PNG GOVERNMENT SPENDING UP 4.9 PERCENT

By Brian Gomez

PORT MORESBY, Papua New Guinea (The National, Nov. 5) - Spending by the Somare-Marat Government in the first half of 2003 was 4.9 percent higher than the much-criticized spending under former Prime Minister Sir Mekere Morauta in the same period last year.

ANZ senior economist Bernie Shuttleworth disclosed this in his latest PNG Chartbook, his latest commentary on PNG's economic performance.

Sir Mekere's pre-budget spending was widely reported to have caused the biggest budget blow out in this country's history with a perception that the current government has been forced to undertake severe budget cuts in the past year.

While the "pre-election bloated" spending last year caused a severe blow out in the budget deficit, this has not occurred this year because government revenue rose by 22.2 percent, according to Mr Shuttleworth.

As a result, he reported, "the budget deficit shrank to just K19 million from K210 million a year earlier."

Mr Shuttleworth said in his Chartbook, which is widely distributed to businesses with interests in PNG, "Despite this good performance in the first half, as well as continued strong tax receipts going into the second half, the government estimated that the full year deficit was headed for 3.4 percent of gross domestic product compared with the budgeted two percent.

"A mini-budget was tabled in September, cutting K151 million from expenditure, in order to reduce the deficit to 3.4 per cent of GDP."

Mr Shuttleworth said the government faced financial difficulties in the first half of this year because many domestic and foreign loans had fallen due.

It was not able to roll over or replace most foreign loans and was forced to place additional demands on the domestic market, he said.

However, the government was able in June to defer repayments to the International Monetary Fund on a 2000/2001 standby facility, which was due to begin in mid-2003.

With these payments due to start a year later there was "a risk that an external financing problem could emerge in mid-2004".

Mr Shuttleworth, who is based in Melbourne, said the Central Bank's monetary policy statement in July had indicated the recession in 2001 and 2002 was deeper than indicated by the minus 3.4 and minus 3 per cent respective rates.

However, it anticipated 2.4 per cent growth this year on the basis of growth in minerals, agriculture and construction, including work at the Napa Napa oil refinery and the tuna processing plant in Wewak.

Mr Shuttleworth said prospects for growth next year was "good" provided conditions for agriculture remained "normal".

"The government will need the support of donors and the multilateral agencies, and the best way to gain this support is to make a more determined effort to tackle corruption and inefficiency in politics and the bureaucracy," he said.

November 6, 2003

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