Sovereign wealth fund

SECTION 25 of the Constitution provides for equal distribution of wealth and participation in the development of natural resources owned by the citizens of Papua New Guinea.
The establishment of the sovereign wealth fund (SWF) is intended to satisfy this constitutional requirement, which will support the broader development goals of PNG.
The production and sale of minerals, petroleum and gas is transformation of capital under the earth, into money which is another form of capital that constitutes an asset of PNG.
Mineral, petroleum, and gas taxes paid to the Government by the mineral, petroleum, and gas companies, from their sales revenue constitutes a transfer of capital from the private sector to the public sector.
The Government can spend the taxes now on its development priorities, or investment them to generate more income for spending in the future.
The purpose of the SWF is basically to save and invest some of the taxes in financial assets which will generate more income in the form of interest, dividends, royalties, and rental receipts to sustain the Government’s development spending in the future, through the annual national budget.
Two major development issues discussed below are now undermining the establishment and operation of the SWF.
First, a serious concern is that the Government is squandering and wastefully spending mineral, petroleum and gas tax revenues.
As a consequence, the Government is rapidly developing and depleting capital in the form of mineral, petroleum and gas resources which are underground.
The squandering of public asset has been compounded with an outright loss of capital through the free transfer of capital ownership to the private sector and granting of significant tax concessions to the companies operating in the mineral, petroleum, and gas sectors, under the project development agreements (PDAs).
This outright loss of capital will not be available in the future to support our economy and future generation of PNG citizens.
Second, our national debt level has now exceeded the 30 per cent threshold of the nation’s value of production of goods and services, as measured by the gross domestic product (GDP).
However, the growth of GDP has declined significantly in recent years compared to the growth of our national debt, which now raises a concern for debt sustainability, going forward.
The significant growth in the national debt has pre-committed all future tax revenues to paying off this debt in the future.
It has left PNG and its future citizens exposed to a significant debt burden without any source of income to repay it.
The Government must now take immediate actions to reduce wasteful spending and fully establish the SWF, and save the nation from a serious debt related social and economic crisis looming ahead.

Concerned Citizen,
POM