PNG Economic Survey 2007:
Fiscal Discipline Needed
Roderick Duncan
Charles Sturt University
The macro story
• Successes of the Somare government
– Inflation down to 4-6% range (from 10-16%
range)
– Public debt down to 43% of GDP (from 72%
of GDP)
20
06
20
04
20
02
20
00
19
98
19
96
19
94
19
92
19
90
19
88
19
86
19
84
19
82
Per cent
Inflation
Figure 1: Inflation 1982-2006
20
18
16
14
12
10
8
6
4
2
0
Public debt
Figure 2: Public Debt 2002-2007
9000
80
8000
70
7000
Kina Million
6000
50
5000
40
4000
30
3000
20
2000
10
1000
0
0
2002
2003
2004
2005
2006
2007
As % of GDP
60
Total
Domestic
Total %
The macro story
• Troubles
– Spending and the budget deficit (running a
deficit during a boom)
– Poor growth in per capita terms
Government spending
Spending is rising as fast as revenues
7000
6000
Kina Million
5000
4000
Government Revenue
3000
Government
Expenditure
2000
1000
0
2000
2002
2004
2006
2008
Real GDP growth?
Figure 4: Real GDP per Capita 2001-2006
103
Real GDP per capita; 2001 = 100
102
101
100
99
g=2
98
g=3.1
97
g=2.5
96
95
94
93
92
2001
2002
2003
2004
2005
2006
The micro story- obstacles
• Manning (1999)formal sector
–
–
–
–
–
–
1. crime and theft
2. corruption
3. poor infrastructure
4. policy instability
5. inflation
6. taxes and regulation
• Eugenio (2001)informal sector
– 1. lack of access to
finance
– 2. lack of infrastructure
support
– 3. impeding
regulations
– 4. lack of business
skills
Why doesn’t PNG grow?
A “perfect storm” of
misappropriation
• New spending outside the usual 2006 and
2007 Budgets.
– 2006 Supplementary Budget– 2006 Windfall Gains– 2007 Windfall Gains– 2007 Supplementary Budget-
K682.5 million
K650 million
K450 million
K700 million
– Net new spending
K2,382.5 million
Should we be worried?
• 1. An election this year
• 2. Unpopular incumbents (75% of
incumbents were thrown out in 2002)
• 3. Large amounts of undirected cash
outside the standard budgetary channels