NSO numbers, for example, increased the estimated size of the finance and real estate sector by over 400%. This all happened in 2006.

Indeed, the NSO estimates imply growth rates have been slower since 2006 than current estimates by about 10%. This is because the GDP estimate for 2006 was increased by an extraordinary 48% (all within 2006) and a more modest but still extraordinary increase of 35% in 2013.

My view is that I’d want a second opinion on these before building them into official forecasts – the IMF should do this as part of its Article IV mission later this year.

But this is the wrong number to focus on in PNG. The government is holding an increasing amount of debt “off-budget” so that it does not appear in this ratio. In reality, the government acts as a guarantor (sometimes defacto) for a large amount of debt that is being transferred to State Owned Enterprises. The most obvious one of these is the UBS loan.

The IMF actually included it in its last report and said PNG’s official government debt to GDP ratio was 56%. We actually do not know the true size of debt that ultimately would be a charge on PNG taxpayers in case of default. Transparency on these SOE operations has declined in recent years.

And of course, ultimately the issue is not so much the size of debt but whether you can keep affording the interest costs and meeting rollover requirements. The debt servicing cost of even official debt increased from K460 million in 2012 to K1,075 million in 2015– a K615 million increase that is more than the cost of the tuition free education policy.

And there are uncertainties about rolling over the UBS loan for the Oil Search purchase at a reasonable interest rate. A debt crisis is not usually about the level of debt – it is about whether the next repayment can be met. And the effects on the ground suggest the PNG government is in a cash crisis with a growing risk of rollover failure.

One of the key papers at the conference was Managing Fiscal Challenges by Professor Satish Chand of the University of NSW.

Overall, the paper made some good points, especially in encouraging greater use of concessionary borrowings in ways that improve the quality of spending such as using outside auditors.  These have not been used adequately as part of PNG’s development strategy. 

Part of this is the difficulty of mobilising and drawing down these funds. For example, the 2015 Budget originally planned to raise K811 million in net concessionary borrowing. The outcome was only K521 million. There are also lag times in building up concessionary loans – often measured in years.

More could be done through providing adequate counter-part financing and meeting conditions for loans through good practices, but it is more a medium-term part of the solution to fiscal challenges rather than one for the next year or two.

And the reality is that projects to be funded by government are often driven by political objectives rather than sound cost benefit analysis (as is often the case in Australia). An option is fast flowing concessionary financing but that would require an IMF program – and there appears little appetite for that by the government (even if it is now probably time to look for such assistance).

Possibly the paper should have covered a wider range of fiscal challenges facing PNG. Increased use of concessionary resources is at best only a small part of the required solution.  Really managing fiscal challenges requires a broad suite of policies.

We know that the budget cuts aren’t actually occurring in what are claimed to be the government’s priorities. Cuts in health and education of over one-third do not sit well with the much smaller cuts in other areas such as ‘administration’.

More also needs to be done to shore up the revenue side of the budget. The continuing fall in revenues is the driving force behind the on-going massive planned cuts in expenditure. PNG’s revenue to GDP ratio is expected to fall to 24.5% by 2017 – well below the historic average of 30.7%.

Much of this reflects the tax concessions provided to the resource sector. One risk to PNG’s longer-term fiscal situation is a continuation of these tax concessions to new projects. However, the political imperative before a 2017 election is to get these projects up and running. PNG taxpayers as a whole will have to pick up the tab.

The assumptions in the 2016 budget are now so compromised that a new budget is required.

The revenue base is likely to be some K800 million lower than expected, and the financing shortfall is heading to around K1,300 million. K400 million in unpaid cheques from 2015 are also to be paid in 2016. Lessons should be learnt from 2015 when a new budget was delayed until the end of the year. Waiting just increases the pain of the adjustment.

Medium-term fiscal sustainability requires improvements in business confidence, and linked to that, economic growth. The foreign exchange shortfalls need to be dealt with – and that will involve a range of measures including a more rapid depreciation of the kina to improve international competitiveness.

Announced policies in areas such as banning foreign investment in land, strangling agriculture behind high tariff walls and implementing a reserve list all have an adverse impact on business confidence and foreign investment. This undermines PNG’s tax base which funds essential services.

A few of the figures in the presentation could usefully be updated. For example, PNG is not over-performing in the area of fiscal deficits. The PNG Treasury official Final Budget Outcome released at the end of March indicate the fiscal deficit was 5% of GDP. This means the last three years combined have produced by far the largest fiscal deficits in PNG’s history.