Fiscal consolidation results in less deficit

PAPUA New Guinea’s fiscal consolidation resulted in a sharp contraction in the fiscal deficit in 2017, however, this drove an increase in arrears, which necessitated a correction in the 2018 Budget, says the World Bank.
According to the World Bank’s PNG Economic Update Jan 2019, initially, the new O’Neill-Abel Government—formed following elections in June and July 2017—introduced a supplementary budget in Aug 2017 which included a series of critical measures to correct an underperformance in revenue and an overshoot in expenditure during the first six months of 2017.
Expenditure measures mainly focused on improving efficiency in the procurement of goods and services and the allocation of personal emoluments.
As a result, the non-resource primary deficit was cut from about 4.5 per cent of non-resource GDP in 2015–16 to 1.6 per cent in 2017 (and was projected to fall further to 1.0 per cent of GDP in the 2018 Budget), which was considered a very positive contribution to the fiscal consolidation strategy.
However, at the same time, as spending controls remained weak substantial budget arrears appeared.
By the end of Oct last year, the Government estimated that budget arrears accounted for K948.1 million (about 1.3 per cent of GDP). Consequently, the government introduced a 2018 Supplementary Budget that almost doubled the fiscal deficit (compared to 2017), with the non-resource primary deficit estimated to reach 2.8 per cent of non-resource primary GDP in 2018.
This fiscal outturn was a necessary fiscal adjustment to address budget arrears, even though it represents a deviation from the fiscal consolidation path initially identified by the government.
The report stated that in 2017 to 2018, PNG’s hosting of the Nov 2018 Apec Summit and a series of preceding events occupied the government’s agenda.
“According to the authorities, public spending for hosting all Apec events accounted for about K715 million during 2016 to 2018, of which K45 million was budgeted in 2016, K250 million in 2017, and K300 million in 2018,” the report stated.
There was also a K120 million tax credit provided to Oil Search for the construction of Apec Haus, the main venue for the summit.
Taking into account assistance from bilateral partners in the form of car and bus fleets and security support, the total cost for hosting the Apec events is estimated to be about K1 billion (US$300 million).