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)

Inflation

Public debt

The macro story Troubles –Spending and the budget deficit (running a deficit during a boom) –Poor growth in per capita terms

Government spending

Real GDP growth?

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- K682.5 million –2006 Windfall Gains- K650 million –2007 Windfall Gains- K450 million –2007 Supplementary Budget-K700 million –Net new spendingK2,382.5 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