IMF gives marks for fiscal deficit reduction

THE Government has made progress in reducing the size of its fiscal deficit budget after accessing concessional financing from the International Monetary Fund (IMF) and other donors, an official says.
IMF resident representative Sohrab Rafiq said they were conducting an outreach to explain IMF’s existence in PNG, and clear misconceptions that the country was more likely to continue the deficit because of the IMF’s return to the country.
Rafiq said the deficit was caused by the impact of the Coronavirus.
“The Government had to support the economy because global economic activity halted and then GDP growth and economic activity declined,” Rafiq said.
“It does have some circumstances and when something like that happens, the Government has to support the economy to reduce potential distress to businesses and households.”
He said there were two ways the Government could address this: firstly, bring down the deficit quickly and cut all expenditure although this would impact the economy, and secondly, go slow and gradually wait for the economy to recover.
An IMF staff report published last December project a gradual decline in the fiscal deficit. The Government’s goal is to remove the deficit by 2028.
“The IMF provides cheap concessional financing which gives the Government room to reduce the size of the fiscal deficit gradually,” he said.
“And because you are reducing the deficit progressively and at a pace the economy can withstand, you are ensuring that any fiscal consolidation is not having a negative impact on the economy.
“This will ensure the government’s finances are sustainable and remain on a sound footing.”
He stressed that the country was not in an economic crisis.
“The Government has a reform agenda and the IMF is here to support and advice on that reform agenda. In that sense, PNG has done the prudent thing where it has come to the IMF when there is no crisis.”