Barker warns State of funding plans

 By GEDION TIMOTHY LAPAN

AN economist says the Government seems to have moved afield looking for funds to cater for deficits in the 2016 budget, after exhausting local bodies which had been funding deficit budgets in recent years.

Institute of National Affairs executive director Paul Barker was commenting on Government plans to secure a sovereign bond (reported to be K2.9 million).

Prime Minister Peter O’Neill said in Parliament on Tuesday it (sovereign bond) was arranged to replenish a shortage in foreign currency.  Barker told The National yesterday “increasing revenue will be a challenge in the short term”.

“And even with sharp expenditure cuts in the Supplementary Budget and for 2016, it is critical that the Government continues to provide funding for core public sector functions such as law and justice, education, health and maintaining core public infrastructure,” Barker said.

He said the Government would have to pay the backlog of contractual costs associated with some of the recent big ticket items. 

It needs access to foreign exchange, “which was in relatively short supply since the non-market driven adjustment made in mid-2014”, he said. 

“Clearly the Government is seeking to test the market with the launch of this sovereign bond (unfortunately at a time when credit rating agencies have downgraded PNG’s rating and raised its risk perspective).

“As indicated elsewhere, there is nothing wrong with budget deficits, so long as they’re within manageable levels.” He advised the Government to avoid undue risks associated with over-dependence on high commodity prices “and the funds are used for effective investment in human and physical capital, which will enhance economic and fiscal sustainability in the long run”.

He said the Government should not depend on unscheduled bonanza and must maintain fiscal prudence “even while allowing some deficit financing for fiscal stimulus during economic downturns”.