The National, Thursday August 6th, 2015
Papua New Guinea may not be in the same league as the United States or members of the Organisation of Petroleum Exporting Countries but its crude oil exports make up for a significant portion of its annual revenue.
So when the price of oil slumps by up to 50 per cent as we are told it has, that must hurt. A world economy largely dependent on burning fossil fuels obviously feels the impact of such a fall in price; the exporter and consumer are impacted differently.
For the PNG economy it is not only crude oil that is affected but other commodities such as agricultural produce and minerals – all the country’s major revenue earners for years – have likewise been hit by drops in world prices. The fall in revenue has been in discussions the past few months and when the Government began effecting major cuts to essential service agencies such as the National Department of Health and faced difficulties with its funding of the Education Department it was sending out a very clear message that there was a cash crunch afoot.
Finance Minister James Marape has come out publicly with an admission that there was indeed a shortfall in government revenue projections for the 2015 fiscal year. Consequently, it would and has begun prioritising and cutting back on wastage and recurrent expenditure.
Capital expenditure for some major infrastructure projects will have to be deferred to the next or following budget. We note that prioritising even in a democratic environment is a rather subjective notion. And crises like the revenue shortfall upon us at the moment will only heighten that tendency to be prejudiced. Some would be worse off than others.
Do the reported K200 million cut to the Department of Health and an indefinite hold to the disbursement of K53m approved loans by the National Government indicate already where the Government’s priorities are?
The Health Department is sorely dependent on the National Government and its standing free public health care makes it all the more culpable if this sector declines any further.
The inability of the National Development Bank to fund its approved loans for SMEs is going to further delay help to aspiring entrepreneurs. The Government has been by far the biggest advocate and promoter of the SME sector and the NDB has been identified as the most visible financier for existing and new businesses.
However, the bank’s inability today to fund loans to clients who are obviously Papua New Guineans is going to adversely impact them in their planning and future prospects. The financial situation may quickly dampen their aspirations, casting doubts on the Government’s commitment.
In the education sector, it was reported that a number of schools in Morobe have already sent students home because there was insufficient operational money to continue. Other provinces facing similar financial difficulties may follow suit.
Funding school operations cannot be classed with other recurrent expenditure. Likewise, stocking shelves of medical stores is not another recurrent expense.
In the face of similar circumstances in the past governments have had to pass supplementary budgets and revise their projections downward.
In response to calls for a supplementary budget by Deputy Opposition leader Sam Basil, Marape however, said there was no need for a supplementary budget. The 2016 budget would be brought to Parliament in three months.
Curtailing wastages and recurrent expenditure started well before Marape was made to counter the fears of the Opposition.
Opposition leader Don Polye has pointed to the Government’s drastic cuts to the health sector budget, the lack of funding for National Development Bank and the making a couple of state-owned entities to declare half-yearly dividends. These were for the Opposition clear indications of a government in a financial crisis.
Marape has appealed to Papua New Guineans to remain calm as inferred by The National’s front page headline yesterday.
The question, however, is whether the people are asked to remain calm and hope that the Government would keep everything under control, or to passively accept a situation beyond their control – including the cutbacks on those recurrent expenses which are going to hurt.
There is a world of difference.