Govt on track despite quake

As the Government sees good days ahead for the country in terms of meeting Budget expectations, it wants companies in the extractive industry to bring back the proceeds of their exports to make things
even better. Business reporter MARK HAIHUIE looks at how Treasurer Charles Abel is seeing things.

THE economic impacts of the Highlands Earthquake were the key topic of the Mid-Year Economic and Fiscal Outlook released last week. Despite the earthquake, Deputy Prime Minister and Treasurer Charles Abel, when presenting the report last week said, the government was on track with its Budget projections for the year.
Abel noted how the past recent years had been economically difficult while saying how the new coalition government formed last year was committed to taking steps to change that.
“We have had some very positive results that have come through but, of course, as you all know in February this year we were hit with a very big earthquake,” he said.
“The impact of that earthquake is, of course, that it creates additional expense for the Government that were not necessarily budgeted for and we have to spend money to address those issues on the ground.
“The other big impact it has is on the production side where obviously it affected resource projects in those areas. So, in particular, the PNG LNG project lost seven weeks of production and Ok Tedi and Porgera mines as well as the Kutubu oilfields which were also affected.
“What that does is it reduces the revenue to those mines and in turn reduces revenue to the Government in terms of what we are able to collect in terms of taxes and, of course, revenue streams like royalty. That has been the major risk factor that has impacted on this budget.”
Despite that Abel remained optimistic that he would meet revenue targets, saying that it was fortunate that production was restarted quickly, especially for the PNG LNG.
“And not only that, but the production rate is above expectation. We know that PNG LNG is performing above nameplate production where it is some 30 per cent above the original expected production of 6.9 million tonnes per annum and it is running close to 9 million tonnes per annum,” he said.
That and rising commodity prices for PNG export have made the Government revise its economic growth rate while expecting an increase in revenue.
“So what has happened is that we were looking at a negative 1.6 per cent growth rate after the earthquake from 2.4 per cent in the 2018 budget,” Abel said. “This has now been revised back to 1 per cent growth rate so there has been that improvement in that sense.
“Our revenue is on track and with some of the changing circumstances in terms of production and commodity prices with, of course, the hard work that is being done by the Internal Revenue Commission and Customs we are actually expecting to collect a bit more revenue than was originally budgeted for.
“The commodity prices are running above 2018 Budget projections, except for coffee which has remained relatively the same.
“An example I always talk about is … (that) we estimated the price of oil to be US$52 (about K170) per barrel and in fact if you look at the price of oil today it is above US$70 (about K230) per barrel. That, together with the increase in production, translates into additional profits which means additional taxation and dividends above budget, meaning additional revenue for the Government.
“That is why we are optimistic about exceeding the original Budget projection, even with the effects of the earthquake.
“There has also been significant improvement in tax collections. We are trying to push revenue-to-GDP back up to 20 per cent and above because there have been times in the past … (when) revenue-to-GDP was higher. When the PNG LNG project came online we had this extraordinary jump in GDP but we did not have the revenue jump that should come with that.”
Abel said the Government would consider and factor that into developing a new fiscal template for new projects on the horizon, like Papua LNG and Wafi-Golpu.
“We have to look at some of the reasons why mineral and petroleum taxes have declined so dramatically over the last few years, which has impacted on our overall revenue-to-GDP percentages,” he said.
“It has dropped from the previous highs of 30 per cent to 15 per cent. At present it is coming back up and we want to keep that trend going and have it above 20 per cent.
“The physical goods go out of the country but the financial flows don’t all come back and that is a problem. We have been concentrating very hard and when I talk to the IMF (International Monetary Fund) and ADB (Asian Development Bank) about exchange rates and foreign reserves I say that the fundamental issue that you need to help us address is why we are having this current account surplus, as they call it, and we don’t have the matching flows.
“We have been doing a lot of hard work together with the central bank looking into the requirement for foreign exchange. That same issue will come through in the fiscal terms I am talking about.
“There has to be some responsibility by these companies to bring back the proceeds from exports from PNG onto PNG soil because we need that money for the economy to grow.”