K1.74b from trust accounts drained

National, Normal


THE Government spent a massive K1.7473 billion from trust accounts, between January and September this year, 2010 Budget documents revealed yesterday.
This represents 8% of GDP, double the ceiling placed on drawdowns from the trust funds by the Medium Term Fiscal Strategy and the Fiscal Responsibility Act 2006.
As a direct result, inflation remains high at 7.4 % in 2009 and soar to 9.5% next year, with the danger that interest rate rises might follow and further danger of a crowding out of private sector investment.
From 2005 to 2010, there have been eight different appropriations of additional revenue made over and above the annual Budget, which totalled K6,847.5 million.
These funds were from excess amounts received during commodity boom periods and parked in trust accounts so as to prevent spending too heavily, which would create inflationary pressures.
“Spending in excess of 4% of GDP from trust accounts is highly stimulatory,” according to budget papers.
“The stimulus will exert demand pressures on the economy, which risks increasing inflation, interest rates and imports and crowding out private investment.”
If the remaining funds in trust accounts of K1,554.0 million are exhausted in less than a year, there is likely to be a sharp drop in Government spending.
It appears as though the funds are indeed committed or exhausted because they are not factored into next year’s budget.
The largest amounts spent during the year were in:
*K500 million from the Gas Commercialisation Equity Financing Trust;
*K423 million was re-appropriated back into Consolidated Revenue Fund for financing other expenditures, while K77 million was released into the LNG project development cost trust account for financing LNG-related costs;
*K218.8 million was spent from the rehabilitation of education sector infrastructure (RESI) trust account for infrastructure rehabilitation of various educational institutions, including primary schools around the country;
*K140.6 million was spent from the petroleum outstanding MoA commitments trust account during this period to the landowners in the Southern Highlands and Gulf provinces. Most of these expenditures were related to the umbrella Benefits Sharing Agreement signed in Kokopo, East New Britain province, earlier this year;
*K392.9 million was spent from the district services improvement programme (DSIP) trust account. No financial or project reporting has been provided by the implementing agencies, the relevant districts, to the Department of Finance for the period.
“There has been large spending from trust accounts,” Treasury secretary Simon Tosali said.