SWF can relieve us

Letters

THE sovereign wealth fund (SWF) was intended to be established as a savings account for the Government.
The Government will save tax revenues paid by the mineral, petroleum, and gas companies in the SWF every year.
In each year the Government will withdraw an amount from the SWF, in accordance with the withdrawal rules of the SWF, to fund the national budget.
Any surplus funds will be invested for spending in the budget years ahead.
This will ensure that the SWF is managed in a sustainable way.
The purpose of the SWF is basically two-fold:
lInsulate the economy from the adverse impact of severe fall in international commodity prices on the people, the Government, and businesses in PNG. This is because PNG is still heavily dependent on tax revenues from the mineral, petroleum, and gas sectors; and,
lPrevent PNG from running into a severe debt related problems from the growth of domestic and foreign borrowings by the Government.
When international commodity prices fall, it results in reduced or no tax revenues to the Government.
The reduction in tax revenues seriously undermines Government’s ability to fund the national budget for the provision of public goods and services in PNG.
The reduction in Government spending also affects private sector businesses, resulting in loss of employment and income to the working population in PNG, because businesses also rely on Government spending to continue operating.
The international commodity prices severely crashed following the global financial crisis in 2007 and 2008, and continue to remain depressed to-date.
The crash has caused a major fall in tax revenues from mineral, petroleum, and gas sectors, as well as other sectors of the economy.
This has also resulted in a severe shortage of foreign exchange for businesses to import goods and services in recent years.
The ultimate result is that the Government is borrowing from domestic sources and abroad to fund the national budget deficits, resulting in a significant growth in the debt of the nation.
The debt growth has now exceeded the 30 per cent threshold of the nation’s value of production of goods and services, as measured by the growth of gross domestic product (GDP).
However, the growth of GDP has also declined significantly in recent years. The growth of the public debt and the decline in GDP are a serious threat to PNG.
The public debt is now diverting pubic funds for debt service, and away from the provision of essential services, such as education, health, and infrastructure development in PNG.
The Government must now take immediate actions to fully establish the SWF and save the nation from a serious debt-related social and economic crisis coming ahead.

Concerned Citizen
Port Moresby