PNG: back in 2006

By Stephen Howes

I made my first visit to Papua New Guinea in 2006. The economy was doing well. Commodity prices were high, and revenue was pouring in. If back then someone had predicted that a decade on government revenue would be lower than it was at the time, I simply wouldn’t have believed them. No-one could be sure how long the commodity price boom would last. Revenue growth might slow. There would be bad years as well as good. But it was out of the question that overall revenue would not grow over time. In hindsight, I was too conditioned by my previous decade of work on Asian economies such as India and Indonesia where an upward trajectory in government revenue is taken for granted.

Today in PNG, adjusting for inflation, government revenue is expected to be below its 2006 level. Revenue from big resource projects, which in 2006 was about K3 billion in today’s prices, has all but disappeared. Revenue from the broader economy is higher than it was in 2006, but has fallen sharply since 2014, and the remaining increase is not enough to make up for the disappearance of resource revenues.

Government revenue adjusted for inflation

The orange line shows 2006 levels. Years with suffix “p” refer to projected figures.

What about expenditure? Back in 2006, there was no government borrowing. Now borrowing is at record levels. So expenditure is back at 2011 or 2012 rather than 2006 levels. But that makes things sound better than they really are. Salaries have increased massively. So has the interest bill. Both of these variables are difficult to change quickly. They are committed rather than discretionary expenditures. Take out salaries and interest, and discretionary spending is also back at below 2006 levels.

Government discretionary expenditure (excluding salaries and interest) adjusted for inflation<a target="_blank" rel="nofollow" href="http://devpolicy.org/wp-content/uploads/2017/10/Government-discretionary-expenditure-adjusted-for-inflation.jpg" data-lightboxplus="lightbox[39615]" title="PNG: back in …read more

From:: Development Policy Centre – DEVPOLICY Blog

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