Economic crisis looming

THE management of our economy is a major concern.
Every citizen needs to know and prepare for the worst to come.
The current developments indicate that the country may be headed for a major economic crisis.
These are summarised below.
The banking system is being heavily taxed.
The 45 per cent additional income tax will reduce investment and expansion of the financial system to support economic activities and development.
The Government has not implemented any effective measures to control and reduce the explosion in its spending.
Its spending is going only to consumption of goods and services, which is fuelling demand for imports.
Import demand is a major contributor to the foreign exchange crisis PNG is now facing.
The kina exchange rate, the amount of foreign currency one kina can buy, is under stress and will fall further soon.
Given the high inflation environment, any further fall will lead to much higher prices of goods and services because PNG is an imports-dependent country.
The fall in the exchange rate will only fuel inflation, while living standards of ordinary people will deteriorate further.
The level of external public debt is growing and unsustainable.
The Government’s foreign debt stock stands at around K30 billion.
This year, this level will be will be exceeded because the Government will borrow more money from overseas to fund the K6 billion budget deficit.
The present level of international reserves needed to pay this debt stands at around K12 billion.
The K18 billion shortfall is a major financial risk to the economy, should the Government default on its external debt service payments.
The country is experiencing a major transportation and energy crisis at present.
Deterioration in transport infrastructure and constant power outages are negatively impacting on lives, production and business activities.
It means the Government is unlikely to raise sufficient tax revenues to pay is national debt.

The overall national debt stands at around K50 billion and is still growing.
Every year, the Government repeats in its budget documents that it will arrest the growing budget deficit and debt problems.
However, the Marape Government has failed to implemented any effective measures, including a significant budget contraction, to address and avert this ballooning deficit-debt cycle crisis.
Parliament must now take actions and avert a major economic crisis that is looming ahead of us.

Concerned economist