PNG BUDGETS LACKS FISCAL DISCIPLINE: ECONOMIST

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PORT MORESBY, Papua New Guinea (The National, May 30) – Lack of progress on microeconomic and institutional reform under Papua New Guinea’s Somare Government places at risk Treasury’s forecast 4 percent economic growth rate, according to an Australian economist.

Writing in the latest edition of the Pacific Economic Bulletin, Roderick Duncan of Charles Sturt University, said Government spending had increased rapidly in recent budgets and was vulnerable to downturns in commodity prices.

"The Treasury talks about fiscal discipline, but there was not much evidence of discipline in recent budgets," he said.

"In per capita GDP (gross domestic product) terms, the PNG economy was no more productive than it was in 2001."

Mr Duncan said "while there was fiscal discipline in the early years of the Somare Government, in 2005 and 2006 expenditures rose as fast as, or even faster than, revenues."

While acknowledging Government success on the macroeconomic front, Mr Duncan was critical of other policy areas. Among them:

*The K2.4 billion in ‘windfall gains expenditure’ for 2006 and 2007. This was described as "unprogrammed, free money" that provided a basis for ‘a perfect storm of misappropriation’;

*The 2007 budget reveals few new plans to address the problems of PNG institutions and infrastructure;

*Increases in tariffs on some imported foodstuff ‘was obviously a retrograde step in providing protection to a few manufacturers at the expense of consumers’;

*The wisdom of allocating K130 million [US$44.5 million] from windfall gains to State-owned enterprises ‘must be open to serious question – given the low rates of return that these enterprises usually make’;

*There was no evidence of improving productivity due to actions of the Government.

Mr Duncan said the high levels of corruption and significant law and order difficulties meant that future foreign and domestic investment would be concentrated in the resources sector and of little value to the majority of Papua New Guineans.

He expressed concern at the K2.4 billion [US$822 million] in additional spending, adding that it was doubtful the public sector had the capacity to properly spend or administer this money.

"Given the risk of misappropriation, a better use would be to buy down the public debt or to otherwise tie up the money for future years," he said.

Mr Duncan also suggested that calculations of PNG’s gross domestic product were fraught with uncertainty.

He said there were problems in assessing data beyond Government revenues and expenditures and the output of the mining and export industries.

"However, what confidence can we have about the measurement of economic output or market transactions in the Highlands?"

Further, he said calculation of per capita income figures were also problematic since there was no agreement on how fast the population was growing with the World Bank placing the figure at 2 percent and the International Monetary Fund at 3.1 percent.

The World Bank figure suggests per capita incomes have been growing since 2003, while the IMF figure suggests incomes only stopped shrinking in 2005.

Mr Duncan said the best estimate was that "there had been zero or negative growth in real GDP per capita since the Somare Government came into power".

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