PNG on brink of financial black hole

PORT MORESBY – Australia is not the only country in the region facing a budget black hole because of lower commodity prices. Papua New Guinea is more dependent on mineral and energy exports than Australia and has been hit hard by falling prices and drought. As PNG’s treasurer Patrick Pruaitch prepares to deliver his 2016 budget next week, economists are warning the country is facing a revenue collapse of historic proportions. Economist Paul Flanagan, a former PNG treasury official, said the budget due to be delivered on Tuesday would be “very, very tough”, precipitated by what he described as “an extraordinary collapse in revenues”. “International commodity prices have dropped and that has taken about 10 per cent of their revenues,” Flanagan told the ABC’s Pacific Beat programme. Drought and other pressures such as exchange rate controls have slashed revenue predictions further. “These are cuts of about 20 per cent in revenues even from the 2015 budget,” Flanagan said. Pruaitch announced a delay in the return to budget surpluses from 2017 to 2020 when he released his 2016 budget strategy statement last week. Flanagan said that was “a sensible and overdue move” but the cuts to spending proposed by the government were huge. “They are looking, for example, on the expenditure side, to go from government expenditure being about one third of the economy to only 21 per cent by 2020,” Flanagan said. PNG’s prime minister Peter O’Neill has moved to calm public nerves because of the predicted big spending cuts. “This is a conservative budget that carefully manages spending to ensure essential services are delivered to the people,” O’Neill said. O’Neill said school fees, access to health care and critical infrastructure would continue to be properly funded, while more would be spent on police, courts and prisons. “The budget is one that better positions our economy to confront international challenges including low commodity prices and global economic uncertainty,” he said. But the quarantining of so many areas from spending cuts is also raising eyebrows. Former prime minister Sir Mekere Morauta said in a statement that PNG needed to take urgent action to save itself from a looming economic and financial storm. “The prime minister has had plenty of warning from his own expert advisers in treasury and from eminent foreign institutions and observers,” Sir Mekere said. Local business have praised the treasurer’s 2016 budget strategy but they have also warned about the scale of the task ahead. “Confidence may only be maintained by continued disciplined and zealous fiscal constraint over the next three to five years,” the Business Council of PNG and Manufacturers Council said in a rare joint media release. Concern has also been expressed about the government’s enthusiasm for taking large investments in resource projects, such as its purchase of Oil Search shares, controversially funded with a $1.2 billion loan from UBS. “We do caution government that it should not spend its scarce revenue on greenfield and brownfield projects,” said Douveri Henao, executive director of the Business Council of PNG. Sir Mekere – an economist, former head of treasury and a political rival of O’Neill – has warned that the country is facing one of its biggest budget crises in history. “A series of foolish deficit budgets and mini-budgets have brought Papua New Guinea to the brink,” Sir Mekere said. He said economic conditions were similar today to those caused by notorious former PNG prime minister, Bill Skate, who was a mentor to O’Neill. “Only urgent action saved the nation from disaster in 1999,” Sir Mekere said. “Only a well-structured and disciplined recovery package, implemented consistently over the next four to five years, will create the environment necessary for sustainable economic and social advancement.” - ABC PNG ‘no place for struggling refugees CANBERRA – Human Rights Commission president Gillian Triggs has criticised moves to resettle refugees in Papua New Guinea, describing the country as struggling. PNG announced earlier this month that it would begin resettling processed refugees from within Manus Island, three years after the detention centre opened. The development was welcomed by Immigration Minister Peter Dutton and his Opposition counterpart Richard Marles, despite concerns for the welfare of gay refugees in a country where homosexuality is still illegal. Professor Triggs also voiced concerns over the economic capabilities of PNG. She told the ABC that the country was facing pressure to provide services to its own people, many of whom live in unsafe and unhygienic situations. “Seventy per cent of the women there allege rape or sexual assault in their lifetime,” she said. “Infant mortality is poor, the mortality of the mothers i s poor. Health care generally, access to clean water, is very limited. Access in particular to the courts or police services is very limited.” “I think it is not a country that should be asked to accept the burden of refugees, whereas obviously Australia is a wealthy country with huge opportunities.” “I think it’s an extraordinary request to make of a country that struggling to service the needs of its own people.” Her comments come ahead of the unveiling of PNG’s budget next week, which economist and former PNG treasury official Paul Flanagan said would be “very, very tough”. Flanagan told Pacific Beat that falling commodity prices, drought and pressures such as exchange rate controls have slashed revenue predictions. - ABC