Budget focuses on repair: Firm

The National Business

THE Government’s 2022 National Budget focuses on continuing budget repair and reconstruction, according to multinational accounting firm Deloitte.
The company said, in a presentation, that the budget looked well beyond the current Parliament’s term and was delivered with a 13-year fiscal plan.
This longer forecasting states a potential return to budget surplus in 2027.
By 2028, it is stated that the debt to gross domestic product (GDP) ratio could be under 40 per cent, while PNG even has the option of zero debt by 2034 depending on future Government choices.
The company said for the Government to meet its targets, some key conditions needed to be met including:

  • STRONG fiscal discipline;
  • SIGNIFICANT growth in tax revenues, predominantly in goods and services tax (GST) and excise;
  • GOVERNMENT financing with cheaper debt from bilateral and multilateral partners;
  • NON-RESOURCE sector growth of five per cent per annum, including agriculture, forestry and fisheries, small to medium enterprises (SMEs) and the informal economy;
  • RE-COMMENCEMENT of Porgera in the second quarter of 2022 and higher returns from PNG LNG;
  • UNDERTAKING comprehensive reforms of state owned enterprises for cheaper energy, internet, and water; and,
  • ENABLING foreign exchange.

The 2022 Budget has indicated the Government’s intent to continue supporting key development and infrastructure programmes across the country, most notably through large increases in the public investment programmes (PIP) capital budget (up 19 per cent) to fund the Connect PNG initiative.
Coming back to the theme of the 2022 Budget, the Government intends to lighten the burden on Papua New Guinea families through major health and education programmes with significant increases in spending on both areas (up 46 per cent and 34 per cent increases respectively).
These are popular measures in an election year.
The 2021 growth is forecasted at 1.5 per cent in real terms, which is 2 per cent lower than the 2021 Budget estimate.
This was mainly due to a contracting resource sector (by 4.1 per cent).
In 2022, real growth is expected to improve to 5.4 per cent, driven by a rebound in the resource sector which, along with election spending is expected to boost other sectors.
Over the medium-term, the real growth rate is expected to settle at 3.4 per cent overall, with the non-resource sector at 4.6 per cent.
Government debt to GDP is expected to increase to 51.9 per cent in 2022.
GDP itself is forecast to hit K101.7 billion in 2022, rising above the K100 billion mark for the first time.
Total Government expenditure rises to be K22.2 billion, with revenues forecast to rise to K16.2 billion, of which tax revenues represent K12.5 billion.
This Budget is delivered in the context of ongoing global uncertainty, making accurate short and long-term budget forecasting even more challenging.
Recovery from the global Coronavirus (Covid-19) pandemic is not without its speed humps, with global production line issues, increasing inflation, interest rates and fuel prices, as well as ongoing restrictions in the movement of people still curtailing growth.
Domestically, fiscal discipline in an election year poses obvious challenges.
A key element is the reopening of the Porgera gold mine in the second quarter of 2022, but this was also predicted to happen the same time last year in the 2021 Budget.
There is also a strong reliance on GST revenue increasing, well above the expected rate of economic growth.
It is hoped IRC measures to collect GST do not hamper economic growth.
Foreign currency and skills shortages are likely to remain a constraint in 2022 despite positive statements by the Government on these areas.