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PNG must start living within its means

| Academia Nomad | Edited

Generated with AI ∙ 8 May 2024 at 3.58 PM
We must spend our money wisely (Generated with AI ∙ 8 May 2024)

WEWAK - Papua New Guinea prime minister James Marape’s response to concerns raised by ordinary people about the rising cost of living leaves much to be desired.

The biggest contributor to inflation and the depreciation of the kina over the last five years is the spending behaviour of the national government.

It has been boasting about consecutive record government budgets but never speaks of undisciplined government expenditure.

By increasing the money supply within the local economy without the support of a strong economy the government has oversupplied kina and made it able to buy less things.

Printing more money only works in large diverse economies. PNG’s economy is too reliant on resources and it is susceptible to external shocks.

The cost of food and other products is going up but the government is unwilling or unable to increase wages to offset inflation, which is running at around 5% a year.

Adjusting wages upwards every year is unsustainable without a corresponding increase in productivity. And giving free handouts to the people is not a smart solution beyond the short term.

Meanwhile, the Central Bank is struggling to control the rapid decline in the value of the kina on an effort to contain runaway inflation.

Marape is telling everyone that they have to wait for the big oil and gas extraction projects to start operating before the people get some relief. We seem to be forced to have short term pain for long term gain.

If the government had cut back spending on wasteful projects by an additional billion kina a year, the country would have saved K5 billion.

If it had allowed Porgera to operate, that would have meant an additional $US6 billion (K23 billion) in foreign exchange the government would not have had to borrow.

That's what has caused the problems the PNG economy is experiencing.

Instead, unfortunately, our government has borrowed K32 billion over five years. This number equals all borrowings by all governments since 1975.

Our total official debt is K64 billion. Half of that was borrowed in the last five years.

Marape tells us GDP has grown by K30 billion since he took office but debt grew by K32 billion in the same period. And that does not include other debts that are currently sitting off the budget books.

The fix is simple but it requires strong political will. PNG must first live within its means and stop looking for ways to borrow money to fund all kinds of low return initiatives.

Good government is about spending for the collective interest not for narrow political interests.

PNG must also rescind the creation elite capture mechanisms like Kumul Petroleum Holdings Limited.

It must establish a sovereign wealth structure and start putting real money into it. Then it must be kept in the Central Bank to provide stability and a backstop for the kina.

There is no point boasting about K12 billion in foreign exchange reserves when our total debt is K64 billion and half of that in foreign denominated loans.

Given our country’s lack of economic diversity, we are susceptible to external shocks and this can significantly affect the currency flows into our economy.

We must manage our economy with prudence and not expect some windfall revenue in the future to rescue us.

The practice of gambling on future revenue by borrowing and spending today on projects with dubious returns is exactly why we are now in trouble.

PNG needs to tighten its expenditure and exercise fiscal restraint. We need leaders who understand the problem and have the courage to deal with it.

Our people cannot absorb any more pain. Cocoa growers are exempt from the struggle at the moment,  but every other Papua New Guinean is feeling the pinch.

Allan Bird is Governor of East Sepik Province




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