PNGBLOGS

by PAUL FLANAGAN PNG is a high-taxing and very high-spending country relative to its Asia Pacific peers . Most of any adjustment to the fiscal balance should therefore occur on the expenditure side. PNG is planning to do this with a drop in the expenditure to GDP ratio from the highest level ever, of 38.1% in 2013, to its lowest level ever, of 24.6% in 2020. PNG has never attempted such a fiscal consolidation – not even to recover from the fiscal crises of the 1990s. Putting this into an international perspective, PNG is seeking to adjust government expenditure by 13.5% of the economy. This is more than double the government expenditure reductions undertaken by  Greece  of 6.3% (from 51.4% of GDP in 2010 to 45.1% of GDP in 2015). Of course, PNG is not facing a Greek-style fiscal crisis (at the start of its crisis Greece had a broadly similar deficit of 11%, but a much higher public debt level of 170% of GDP), but it is planning a similar or more draconian response. PNG is seekin

by PAUL FLANAGAN Potential crisis – what does this mean? • 3 types of crisis observed in countries through time (talk will focus on first, and some comments on second) • Fiscal crisis (PNG – first and second 1990s crises) • Government runs out of money to pay its bills. • Potentially manifested by shortage of government cash, ‘out of the ordinary’ borrowings, printing money, much higher government security interest rates. • External crisis (PNG – first and second 1990s crises) • Running out of foreign currency to pay bills (either private or more particularly government) • Potentially manifested by various forms of exchange rate controls, tariffs and quotas, foreign currency borrowings. • Muddling down crisis (more African and South American examples) • Pattern of continuing poor decision making undermining sustainable growth. • Medium to long-term timeframe – a slow bubbling crisis that may extend over a decade. • Potentially manifested by pattern of poor eco