No ‘big bang’ in 2013 budget

Editorial, Normal

The National, Friday 13th July, 2012

THE first major task before the 8th Parliament, when it convenes, will be the 2013 national budget.
So many candidates have taken to the field in the hope that they shall be in this parliament because of the perception that this is the parliament that is going to see exponential increases in the national budget and economic growth in double digits.
It is becoming to come home to us that all the hype about the billions that was to come from the LNG project will not become reality – at least not in the immediate to medium term.
Indeed, the reality is far more sobering. Major revenue earner Ok Tedi is projected to close in 2015. Porgera gold mine will be mining low grade ore it has stockpiled over the years.
With the exception of Ramu nickel mine, Yandera gold and Hidden Valley the rest are prospective mines.
Producing oil wells in Kutubu, Gobe, Moran, Northwest Moran and Southeast Mananda are in a state of natural decline. Had it not been for the LNG project, many of these wells would have run dry within the decade.
Treasury now predicts that projected revenue from the LNG project expected in 2015 will be enough only to fill the gap left by lower mineral and oil receipts.
Treasury Department predicts that the economy will continue to grow between 2013 and 2016 but only gradually rather than with the much-anticipated “bang”.
Total revenue is projected to grow by K2 billion in three years while recurrent expenditure is expected to grow by K3 billion in the same period.
Development expenditure will actually be stagnant over the period and PNG will continue to live on borrowed money and the good graces of friendly nations and multilateral institutions to the tune of K1 billion a year in this time.
It is critical that government expenditure be kept stable in line with projected revenue over the medium term. Any uncontrolled spending by the incoming government this year will impact significantly in future.
Government expenditure is expected to be stable in line with projected revenue over the medium term.
These is the scenario before budget strategists as they await NEC approval of a budget strategy paper and agencies’ submissions to prepare the budget.
The new government must therefore be prepared for belt tightening measures rather than coming in salivating to spend.
It must critically look at the problems that have prevented effective implementation of past budgets including the current one. The issues remain the same.
Several issues affected the effective implementation of the 2011 development budget.
These included slow or no submission of annual work plans, cash flows and monitoring reports by implementing agencies to Department of National Planning and Monitoring. This has the effect of delaying quick release of funds on a monthly basis.
There was almost universal lack of capacity within implementing agencies to design, scope and manage the implementation of projects effectively.
There was poor monitoring and reporting by Department of National Planning and Monitoring and Treasury.
Procurement processes were too lengthy and often there was diversion of funds to unbudgeted projects on political directions.
Successive supplementary budgets stretched agencies’ capacity to implement.
In addition to poor expenditure under direct financing from the government, there was very poor draw down of available concessional loan projects. Last year, the government was able only to draw down K151.7 million or 39% of funds against the projected concessional loan of K388.6 million.
A large amount of funds appropriated under the 2011 development budget were still held within trust accounts as at the end of the year. DNPM has put a figure of K542.2 million as the amount still being held in trust accounts.
This clearly shows a capacity problem within government and especially within the DNPM. Yet, the government went ahead to pump more money this year into the development budget and vesting the responsibility for management of this money in DNPM again.
Direct financing by government increased from 2011 level of K2.066 billion by K371 million in 2012 to K2.437 billion.
Tax credit increased from K60 million last year to K130 million while grants declined by K136 million to K1.391 billion in 2012.