Budget a crucial test for Govt

PARLIAMENT meets for the budget session this week.
With the Opposition still wanting to move a motion of no-confidence in the Government, there might be some political fireworks. But by and large, it is expected that unless a large chunk of the Government tears away to support the motion, it will come to naught.
Still, it would not be PNG if something unexpected weren’t expected. It is hoped that the 2010 budget does not fall into that category of the unexpected.
It is going to be a tricky budget, particularly if it is expected to be sustained at 2009 levels and made trickier by the Government’s desire to balance the budget. This budget, more than the others before it, is going to be a test of Finance Minister Patrick Pruaitch’s mettle as a finance and economic manager.
The last six years of growth were really smooth sailing. With political stability, the macroeconomic and fiscal adjustments made by his predecessor Bart Philemon and excellent global market prices for all our exports, it was a period of unrestrained revenue growth for the nation. Much of this revenue was parked away in many trust accounts to keep for rainy days and also to ensure that the Government was not spending too much in any one year, which would increase inflationary pressures.
A lot of the money in trust accounts, amounts in the tens of millions of kina, is being used by executive and sometimes ministerial edict alone for one-off projects outside of the budgetary process without the sanction of Parliament. Whether or not this is lawful is an important question for elaboration and debate.
Much of the money is depleted and it is uncertain whether the Finance Minister will empty the trust vaults to fund the 2010 budget if he wishes to maintain it at 2009 levels and without incurring a huge deficit in the process.
While finance managers might be loathe to empty good money into consolidated revenue which is normally sucked dry by the recurrent expenditure, it is the approved budgetary process. Monies spent outside this process do not have the sanction of Parliament.
While the economy in 2010 is still expected to register growth, albeit a modest one, the budget is framed in a period when the full effects of the global recession start to hit.
Revenue, particularly from the mining and petroleum sectors, is not going to come in the kind of amounts experienced in the last few years.
Yet the Government’s expenditure commitments have increased. It has promised to spend big – almost K2 billion on Universal Basic Education alone. It must fund its memorandum of agreement (MoA) and Benefits Sharing Agreement (BSA) commitments to the tune of nearly K500 million if it wishes to be on track with the PNG liquefied natural gas (LNG) project, so that construction can begin in earnest in order to achieve first shipment by end of 2013 or early 2014.
Two new provinces – Hela and Jiwaka – beg for urgent budgetary attention to set up the necessary operational and infrastructural mechanisms for them to be fully functional. The first budgetary allocation will need to be made in the 2010 budget.
Money will need to be made available for the boundary review commission to map out the new provincial boundaries and new electorates as well as those others which were recommended in the last review which was rejected by Parliament. Allowances have to be made for special women’s seats. Money for this massive task must be allocated next year, since 2011 will be too close to the 2012 elections.
The Government’s ongoing commitment to the Treasury roll-out programme, district services improvement programme, national agriculture development plan, education infrastructure programme, transport infrastructure programme among others will need continued funding.
Under question is the K10 million per electorate allocation that tore a gaping hole of K890 million in the budget but whose effect on the electorates is yet to be fully measured.
These expenditure pressures will demand good counsel and prudent management.
Since the global outlook is still uncertain and revenue from the country’s exports expected to drop, the Government will need to borrow if it is to sustain the budget at 2009 levels or increase.
If it did that, budget deficit will increase for the third year in a row. Increased spending will increase inflationary pressures. The important gains made in curtailing debt over the last six years will be eroded and reversed. The population will be given a false sense of security when in reality they ought to be cautioned to tighten their belts.
This budget will test the Government’s resolve and ability to manage the country’s economic fortunes for the better.