Header Ads

SO IS PNG BROKE?

by BRYAN KRAMER

The short answer is, Yes. This is evident following the O'Neill Government’s delayed payments of the public servant salaries last Wednesday.

I was first made aware of the issue a week earlier when an article was posted on social media explaining that public servants would not be paid on time due to cash-flow crisis and that the Government would blame it on the payroll system.

A week later its what exactly transpired.

Prime Minister Peter O'Neill, Secretary of Treasury Dairi Vele, and Secretary of Finance Dr Ken Ngangan all claimed the delay was due to the payroll system and nothing to do with being broke.
Secretary of Treasury Vele issued a public statement, "Papua New Guinea is not broke!” He added that the economy was estimated to have grown by 9.9 per cent last year, driven by the ramp up of the full year of the liquefied natural gas (LNG) production. He further explained PNG’s economic growth was among the highest in the world, “PNG’s debt to gross domestic product was lower compared with other similar economies. In 2016 growth is still projected to be positive but not as strong as 2015 and the past eight years,” he said.

So, what does this have to do with whether or not PNG is broke? Absolutely nothing. Mr Vele is attempting to confuse the public by making reference to matters that are irrelevant to the issue.
To establish if someone is broke, there are three key elements, 1) they have little or no funds, 2) they are in serious debt and 3) more importantly they unable to meet their financial obligations (bills/loan repayments) when they fall due. If you were accused of being broke the best means to dispute it is confirming, you have funds in your account, in excess of any debts or loans owed and that you are easily able to meet your financial commitments when they fall due.

Prime Minister and Secretaries of Treasury and Finance have avoided providing any information to confirm the PNG's current financial position. Instead they make reference to PNG's economic growth and LNG production.

A country's economy or wealth is represented by its Gross Domestic Product (GDP). The total goods and services in the country, this includes all private and public (govt.) investment, spending exports and imports etc. In October 2015, the International Monetary Fund (IMF) projected PNG's GDP to be K45.3 Billion. Economic growth is calculated annually by measuring any increase or decrease in a country's GDP. Positive growth indicates a country’s economy is growing and negative suggests it is shrinking.

However this has nothing to do with how much money a Government has in its accounts or whether it’s able to meet its financial commitments to continue to operate. A Government may expend all its savings and borrowed funds, which may result in positive economic activity and growth, however it would still end up broke for it. A result of poor economic management.

While the O'Neill Government is preaching that it's not broke, the only independent agency remaining quiet on the issue is the Central Bank. In its December 2015 economic bulletin report it stated that as at 31 December 2015 the Government had only K147.3 million. It had a negative cash-flow and was forced to rely on a temporary advance (loan) facility to get by. So, Central Bank has confirmed the O'Neill Government has run out of cash. Central Bank noted "in light of priority expenditure plans such as the District and Provincial Support Improvement Programs (DSIP/PSIP) and education grants and transfer payments and low revenue, the cash-flow is projected to remain in deficit (negative) for some time."

In the second week of February 2016 Government released K1.95 million in DSIP grants to each of 89 electorates, totalling K173.5 million. Hence why last week it ran out of funds to meet the payments for public servants wages.

On the day (Wednesday) the fortnight wages were due it borrowed further funds by auctioning K286 million in Treasury Bills but only secured K198 million. I suspect it was these funds the Government relied on to pay the public servants.

To-date O'Neill Government is yet to complete last years fourth quarter school subsidy submitting only half the required amount. 2016 first year school subsidy is yet to reach many schools throughout the country. The Prime Minister has been using a complicit mainstream media to mislead the public.
The Government is not expected to receive any significant funds until 31st March 2016 when company income tax receipts are due. The question will be whether these funds will be sufficient to maintain its operations for the year or committed to repay K25 Billion debt burden.
Now that the PNG has run out of money O'Neill is publicly talking about downsizing the public service.

Many ordinary Papua New Guineans and businesses will struggle through these difficult economic times those that won't be affected are the corrupt politicians who have enriched themselves and their associates through gross misuse of public funds.