BUDGETS, by their nature, are guesstimates. Educated and informed, perhaps, but still guesses.
Economists like to use the word “forecast”. It sounds more positive and even clever.
Because of this, it makes sense to err on the conservative side of things, rather than out and out optimism.
The Government’s K7.489 billion balancing act in the 2010 budget is fraught with danger because it is utterly optimistic.
It is premised on the hope that the liquefied natural gas project will be signed into a project next month following completion of the licence-based benefits sharing agreement (LBBSA) forums currently being negotiated under police protection and the most trying of circumstances.
Upon the LNG hope rests 3% growth in the GDP next year. Failure to get the LNG project off on time will see next year’s projected 8.5% growth reduced to 5.5%. There is no question that the Government will give the project the red light, since it has staked everything on it.
The president of ExxonMobil was to have met with Prime Minister Sir Michael Somare at 3pm yesterday with some “very good news”. But at what cost?
The Government has, in wanting this project to get off so much, placed itself in a most difficult position.
From the day the Gas Agreement was signed in May last year to now, the Government has been pushing very hard to get the project signed and sealed.
In the process, it might be giving away far more than it should and it might be trampling all over the people’s rights to a fair hearing and a fair return for the harvest of their resource.
If the Government approves this project without respecting its own resource owners, it can expect that there will be trouble in future. It will only have itself to blame if that were to happen.
It is hard to understand how this Government could be in such a desperate and cash-strapped position following six straight years of growth and extraordinary windfalls.
There should be sufficient breathing space provided with the Ramu nickel mine and Hidden Valley mines starting up, with expansion programmes for existing major mines such as Lihir, Ok Tedi and Porgera and with the economy being sufficiently sheltered from the global economic crisis.
The Government did not need to rush the LNG project or any other project. As at Jan 1 this year, it had K2.9 billion in trust accounts – squirrelled away from excess budgets from the commodity boom days for a rainy day.
As at last Sept 30 – nine months later – the money in the trust accounts has been reduced by K1.4 billion to just K1.5 billion. The balance is not even factored in the 2010 budget so we can safely surmise that it is committed or there are plans for it to be depleted by year’s end.
The Government owes it to the people to table a full report with proper accounting for how this massive amount of money has been spent – on top of budgeted expenditure in just nine months.
This huge expenditure from the trust accounts – well above the 4% of GDP limits placed by the Medium Term Fiscal Strategy and the Fiscal Responsibility Act (2006) – will contribute to the huge inflation anticipated for next year at over 9.5%.
This money has been paid out in individual cheques which are collected by Open MPs.
For DSIP alone, the Government paid K356 million in 2007, K534 million last year and a further K356 million this year.
None of this money has been accounted for under the normal accounting processes. Surely, questions must be raised about whether or not the disbursement of these funds contravened provisions of the Public Finance Management Act. Despite the fact there is not even one report from any electorate on the use of this public money, the Government is throwing a further K178 million next year into DSIP.
And because the 20 provincial governors have been left out of the fun for the last two years, the Government is factoring K20 million – at K1 million per province – next year under a provincial services improvement programme.
This is most unwise and it would seem that it was done against the advice of the budget’s bureaucratic technocrats. The budget strategy paper actually mentioned that the DSIP would not be included in next year’s budget as a cost-cutting measure.
Since some K800 million of these funds are still unaccounted for, it would have been the first expenditure item to fall under the axe but political expediency has won over common sense.