Statement by PNG shadow minister for Finance and Treasury Hon. Joseph Lelang
The 2020 Final Budget Outturn (FBO) has confirmed what the Papua New Guinea Opposition has said all along that the Government has failed to prudently manage the country's public finances resulting in delayed recovery to the PNG economy and a worsening fiscal position.
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| PNG Government's Fiscal Policy Strategy in Shambles. Photo : PNG Government Office by pngfacts.com |
We have said all along that PNG is in a weak Global Economy. The major concern is that the weak global economy offers PNG minimum stimulus for economic growth in 2020 and over the medium term.
Domestic Economy
It is therefore critical that economic growth is generated from within the domestic economy. However, it is disappointing to note that the PNG economy is projected to grow by only 2.0 percent in 2020, somewhat weaker than was previously estimated, and less than PNG’s population growth rate.
A. KEY CONCERNS ON THE 2020 FBO AND THE MEDIUM-TERM FISCAL OUTLOOK
The 2020 Final Budget Outturn (FBO)Report
What we have noted is that the 2020 FBO compared to the 2019 FBO in all economic rationality has not adopted a fiscal consolidation strategy, something that the Marape- Basil government has said it would achieve over the medium term. A Fiscal consolidation means reduced expenditure, reduce budget deficit, reduced public debt to GDP and increased revenues but what the 2020 FBO shows is the exact opposite.
Technically, the 2020 FBO compared to the 2019 FBO has instead adopted an expansionary fiscal policy strategy because:
- The 2020 FBO has increased expenditures to a high K19,397.8 million from a low K17, 852.5 million recorded in the 2019 FBO;
- The 2020 FBO has increased the budget deficit to a high negative K7,304.4 million (-8.9% of GDP) from a low negative K4,172.0 million (-5.0% of GDP) recorded in the 2019 FBO;
- The 2020 FBO has increased public debt to a high 49% of GDP from a low 40% of GDP recorded in the 2019 FBO; and
- The 2020 FBO has declined revenue to a low K 12,093.3 million from K13,680.5 million recorded in the 2019 FBO.
It is revolting that the Treasurer Ian Ling Stuckey continues to divert the public’s attention by comparing the 2020 actual FBO statistics against the Budget estimates. Why is the Treasurer not comparing actual 2020 FBO statistics against actual 2019 FBO statistics? Is it because the statistics show a worsening of the Government’s fiscal position! If this is the case, it is even more revolting that the Treasurer Ian Ling Stuckey continues to mislead and misinformed the Marape-Basil Government and the people of Papua New Guinea on the Government’s Fiscal Policy Strategy.
Medium Term Fiscal Outlook
The Marape – Basil government’s medium-term fiscal outlook of reducing Non Resource Primary Balance as % of Non-Resource GDP has also remain somewhat elusive since the 2019 FBO.
- The 2020 FBO Non Resource Primary Balance has increased to a high negative 9.4 % of Non-Resource GDP from a low negative 5.5 % recorded in the 2019 FBO.
It will continue to remain highly elusive for the Marape-Basil Government if in absolute terms there is no cut to expenditures with minimum absolute increases in revenues over the medium term. The Marape-Basil Government seriously needs to frontload its fiscal consolidation strategy over the medium term and accordingly update its Budget Policy Documents. We need to live within our means.
B. KEY CONCERNS ON REVENUE DEVELOPMENTS AND REVENUE MEASURES
Total Revenue and Grants Developments
On Revenue, it is noted that Total Revenue and Grants declined to a low K12,093.3 million in the 2020 FBO down from a high K13,680.5 million recorded in the 2019 FBO. Basically, all categories of government revenues have declined since 2019.
- Tax Revenue has declined to K9,802.1 million in the 2020 FBO, down from the 2019 FBO amount of K10,918.1 million;
- Donor grants have declined to K1,425.0 million in the 2020 FBO, down from the 2019 FBO amount of K1,775.6 million; and
- Other revenue has declined to K866.2 million in the 2020 FBO, down from the 2019 FBO amount of K986.8 million.
This drop across all major government revenue categories is outrageous but it was anticipated by the Opposition in its response to the fifteen (15) revenue measures introduced in the 2020 Budget at Parliament. As shadow Treasurer, I clearly stated that the timing of the introduction of some of tax measures will fail to boost economic growth in 2020. Further, the government’s policy intent of some tax measures to raise revenues will not materialize; whilst some tax measures even oppose each other.
Simply put, the Marape-Basil government fifteen (15) revenue measures introduced in 2020 Budget have failed miserably to put a stop to the drop in government revenues in 2020. The Marape-Basil Government needs to be held accountable and critical questions be raised if donor grants will also continue to decline over the medium term, in spite of Treasurer Ian Ling Stuckey’s song and dance of a supportive donor community.
C. KEY CONCERNS ON TOTAL EXPENDITURE AND NET LENDING
Total Expenditure and Net Lending
On Expenditure, it is noted that Total Expenditure and Net Lending increased to a high K19,397.8 million in the 2020 FBO, from a low K17, 852.5 million recorded in the 2019 FBO. Overall, all categories of government expenditure have persistently increased since 2019.
- Compensation of Employees has increased to K5,831.5 million in the 2020 FBO, from the 2019 FBO amount of K5423.8 million;
- Interests has increased to K2,160 million in the 2020 FBO from the 2019 FBO amount of K2,129.1 million; and
- Arrears has increased to K1,052 million in 2020 FBO.
Going forward, there is no clear indication that the Marape -Basil government is committed to slowing down its spending spur and to appropriately manage the government’s finances to affordable levels over the medium term. In particular, there is no sign of restrain on interest payments, arrears and personnel emoluments.
With the 2022 elections approaching, the Marape Basil government will no doubt continue with its current policy stance of an expansionary fiscal policy to continue its spending spur. The danger is that sooner than later, the Marape-Basil government will also attempt to review the Central Bank Act, in order to force Monetary Policy to become accommodative of Fiscal Policy.
The Marape-Basil government has already demonstrated this intention in 2020 by using the Central Bank’s Temporary Advance Facility like an overdraft account; plus issuing Treasury’s Covid 19 Bonds and adopting quantitative easing which basically crowds out private sector economic growth in the country. If the Marape-Basil government chooses to “print money” in 2022, instead of controlling expenditures, then the businesses and people of PNG need to be cautioned and informed that hard and difficult times lied ahead for the country attributed to the Marape-Basil government.
D. KEY CONCERNS ON FINANCING
Net Financing
On financing, the Marape -Basil government within just two years upon gaining office and forming government, have increase debt stock by K6 billion. This is a historical record since independence by any government.
· As per the 2020 FBO, there was a 91.9 percent increase in Total Net Borrowing of K6,501.5 million, compared to the 2019 FBO amount of K3,388.1 million.
Whilst on the financing side, there has been a lot of international drawdown of concessional loans related to Covid 19, it is disappointing that on the expenditure side, there is minimum or no account of how these large borrowings have been used on Covid 19 related spending across the country.
Statement
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