Funding the national budget

The National Letters

THE sovereign wealth fund (SWF) was intended as a savings account (the SWF) for the Government.
The Government will save tax revenues paid by the mineral, petroleum, and gas companies to the SWF every year.
Each year the Government will withdraw an amount from the SWF, in accordance with the withdrawal rules of the SWF, to fund the national budget.
Surplus funds are invested for the future.
This will ensure that the SWF is managed in a sustainable way.
The purpose of the SWF is basically twofold:

  • Sustain the economy from the adverse impact of a severe fall in international commodity prices on the people, the Government, and businesses in PNG. This is because PNG is still heavily dependent on tax revenues from minerals, petroleum, and gas; and
  • Prevent PNG from running into a severe debt-related problems through the growth of domestic and foreign borrowings by the government.

Falling international commodity prices result in reduced or no tax revenues to the government.
The reduction in tax revenues seriously undermines the government’s ability to fund the national budget for the provision of public goods and services.
The reduction in spending also affects private sector businesses, resulting in the loss of employment and income, because businesses also rely on government spending.
International commodity prices severely crashed during the global financial crisis in 2007 and 2008, and continue to remain depressed, although we have seen some improvements in recent years.
The crash caused a major fall in tax revenues from the mineral and petroleum sectors, in particular, and other sectors in general.
This also contributed to a severe shortage of foreign exchange for businesses to import goods and services.
Consequently, the government is borrowing from domestic and overseas sources to fund national budget deficits and the demand for imports of goods and services from abroad, resulting in a significant growth in national debt.
The debt growth has now exceeded the 30 per cent threshold of the nation’s value of production of goods and services, as measured by the growth of gross domestic product (GDP).
However, the growth of GDP has also declined significantly in recent years.
The growth of the public debt and the decline in GDP are a serious threat to PNG.
The public debt is now diverting pubic funds for debt servicing, and away from the provision of essential services such as education, health and infrastructure development.
The Government must now take immediate actions to fully establish the SWF and save the nation from a serious debt-related social and economic crisis.

Concerned citizen, POM