Treasurer’s Covid-19 report

Treasurer Ian Ling-Stuckey last Friday presented the Government’s Covid-19 Economic Response Package on Expenditure. The theme was: “Protecting the budget protecting the economy”. Below is a summary of the Treasurer’s expenditure presentation relating mainly to small businesses and the private sector.

ON April 2 last year, the Government outlined an innovative, inclusive economic response to support the country’s war on the Coronavirus (Covid-19) pandemic.
Further refinements were outlined on June 3, lifting the planned size from K5.6 billion to K5.7 billion.

Context for the K5.7billion economic response
I want to stress important factors in the way we went about protecting people, protecting the Budget and protecting the economy.
First was the importance of responsible budgeting.
As I stated clearly on April 2, last year, our direct budget response, had to be prudent and responsible.
It was produced in extremely uncertain times.
World growth had been downgraded to its lowest level since the Great Depression a century ago.
The world economy dropped by K38 trillion (or K38,000 billion) – that’s 420 PNG economies wiped out!
Dow Jones, the US share market index dropped by 25 per cent in two months, losing 7 trillion kina and dragging down the rest of the world with it.
At one stage, oil prices went negative.
So our response had to be flexible enough as the nature of the pandemic evolved, and as we learnt more.

Protecting the budget
The two largest parts of our response were designed to protect the Budget, in the face of much lower export receipts owing to declining oil prices, a big fall in PNG’s national income from the 2020 Budget figure of K92.2 billion down to K81.6 billion, and a sharp drop in revenue ultimately estimated at K2.7 billion.
The Government’s first response was the Covid Bond issue of K2.5 billion, to stop the bleeding in the 2020 Budget financing.
The second was to seek a blood transfusion of K1.5 billion in concessional loans.
The second part, replacing the predicted loss of tax revenue, was more challenging, because it would have been wrong simply to increase taxes. So we sought to secure cheap concessional finance from our international friends.
The initial target was raising an additional K1.5 billion.
Ultimately, because of our prudent and responsible economic policies and the international respect that they engendered, we raised K2.8 billion.
Much of it, at an interest cost of zero per cent. Zero percent.
A loss of revenues of K2.7 billion now, would not lead to Budget cuts of K2.7 billion.
Altogether, K5.3 billion to protect our 2020 Budget and fight the worst impacts of the pandemic.

Where did this K5.3 billion go?
It went to support all the programmes that were part of the 2020 Budget.
So rather than facing massive expenditure cuts, due to falls in tax revenues and domestic financing, the budget was protected.
It also went to businesses. If we hadn’t stopped the bleeding, there would have been massive cuts in expenditure that support our businesses.

Businesses
It is regrettable, that some businesses are complaining that they did not receive direct funding assistance.
But with all due respect, let’s not forget, that the largest part of the Government’s response meant that so many of their sales and contracts could continue, because the blood transfusion meant we didn’t need to slash the Budget.
The largest component of the K501 million expenditure, was the direct transfers to the provincial and district Covid-19 trust accounts.
The total was K214.8 million consisting of:

• K1 million to every province and district to support agriculture, to ensure food security and maintain nutrition levels.
  This programme featured an outreach campaign and support for the purchase of seeds and other inputs, and management of threats to crops and animal health;
• K500,000 to every province and district to support Wash programmes to prevent the spread of the coronavirus into communities, where poor sanitation facilities and water supplies, made people vulnerable;
• K500,000 per district for MSMEs to help keep small PNG businesses and entrepreneurs operating at a time of heavy restrictions, falling commodity prices, and other problems created by the Covid-19 crisis.
  These funds also helped keep some much-needed cash circulating in communities.
  The Kavieng District spent the funds this way:
• K400,000 supplied as farming kits of tools and equipment such as sickles, farm boots and fertiliser to oil palm farmers;
• K350,000 for store supplies provided to SMEs to kick start and support rural villagers table markets, house markets and trade stores, as well as K230,000 for the purchase of two trucks to distribute these materials;
• K170,000 to our Niu Ailan Savings & Loan Society, to provide micro-finance to local businesses, especially women;
• K33,000 grant to copra farmers to assist with the purchase of coconut press machines and seedlings;
• K15, 000 to cocoa farmers for the establishment of nurseries, seedlings and cocoa fermantries.

Finance Sector
At the start of the crisis early last year, the business sector was facing growing cash flow problems. We therefore worked with the Bank of Papua New Guinea to get the finance sector, to keep or increase cash circulating in the economy.
One element was to offer loan repayment holidays, the outcome of which, as reported by the central bank, was more than K1.7 billion in loans benefitting, from a repayment holiday.
I know this holiday was only temporary, and businesses are now having to repay their loans, but it did give them time to adapt to the crisis.
Similarly, the Internal Revenue Commission also delayed tax payment times, which also helped keep more cash in the system, at that critical time.
The Government also worked with the superannuation industry to help workers get earlier access to their entitlements if they were laid off work.
The required changes in legislation were passed in November last year.
Conclusion
I have outlined where the K5.7 billion Covid- 19 response package went – protecting people, protecting the Budget, protecting the economy.
Protecting education and health spending, protecting wages and wage spending, protecting payments to Members for their districts, protecting business through on-going contracts and repaying arrears.
This was not about some additional new spending, this was about stopping K5.3 billion in budget cuts.
That is, K5.3 billion protecting the 2020 Budget and over K400 million in new direct action programmes, to help and protect people and businesses and keep the economy ticking over. K5.7 billion in total.