The National, Friday 24th August 2012
THE government needs to rein in domestic borrowing if it is to avoid serious economic crisis similar to those experienced in 1994 and 1998, the opposition warned yesterday.
Shadow minister for finance and treasury Joseph Lelang told a news conference PNG was poised on the brink of a economic precipice, with similar high debts incurred during the 2012 elections, excessive domestic borrowing and falling revenues.
Lelang said domestic debt was already projected by the Treasury Department to rise to K6 billion this year, an increase of K900 million from last year.
Added to the government’s forecast budget deficit of K513.1 million, domestic debt would increase by K1.4 billion alone in just 2012, Lelang said.
This position coupled with the global economic turn and the resultant falling prices for PNG’s export commodities is an unsustainable and untenable position, he said.
He said already inflation had risen to 8.5%, higher than the 7.6% assumed in the 2012 budget.
Lelang predicts it is heading higher driven by private sector need to borrow from the banks to expand their businesses.
It is an attractive borrower’s market presently with high liquidity in the banks and low interest rates.
Lelang, who is immediate past secretary of planning and implementation, said foreign reserves had fallen by K451.6 million because of ongoing high imports by the PNG LNG Gas project for its construction phase and low commodity prices.
Strong domestic demand by the private sector and excessive government spending is also driving foreign reserves down.
Treasury Department has recently announced that total revenue has declined by K392.5 million with the largest fall recorded from income and profits tax from the mining and petroleum sectors and the dividend withholding tax.
“It is plain, clear and simple,” Lelang said.
“We must live within our means.
“Borrowing is not an option especially when this government has already created much debt in the last 12 months.”
Lelang said the opposition was raising this red flag because circumstances facing PNG today are similar to those facing the country in 1994 before the balance of payment crisis which saw the floating of the kina and its free fall; and the 1998 crisis when excessive domestic debt was incurred to support excessive spending in the 1997 elections and revenue was falling.
Both occasions warranted rescuing from the International Monetary Fund and the World Bank.