ANALYSIS ON OVERSPENDING EFFECT BY O'NEILL GOVT 2014 DEFICIT BUDGET ON PNG'S STATE OF THE ECONOMY
 |
| HOT AIR? |
To the citizens of Papua New Guinea (PNG), before the 2015 Budget is announced, you would’ve been following several statements I released about the 2013 Budget, the 2014 Budget and its negative impact to PNG’s current state of economy. My commentary has provided visible evidence, further supported by intellects and reputable citizens in their long-standing positions within each industry, on the financial mismanagement of the economy by the current O’Neill-led government. The statements I delivered, on O’Neill’s running of the economy, was only to ensure that the Opposition gave alternatives to ensure we get best economic outcomes for our country and all citizens. This has fallen on deaf ears and eyes as PNG further moves to an economy on the brink of “meltdown” as the next budget will be far higher than the last two Budget deficits with no avenue to repay; the O’Neill-led government is to blame for this situation we, as a country, are facing financially and this must clutch at the sub-conscious of all members of Parliament , for the people who elected them and this very country we call our home.
Since the 2012 elections, there haven’t been any checks and balances or reconciliations on the financial balance sheet of PNG’s economy. The appropriate financial controls put in place, for a country that is rich in resources, to take advantage of what we have financially, has been manipulated and the weakening of valid solutions has only increased the nightmare PNG is facing; that is the inefficient mismanagement of the economy by the O’Neill-led government, their combined lies which contradict the real economic figures that PNG is facing as well as the combination of corruptive practices with overzealous overspending.
This is especially the case when the current O’Neill –led government handed down a 2014 Budget of K15 billion, another deficit amounting to K2.3billion in its second term; this budget relied on their lies of “their multi-year investment approach” with the major driver being the PNG LNG project, to bring in revenue and the assumption that PNG will go back to a surplus budget in 2018. This assumption is only realistic, if the present day government does not borrow outside of the Budget and every organisation and individual knows that this is not happening. A perfect example of borrowings outside of the 2014 Budget is the UBS loan which the Opposition still consider to be illegal, based on supporting evidence and we will still hold the Prime Minister accountable for this, for not following the management controls that has now exposed this country to a heavier financial burden! Added to this is the amount of international arbitrations the current O’Neill government have further burdened PNG with only to cover the Prime Minister’s misappropriation activities, like the PNG Sustainable Development Program (PNGSDP) and the IPIC matters, all amounting to US$2.1Billion and US$300Million, respectively.
With their erratic forms of spending/borrowing, the O’Neill government has passed on all the stressful effects of the economy’s mismanagement to PNG citizens who are experiencing it, living from day to day. PNG’s cost of living and devaluation of the PGK is increasing because of this high spending/borrowing and all the repeated lies of O’Neill will not comfort the average citizen’s every day living. The 2014 Budget and its deficit brought about broken lies of deception and this will be further transferred to a higher 2015 Budget and a higher deficit; this is because O’Neill and his counterparts in Micah and Pruaitch do not have the reputation or experience, to manage an economy on the brink of admired worldwide development, yet we are following the direction of countries in Africa known for its resources, yet are in a poverty status. The very same influences that determined their status are the very same ones that the O’Neill-led government is now looking to “shake hands with”, and further emphasised that O’Neill will leave a legacy to PNG, of which more than 7 million citizens, would not wish for; an economy that promised wealth and richness for the country because of its resources but in a slow financial meltdown to a Depression. There is a further underlying perception that PNG is a high risk country further affecting PNG’s credit rating and investor confidence; O’Neill can only blame himself for this and with PNG facing financial challenging times, we need members of Parliament, to stand up, to make sure that we follow the road we predicted PNG to take rather than make shortcuts that are not beneficial to all.
In these challenging times of building an economy, using the finances we acquire and better managing the revenue streams to enhance the development of the country, we, the Opposition, are supportive of the first contractual obligations to the Exxon-affiliated Liquefied Natural Gas (PNGLNG) project being exported to Asian markets and it is definitely a historical milestone in this “new frontier” country of ours. But the Opposition’s support stops there as the hard-fact reality is that all the overcommitted government spending, in and outside of the 2014 Budget might not able to be repaid even though most of the revenue from these export receipts will be going to paying off the large interest accruals from these loans accumulated by the current government. There is no clear connection between the incoming revenues, the expenditure relating to the running of the government and PNG looks to be on the verge of not being able to pay what it owes, internationally and thus, the O’Neill governments financial mismanagement and high debt overspending is a reflection that PNG will not see the positive signs to the first revenue streams from our resources.
Apart from it being visibly experienced in our currency devaluation and signs of high inflation, it was further confirmed by the Bank of PNG (BPNG) earlier this year, who cautioned the current government from raising expectations surrounding the windfall revenue which will flow into PNG’s economy from the export receipts because improvements into PNG’s economy will not materialise. The current status of BPNG Monetary Policy, as addressed by the Governor Loi Bakani on 30th September 2014, only reflected that we are in times of non-liquidity, having a major negative impact on the very providers who activate our economy in the distributors and suppliers who we stringently need to look after; without them, our economy isn’t functioning as efficiently as it should and the very reason is the O’Neill-led government’s financial mismanagement of the economy. One does not need to be an accountant or the Governor of the Reserve Bank, to realise that the activities associated with running a country, such as controlling, leading, monitoring, organizing, and planning are clearly not being followed, to the very specifics of effective financial management; this is very contradictory when the leader of our country is an accountant by profession.
These very facts have further shown that with the over commitments by the O’Neill government, this has put further declining pressure on PNG’s economy as the PGK slides further on the default risk, causing greater pain for the average citizen through increased inflation and cost of living, as already confirmed. The O’Neill government will have to absorb the exchange rate risk in repayments on a devalued PGK adding much more pressure to the 2015 budget and what can be delivered to the people; what can’t be hidden is the fact that PNG will be further placed into a deficit meltdown when our future revenues are supposed to improve PNG’s economy rather than be diverted to paying high interest accruals on the large loans under the O’Neill government; PNG is on the verge of an economical meltdown likened to what has occurred in European countries because the Opposition fear that under the O’Neill government, PNG could default on major international loan deals like the illegal UBS loan and the Exim bank loan due to the fact there won’t be enough mining/gas projects to create revenue payments to repay on the loans. This is frightening when PNG’s debt to equity level ratio has now exceeded the 35% benchmark because of O’Neill government’s financial mismanagement of the economy, a benchmark needed to be adhered to if PNG was to move into a budget surplus, equitable inflation levels, improved appreciation of PNG’s currency and high employment figures that would see PNG economically strong and financially robust. We are in challenging times, PNG!
To date, the O’Neill Government has not provided proper accounting for the capital spending amounts required from the export earnings of the Exxon-LNG project. We all want to know the detail with no specific answer from the Prime Minister, Peter O’Neill; this was further evidenced in the April Parliament sitting when I raised specific questions to the current Treasurer, Patrick Pruaitch, who gave a generic answer that reflected his confusion on the capital spending and export revenue amounts. If the Treasurer’s confusion is so forthright when a simple question is asked, then the simple question of “why are we selling off major equity holding in our State-Owned Enterprises (SOE’s) like PNG Power Ltd. and Air Niugini?” and their answer of “the State of PNG has no money” only contradicts PNG going back to a budget surplus in 2018 and the O’Neill-led governments statements of surplus funds coming into the country’s accounts.
With the 2015 Budget to be announced soon, I will not be surprised that there is a higher budget deficit connected to it, to counteract the financial mismanagement of the economy by the current O’Neill-led government involving their erratic forms of spending/borrowing. I further believe that the 2015 budget will have to increase the current deficit by at least a further PGK2 billion (on top of the already PGK5 Billion –PGK7 Billion that is assumed to be hidden into the 2014 Budget deficit). This has already had an effect on the inflation and PGK foreign exchange rate and further factored into the revenue and foreign exchange reserve accounts and the foreign currency exposure in the budget for 2015. The Opposition advise that there will need to be a budget provision for the interest of the illegal UBS loan and Exim Bank loan in each budget to the 2017 elections of at least PGK50 Million per annum for future interest costs. This does not include the import effects of this transaction and PNG’s sovereign default costs has further increased, affecting the PGK and ultimately resource revenue and expense items connected to the economy. The Opposition believe that this will further affect the citizens of PNG who will continue to endure standard of living hardship as long as the current government is led by Prime Minister, Peter O’Neill; one of the main concerns about the rising budget deficit and the over commitments on borrowings is the crowding-out effect. This is the effect where domestic interest rates will increase as a result of the O’Neill’s government’s financial mismanagement thereby further reducing private investment spending and leading to a slower rate of economic growth. The Opposition is visibly seeing this and with high domestic interest rates, citizens will be impacted through substantial decreases in future income and consumption.
As already stated , a budget deficit of PGK2.3 Billion was announced for the 2014 Budget but currently, with the large financial mismanagement and high debt overspending by the O’Neill government, there is a shortfall that has to be met, especially when the 2014 Budget deficit is now assumed by the Opposition, to be between PGK5 Billion-PGK7 Billion, if not more. One can be quietly confident that this hidden deficit will be passed on, adding to the forecasted deficit in the 2015 Budget; the stressful effects on PNG citizens, of the spending disregard associated with the current O’Neill government in badly managing the economy, is already occurring as visibly seen in our economic indicators and the citizens of PNG aren’t blind to the lies because we are all suffering from this inefficiency, both individually and as a country. The achieved desired return on investment is not occurring and added to this is the reality that all government spending might not be able to repay itself during the contractual obligations to the Exxon-affiliated Liquefied Natural Gas (PNGLNG) project, thus the O’Neil government looks to be on the verge of not being able to pay what it owes, internationally; this is disastrous on a global scale when the technical default creates an underlying perception that PNG is a high risk country and further affects PNG’s credit rating and investor confidence.
When the 2015 budget is announced, fellow Papua New Guineans must take ownership of their economy by knowing about and to monitor the following, which has only been generically acknowledged, if at all:
1. International Arbitration Legal Costs – The following are few of the many court cases the O’Neill-led government has burdened PNG with, when these cort cases have not had a positive effect on PNG:
i) Termed the Nautilus Effect, the O’Neil government owed USD$118 Million (PGK330 Million) to Nautilus Minerals and was ordered to pay that by the 23rd of October, 2013. Because it failed to do so, the effect of the default is high interest costs of not paying as well as the likely legal costs that the O’Neill government have to pay;
ii) IPIC are suing the O’Neill-led government in the Australian courts, for whats owed to them from the initial IPIC loan, of US$300m (PGK840 Million);
iii) The PNGSDP arbitration in the Singapore courts regarding the PNGSDP Long-term Fund, will place a burden on the State, in terms of legal costs amounting to close to PGK300 Million.
2. NCDC Roads – There have been commitments in 2013/2014 for more than PGK1 Billion of NCDC road development. The Opposition cannot find these full amounts, allocated in the 2013/2014 Budget or where these contracts were tendered through the proper process. Thus, it is assumed that the commitments by the Prime Minister O’Neill will need to be accounted for in the 2015 budget, if at all;
3. Illegal UBS Loan – The O’Neill Government has not provided proper accounting for the justification of acquiring 10% in a public-listed company (OilSearch Ltd.) at a cost of USD$1.2 Billion (PGK3.4 Billion) when the whole Gulf Province LNG project’s major shareholding was sold by Interoil to the French Oil Company, Total, for only US$400 Million? The Opposition has been trying to get the detail and believes that US$20 Million (PGK50 Million) is required to pay, on interest and sovereign default costs. This will need to be included in the 2015 budget and will be more important given the illegal UBS loan matter is not resolved and does not look to be resolved before the announcement of the 2015 Budget;
4. Exim Bank Loan – Everyone has forgotten the USD$6 Billion China loan where 70% of the loan has to go to Chinese contractors. This will have an effect on the inflation and PGK foreign exchange rate which will need to be factored into the revenue and foreign exchange reserve accounts and the foreign currency exposure in future budgets. The Opposition still does not have any idea where the balance of the 30% or USD$1 Billion will be spent in PNG or in a transparent way. There will need to be a budget provision for the interest of this loan in each budget to the 2017 elections of at least PGK30 Million per annum for future interest costs. This does not include the import effects of this transaction; and
5. Sovereign Default costs – The 2015 budget will have to take a charge on what will likely be increases to overseas borrowing costs as a result of the technical defaults that this government has allowed to occur. This will affect the kina which will affect the resource revenue and expense items of the budget.
In concluding, the Opposition believe that the current state of PNG’s economy is a direct result of the O’Neill government’s financial mismanagement and high debt overspending. Not even a historic milestone of the first export earnings from the Exxon-LNG project will impact on our economy as they will go to repaying the high accrual interests associated to the loans the O’Neill government has burdened PNG with including the illegal UBS loan. The citizens of PNG will experience continuous increases in costs of living, a further devaluation of PNG’s currency and high unemployment figures that would see PNG with a weakened economy that has shown promise because of the valued resources the country holds. The Opposition are not scared to demonstrate that the fiscal and monetary mismanagement of the O’Neill government is not looking after the ordinary man, woman and child in PNG as they promised. Papua New Guineans, be ready for the 2015 Budget as it will be the match that ignites PNG towards a financial crisis and words will be insignificant when the very actions by the O’Neill government are the very reason why we are faced with a broken future; please expect the lies from the O’Neill government after this article is made public
GOD BLESS PAPUA NEW GUINEA, IT IS NEEDED NOW!
