“The Alternative Government welcomes the latest World Bank report on the PNG economy released on 7 February. It is positive that international organisations, even those where governments control the Board of Directors, can bring in technical expertise and more independent commentary. There is much wisdom in the report, especially in terms of stimulating private sector development through competition rather than backing government besties and cronies, as well as a good focus on getting agriculture growing again” stated the Shadow Minister for Treasury and Finance, Ian Ling-Stuckey.

“The report includes bad news for the O’Neill/Abel government. Behind some diplomatic words are some very critical details and numbers. For example, the report confirms (details in appendix):

  • In international terms, the PNG economy is going backwards and is actually smaller now than it was four years ago ($US22.3 billion in 2018 vs $US23.1 billion in 2014);
  • In Kina terms, PNG’s GDP in 2018 is K73 billion (the $US22.3 billion figure in 2018 converted at the average exchange rate in 2018 of 0.304), more than 10 per cent lower than the government’s estimates of K82 billion – the master chefs are still lying about the size of the economic cake;
  • there was a serious recession in the non-resource sector in 2015;
  • the O’Neill/Abel government is in breach of the 35% gross debt to GDP legislative limit;
  • public debt is currently understated as it does not include debt guarantees for State Owned Enterprises as well as debt arrears;
  • the medium-term revenue strategy is failing;
  • the medium-term development plan is not funded;
  • the government has blown its budget deficit targets in both 2018 and 2019 due to weak spending controls;
  • hidden expenditure arrears had reached K948.1 million by October 2018;
  • PNG’s risk of debt distress is confirmed as ‘moderate’ (up from ‘low’ before Abel became Treasurer);

“These figures deserve giving the O’Neill/Abel government a great big “F” for “fail” when it comes to economic management. However, the ever diplomatic World Bank doesn’t use such language – its own government representatives are on the World Bank’s Executive Board (PNG is a member of a grouping which has someone sitting on the Board and it has its representatives working full-time in the Executive Office to protect the government’s interests). So when the government tries to spruik the report and say how wonderful things are, just remember the list of appalling facts above” stated the Shadow Treasurer.

“One area where the World Bank report is clearly soft on Treasurer Abel is the embarrassing blow-out in the government’s fiscal targets. As part of getting World Bank budget support, the O’Neill/Abel government promised to lower the deficit target down to 1.0% of GDP in 2018. This non-primary deficit target was the first commitment for getting budget support from the World Bank. However, in an irresponsible spending spree, the government says it spent K994 million more than agreed in 2018, and then another K1,304 million in 2019. These funds represent windfall revenues from the higher oil prices seen in the first three-quarters of 2018. However, these should have been saved to pay down debt. Oil prices are highly volatile – the government should not have gone and spent all the extra money. And with oil prices now well below 2019 Budget estimates, this spending spree may mean PNG could face a very tough landing.

“The World Bank report is also too soft on the foreign exchange side. Of course there is massive relief from local businesses that foreign exchange shortages are being reduced. However, simply borrowing foreign exchange at high interest rates, much higher than the domestic debt which is being replaced, is just a band-aid. The World Bank should have spent more time talking about the clear dangers of simply borrowing rather than addressing the real problems, especially with the government plans to increase external debt to over half of all debt – a risky situation that turned very bad for PNG in the late 1990s.

“Overall, one must understand how these reports are written to understand their true messages. Because there are PNG government people in the World Bank’s Executive Board Office, the language is very diplomatic. However, there are enough facts in this report to confirm the O’Neill/Abel government is failing to meet the needs of its people. Behind the nice words is a great big “F” for “Fail” for the government. There is an urgent need for a better economic team in Waigani” stated Mr Ling-Stuckey.

 

Hon.Ian Ling-Stuckey,CMG.MP
Shadow Minister for Treasury & Finance

 8 February 2019

 

Details

Following are the references in the World Bank report to confirm the list of facts above. Each dot point fact is repeated in this section, followed by details of its source within the report. The World Bank report is available at http://documents.worldbank.org/curated/en/597161549016416469/Papua-New-Guinea-Economic-Update-Slower-Growth-Better-Prospects

 In international terms, the PNG economy is going backwards and is actually smaller now than it was four years ago ($US22.3 billion in 2018 vs $US23.1 billion in 2014);

Source: World Bank report – Annex 1 p48.

  • In Kina terms, PNG’s GDP in 2018 is K73 billion (the $US22.3 billion figure in 2018 converted at the average exchange rate in 2018 of 0.304), more than 10 per cent lower than the government’s estimates of K82 billion – the master chefs are still lying about the size of the economic cake;

K73 billion figures is using the average exchange rate of K1 buying $US0.304 during 2018 (so $US22.3 billion from table above divided by the exchange rate of 0.304 gives K73 billion).  The K82 billion estimate is from Table 1 of Annex 3 of the 2019 Budget.

 

  • there was a serious recession in the non-resource sector in 2015;

  • the O’Neill/Abel government is in breach of the 35% gross debt to GDP legislative limit;

The Fiscal Responsibility Act requires the debt to GDP ratio to be kept below 35%, and moving towards 30% in the medium-term. In PNG, this is based on gross debt as government saving had not been included previously. The following figures show the gross debt to GDP figure exceeding the legal limit for all the years from 2016 to 2021. They also indicate that the government breached this limit if even interpreted as net debt in 2018.

  • public debt is currently understated as it does not include debt guarantees for State Owned Enterprises as well as debt arrears;

 

  • the medium-term revenue strategy is failing;

Page 10 of the report included the following fascinating figure which drew no comment in the actual text of the report (once again indicating its generally diplomatic style). The yellow colours in the columns indicate non-resource tax revenue as a share of GDP. Note that this figure has slightly fallen between 2017 and 2019 from 13.1 to 13.0 per cent of GDP – the Medium-Term Revenue Strategy which sought to increase this ratio is currently failing.

  • the medium-term development plan is not funded;

Extract from p13 of the report. Once again, very diplomatic language. My earlier media releases have highlighted the unrealistic nature of the plan – see http://www.opposition.gov.pg/2018/10/17/health-plan-madness/ for example – and my budget response highlighted that funding had not been provided for the claimed massive increases in doctors and teachers.

  • the government has blown its budget deficit targets in both 2018 and 2019 due to weak spending controls;

Reference to weak spending controls.

  • hidden expenditure arrears had reached K948.1 million by October 2018;

See highlighted text above.

 

  • PNG’s risk of debt distress is confirmed as ‘moderate’ (up from ‘low’ before Abel became Treasurer);