PAUL FLANAGAN | PNG Economics
MY third and final analysis of Papua New Guinea’s 2016 Article IV report from the International Monetary Fund focuses on fiscal and monetary policy.
The IMF report estimated the 2016 budget deficit will be K628 million greater than estimated by the government (thus reaching 4.4% of GDP), which feeds into greater debt levels.
Government debt at the end of 2016 was estimated to be K967.3 million greater than stated by the government, and this did not include build-ups in off-budget debt such as the K3 billion in borrowings for Oil Search shares.
While commending the government for its actions in the 2016 supplementary budget and ‘prudent’ 2017 budget, the report had concerns about where expenditure cuts have been made, the lack of effort on raising revenues (in particular from the resource sector), and the need to improve public financial management.
It is worth noting that the IMF appeared not to have been fully informed of the central bank’s printing of money through back-stopping government auctions.
I can understand why the government tried to suppress this report by an independent umpire.
The IMF provided a few positive comments on high level fiscal policy, but overall, it was a pretty damning report about the O'Neill government's economic mismanagement.
Overall, there are significant gaps between the stories of the O'Neill government and the information provided by the IMF. These go to the heart of whether the people can trust the government.
Based on the IMF report, I have previously detailed how the 2016 budget deficit is likely to be K628 million bigger than the people have been told. Government debt is nearly a billion kina bigger - and that doesn't include debt being hidden off-budget.
Economic growth is 12.7% lower than claimed. The economy is K6.3 billion smaller. The government debt to GDP ratio at 33.5% exceeds the legal limit. Expenditure cuts are too severe and being made in the wrong places.
More could be done to get a decent return to the people of PNG from their resources. PNG's external position is weak, with import coverage only about one-third of the recommended levels despite the foreign exchange restrictions.
It is interesting that PNG's major local newspapers have not covered the outcomes of the IMF report on PNG but did so for the recent IMF report on Australia.
Something is wrong about this reporting, and it also goes to the heart of trust.