ADB warns govt on spending

Business, Normal

The National,Friday 09th December 2011

THE Asian Development Bank (ADB) yesterday cautioned the government that rapid expenditure increases in the 2012 budget could pose a number of risks for project implementation in PNG.
PNG as the largest aid recipient from ADB in Pacific in terms of loans for public and private sector.
The bank said with the global instability caused by the European money crisis, there was a real need for PNG to exercise fiscal discipline over the next 12 months.
The bank’s country economist in PNG, Aaron Batten said yesterday that with a record K10.5 billon in expenditure and net lending, there were significant funding increases for the key medium-term development plan (MTDP) enablers of health, education, infrastructure and law and order within a balanced budget framework.
“The share of total expenditures going to these sectors is projected to rise from 28% in 2011 to 31% in 2012,” he said.
He said although undertaken within a balanced budget framework, rapid expenditure increases would pose a number of risks for the implementation of the 2012 budget.
“Expected revenue increases in 2012 are reliant on strong economic growth of 7.8% and a continuation of high commodity prices for many of PNG’s key exports – in particular gold which is forecast to be 20% higher than the record levels received this year. 
“If ongoing global financial instability begins to have an impact on PNG economy next year, either through slowing domestic investment or lower global commodity prices, then government will find it difficult to meet its growing expenditure commitments without compromising fiscal balance,” he said.
He said achieving the objectives of flagship policies such as free primary education and the national health plan would require significant improvements in public sector financial management systems, which would continue to constrain the effective implementation of expenditure plans.
“If the government is to achieve these objectives, it would be essential to strengthen budgetary systems and improve the pace and effectiveness of project implementation,” Batten said.
He said any significant deviation from fiscal discipline over the next 12 months would undermine investor confidence, add to inflationary pressures, and disrupt the macroeconomic stability that has underpinned the last nine years of economic growth.
ADB’s country director Charles T Andrews said ADB worked closely with the government and allocated funding for roads and bridges throughout the country.