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FRIGHTENING GOVERNMENT PERFORMANCE IN 8 KEY AREAS OF THE ECONOMY

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NATIONAL BUDGET SPOOKS PRIVATE BUSINESS AND INVESTMENT IN PNG

byWILSON TALAG Economist Paul Flanagan's recent remarks that appeared in PNG Blogs and elsewhere highlight 8 key areas of what looks to be looming financial disaster.  Mr Flanagan's enlightening report is the basis for this discussion and why the performance of each one of the key areas has started to  spook business and investors.  The seriousness of PNG’s current financial situation is becoming very clear.   A little over a week ago the government came very close to failing to come up with the year end public servant pay.  This near disaster occurred despite supplementary budgets designed to avoid such unexpected money shortages.   Another red flag flying high and warning that behind the scenes, PNG's finances are rapidly deteriorating under the O'Neill government.

The 8 key areas of concern are (1) Government lies over the actual size and growth of the PNG economy, (2) Discrepancies  over GDP economic gro…

PNG's economy is a Greek tragedy in the making

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Race to recovery: poorer and younger people will be the losers from a sustained budget crisis.
by PAUL FLANAGAN
The past year has been a year of poor public policy and misfortune for Papua New Guinea. The country ended the year in crisis management with cash shortages and budget cuts more severe than those in Greece's austerity package. Businesses are suffering from a lack of foreign exchange to pay for imports and sales are falling. Newspaper stories are increasingly of government cash shortages – funding not being paid to meet urgent medical programs such as drug resistant TB, teacher entitlements being deferred, superannuation contributions not being deposited, little being done to deal with the most severe drought since 1997. The international ratings agencies of Moody's and Standard and Poor's have moved PNG to a negative watch.
This is a long way from the start of 2015 when the Asian Development Bank predicted PNG would…

EXPENDITURE IN PNG’s 2016 BUDGET – A Detailed Analysis

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by PAUL FLANAGAN PNG is a high-taxing and very high-spending country relative to its Asia Pacificpeers. 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 seeking real expen…

PNG – Pathways from Potential Crisis

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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 economic policy decisions, increasin…

PNG’s frightening fiscal figures

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by PAUL FLANAGAN

The PNG Government released its Mid-Year Economic and Fiscal Outlook (MYEFO) on Monday – the update on the 2015 budget. The estimated budget deficit for 2015 blows out from an already high budgeted 4.4% of GDP to 9.4%. This would be the highest in PNG’s history. Public debt levels are expected to skyrocket from the earlier estimate of 27.8% of GDP to 41.3%. In Australia, such a rapid change in the estimated fiscal position would go well beyond being termed “a budget crisis”. PNG’s official figures are much worse than at the time of PNG’s last economic crisis at the end of the 1990s (see graph below).

PNG expenditure and revenues as a share of GDP – with updated figures from 2015 MYEFO Note: The gap between the lines indicates the size of the government deficit or surplus. Both lines exclude grants (aid).

The drivers for the rapid deterioration in PNG’s fiscal situation are the fall in international commodity prices, a growth slow down as well as sales of publi…