PNGBLOGS

by PAUL FLANAGAN Using PNG’s updated GDP numbers, there are new insights into PNG’s economic history. In particular, they show how bad the last four years have been: PNG’s budget deficits over the last four years are the worst in PNG’s history. From 2012 to 2016, deficits have totaled an extraordinary 23.8% of GDP This is nearly three times higher than the next worst five-year period for spiraling deficits (8.7% from 1992 to 1996 with five-year periods based on parliamentary terms). These daunting deficit figures are the driver behind the explosion in public debt from 17.3% of GDP in 2011 to 35.5% in 2016. In the 1992 to 1996 period, debt started at much higher levels (28% of GDP) but still didn’t reach 2016 levels (34.4% in 1996 vs the current 35.5% level using 2016 FBO numbers and IMF figures on 2016 GDP). There are two drivers for these historically high budget deficits. First, the massive increase in expenditure in 2012 was the largest in PNG’s history – a

by PAUL FLANAGAN SUMMARY The IMF report indicates the O’Neill government has overstated the growth rate in the PNG economy by 12.7 percentage points during its term. Primarily by 5.9 percentage points in 2014 and a further 5.2 percentage points in 2015 (see graph below). The IMF indicates the PNG economy is K6.3 billion smaller in 2017 than claimed by the government (and K5.4 billion smaller in 2016). This means the debt to GDP ratio is 33.5% in both 2016 and 2017 according to the IMF – above the 30% limit set in the Fiscal Responsibility Act. The greatest concerns about economic management relate to BPNG’s control of the foreign exchange rate and reserves with more breaches of international norms than admitted. The Governor of the BPNG should explain serious discrepancies between his statements on 25 January (full page adds in the local press on 26 Janaury) and what the IMF report actually stated on 27 January (see below). While commending the government for its actions in