Policy poses challenge: Bakani

THE country’s revenue challenges and cash flow difficulties last saw the Government amending the Central Bank Act that increased advances from the bank, according to the Bank of PNG.
Governor Loi Bakani said, in a monetary policy statement, that the substantial increase in the temporary advance facility limit from K300 million to K1,500 million to finance the Government’s cash flow mismatches posed a challenge to monetary policy management.
“The Central Bank undertook some trading in the secondary market by on-selling its stock of Government securities to diffuse part of the liquidity injected through the temporary advance facility,” he said.
“A large portion of the dishonoured Government cheques funded by the temporary assessment facility was as a result of not adhering to the due process of verification rather than the unavailability of funding.
“Therefore, the Government is encouraged to minimise the use of cheques and undertake electronic funds transfer for ease of payment.”
Bakani noted that it was also important that authorities fast-tracked the structural reforms to improve revenue collection and expenditure controls.
“Some of these are outlined under the International Monetary Fund staff monitored programme that is scheduled to end in June,” he said. “The Central Bank is also considering technical assistance to reform and enhance its monetary policy management and foreign exchange market operations.”
Bakani said the fiscal operations of the Government were impacted by the Covid-19 pandemic last year with lower revenue, resulting in a supplementary budget introduced last September.
He said the preliminary final outcomes for the 11 months to last November showed a deficit of K5,638.4 million, compared to the deficit of K2,293.4 million in the corresponding period of 2019.
“To finance the deficit, the Government raised K4,0773.2 million from domestic sources and K1,561.0 million from external sources,” he said.
“The impact of these high expenditures in 2020 on economic activity has not been evident.
“The 2021 National Budget has a planned expenditure of K19,607.8 million and revenue of K12,955.0 million, giving a deficit of K6,612.8 million.
“The deficit equates to 7.3 per cent of nominal GDP.
“To finance it, the Government plans to raise K4,612.8 million from external sources and K2,000.0 million domestically.
“Of the total external financing, K2,319.6 million will be from other possible external sources.
“Given the recent spike in Covid-19 cases that could impact on revenue raising, this would pose additional financing challenges.
Bakani said it was important for the Government to step up its revenue collection efforts, which included new revenue raising measures.
“The Government is also cautioned to spend effectively on priority areas such as health and Covid-19 related expenses, education, law and order and settling arrears to service providers, as well as exercising control in its expenditure,” he said.
“Given the high expenditure, there is a need for proper governance and auditing to ensure prudent spending.”