Economic growth is strengthening around the world while PNG’s performance has toppled from being among the best performers to rank among the Asia Pacific’s worst performers.
The Leader of the Opposition, Hon. Patrick Pruaitch, said today mismanagement of the PNG economy in the past six years has contributed to dismal outcomes with the PNG’s Gross Domestic Product this forecast to grow by 2.4% while population growth is 3.1%.
In its latest World Economic Outlook published last month the International Monetary Fund said: “Some 120 economies, accounting for three quarters of world GDP, have seen a pickup in growth in year-on-year terms in 2017, the broadest synchronized global growth upsurge since 2010.”
Whilst PNG is anticipating sub-3% annual growth and declining per capita incomes, the IMF said other emerging and developing countries in Asia would grow by around 6.5% in 2018 and 2019, in line with their 2017 growth.
The fall in mineral prices in 2012 and crude oil and LNG prices two years later contributed to difficult economic conditions, but the IMF says the cyclical upswing that began in mid-2016 is benefiting countries around the world.
“Here in PNG,” Mr. Pruaitch said, “the global recovery is overshadowed by reckless Government borrowing, with debt servicing now the fastest growing component in the PNG Budget.
“By the end of this year PNG would have suffered more than three years of low growth, declining job opportunities and falling incomes and living standards. Gross mismanagement of the economy by the O’Neill-Abel Government is contributing significantly to PNG’s gloomy outlook.
“The O’Neill-Abel Government has not learnt any lessons from their failures in the past five years and have persisted on the same course of extraordinary levels of borrowing and debt that will remain a heavy burden on the next generation of Papua New Guineans.”
“The fastest growing segment of the PNG budget,” he said, “is servicing of government debt, which this year will surpass K2 billion for the first time ever. The resulting cash flow problems are the main reason funds for tuition free education are released late or not at all, hospitals run out of essential medicines and public servants threaten to go on strike.”
“Much of the K15 billion borrowed over the past five years has been squandered. Instead of generating positive impacts, growth has effectively stalled and made debt repayment burdensome.
The O’Neill Government, which raised K15 billion in total debt during its first five years in office, has now agreed to borrow an additional K14 billion through a MoU with just one company from China with the detailed terms shrouded in secrecy.
“This Government talks much about its efforts to increase revenue generation to hide the reality that the fastest growing segment of budget expenditure is debt servicing, which presently overshadows all Government priorities.
“I predict the 2018 budget interest component alone, to service the Government’s K25.8 billion debt, will surpass K2 billion for the first time to be almost double the size of the shrinking education budget or its law and order budget and some K500 million more than the health budget.”
Mr. Pruaitch said the Government has made a big deal about wanting to stimulate the economy this year through its K4.6 billion Capital Investment Budget but these initiatives will fail due to cash flow problems and an inability to focus on key deliverables.
In its article IV report on PNG in 2014, the IMF noted that the O’Neill Government’s 2014 budget had allocated K1.7 billion for roads which was three times the 2011 allocation and ten times the 2003 road budget.
The IMF said the 2014 emphasis on new capital projects and lower priority for operations and maintenance resulted in recurrent spending by the Department of Works being slashed from 33% to 11% in 2014, which “jeopardizes the sustainability of investment by limiting routine maintenance.”
Mr. Pruaitch said, “The result of this high-level incompetence is visible to people throughout this nation.
“The major highways in East New Britain and the Islands all the way to the Highlands and the Sepik region were in decent shape in 2010-2011. They had deteriorated into a patchwork of potholes when politicians last year campaigned around the country.”
The Opposition Leader said evidence of economic mismanagement is captured almost daily by the media.
The Government’s second most important revenue collecting agency, Customs, was recently locked out of its premises for failure to pay rent, following what has happened to other important government departments. Promises to increase the pay of teachers from last year has not been budgeted for and thousands of new graduate teachers last year did not receive any pay, a symptom of the industrial problems facing many government workers.
It has taken a court order for the government to pay part of its outstanding superannuation debts to Nambawan Super.
In a recent commentary on PNG, the World Bank said: “Evidence indicates that delays in government payments reduces private sector profitability, increases the likelihood of bankruptcies, and slows economic growth.
“Delaying payments is thus a costly way of dealing with government liquidity challenges or a debt limit. In fact, efforts to clear outstanding obligations can boost the economy in the short term.”
Mr. Pruaitch said the spiraling nature of public debt under the O’Neill Government has meant all government priorities, including education, health and law and order, will continue to suffer from tight budgets or, even worse, from budget cuts (see table).
“My prediction is that due to understatement of 2017 and 2010 public debt levels the 2018 figure for debt servicing is certain to surpass K2 billion for the first time, truly a sad day for the people of this country.”
HON. PATRICK PRUAITCH, CMG MP
Leader of the Opposition