State plans mini budget

THE Government is expected to approve a supplementary budget to address issues related to financing and cash flow it is currently facing.
Treasury Minister Patrick Pruaitch said he had already alerted Prime Minister Peter O’Neill on the need for a supplementary budget in light of concerns raised in the department’s mid-year economic and fiscal outlook.
“An early supplementary budget will provide confidence in the Government’s fiscal policy, help maintain investor confidence and bring a semblance of greater stability for the kina,” he said.

The department believes the implementation of an early supplementary budget will demonstrate Government’s commitment to prudent and disciplined fiscal policy and maintenance of macroeconomic stability.
Pruaitch said the department’s 2016 mid-year outlook had provided early warning signals on the need for urgent Government action on a sustainable budget.
He said an early supplementary budget would have an immediate positive impact on financing and cash-flow related issues.
“For some years, Treasury has been projecting that the economy faces some tough years ahead,” he said.
“Global developments in recent years has brought this forward and we face the threat of near recessionary conditions that requires urgent attention.”
Pruaitch said he was particularly concerned about the number of people in formal employment falling by 3.8 per cent in the 12 months to March 2016.
He said this had occurred even though the overall economic growth in 2015 increased by a highly credible 11.8 per cent against the 2016 budget forecast of 9.9 per cent.
Treasury Secretary Dairi Vele recommends that the 2016 budget spending be reduced by K1.9 billion to K10.8 billion.
He said this should bring it in line with revenue shortfalls following downward revisions to Government projections on economic growth, commodity prices and the foreign exchange rate.
“Economic growth expectations for this year have been reduced from 4.3 per cent to 2.2 per cent. And Government revenue is down by an estimated 15 per cent to K1,886 million,” he said.
“Without corrective action, the budget deficit would blow out to K3,998.6 million or 5.9 per cent of Gross Domestic Product.”
He said Government revenue had deteriorated since the 2016 Budget was passed last November.
The Government also noted the projected shortfalls in both mineral and non-mineral revenues.
Economic growth is lower than projected due to the impact of drought and frost conditions, low commodity prices and foreign exchange issues in the domestic market.
Vele said while economic activity had been adversely impacted, inflation was higher than anticipated. It rose from the budget estimate of 5.7 percent to 6.6 per cent as a result of international and domestic factors, including the depreciation of the kina.
He said certain measures and targets formed the 2016 national budget and the outlook report allowed the Government to assess whether any amendments needed to be made.