PNG Debt To Surpass Legal Limits Set Under The Fiscal Responsibility Act

Figures are reflective of the continued loss of resource revenue and also a drop in the non-resource revenue

By Rosalyn Albaniel

PORT MORESBY, Papua New Guinea (PNG Post-Courier, August 03, 2016) – Government debt levels are expected to rise further, surpassing the legal limits set under the Fiscal Responsibility Act.

The immediate challenge for government is to maintain fiscal discipline throughout the second half of 2016.

The Department of Treasury in its Mid-Year Economic and Fiscal Outlook report released yesterday stated the fiscal outlook for 2016 had declined in the first half of the year.

It said this is expected to result in a deficit of K3.9 billion [US$1,208,240,000] or 5.9 per cent of Gross Domestic Product (GDP), an increase of K1.8 billion [US$557,647,000]  compared to the initial level of K2.1 billion [US$650,588,000] or 3.1 per cent-at the time of the 2016 Budget.

The figures are reflective of the continued loss of resource revenue and also a drop in the non-resource revenue.

The department forecasted that total revenue and grants is expected to be significantly lower than earlier anticipated at the time of the 2016 Budget.

Total revenue estimated to be K10.7 billion [US$3,314,900,000] with a shortfall of K1.8 billion [US$557,647,000], while total expenditure and net lending remained the same at budget time.

"The downturn in revenue is primarily due to the drop in world commodity prices and weak domestic economic developments," Treasury said.

According to the MYEFO, Debt to GDP at the time of budget was 35.8 per cent adding that using the new GDT the budget debt to GDP ratio was now 28.9 per cent. It said with no fiscal adjustments total public debt is expected to increase to K21.9 billion [US$6,784,710,000]  pushing the expected levels to 32.2 per cent, 2.2 per cent above the legislated limit of 30.0 per cent.

Treasury stated that major expenditure commitments in the Medium Term Development in the budget would continue to be delivered by government including free education, infrastructure and District Services Improvement Program (DSIP).

Treasury stated that the levels would be monitored and necessary adjustments made as and when required.

Meanwhile economist and director of the Institute of National Affairs Paul Barker in commenting said that with the drop in revenue that a further supplementary budget would be necessary.

"It is a worry that little to no consideration is given to the debt limits when it comes to some of the international commercial financing arrangements, regardless of interest rates being charged or tied contracts.

"Lower and longer term concessional borrowings that are available should be favoured. especially for infrastructure and agriculture purposes," he said.

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