As Papua New Guineans await the 2018 budget next week, I’ve put together the simplest explanation I can on the state of the PNG economy (minus the figures and the percentages).
All eyes will be on Treasurer, Charles Abel, next week when he presents budget that tries to deal with low commodity prices, tight revenue inflows and an ongoing foreign exchange crisis.
External pressures like the slow economic growth in Europe, the US and China are also having an effect on PNG’s export revenue.
Commentators have repeatedly stated that the government over estimated revenue projections from the extractive industries while prices were high and didn’t take into account the slump being experienced now.
While there is some recovery in the global economy, the treasury is not banking on comfortable ride over the 2018-2019 period. Some analysts are predicting the bad days won’t be over until after the 2020 financial period.
It is against this backdrop that the PNG government is preparing the 2018 budget set to be presented in Parliament next week.
The warning signs have been there for several years, a booming Chinese economy in 2005-2007, then a slow down in growth has meant less demand for raw materials.
What raw materials? Gold for IT related manufacturing, nickel and steel for skyscrapers, copper for wires and many products. Again, this is the simplest method of explaining for non-economists.
In Europe, growth has also been slow. How does that affect us?
This simply means, big economies aren’t spending as much as they did to and we can’t sell as much as we need, to keep our economy within the comfortable range.
Despite the talk about developing a diversified economy – you know, having mining, oil, agriculture, manufacturing and all that… there has been no real effort to create a level of diversification that can keep us going comfortably during economic downturns.
A diversification of the economy means having a multitude of industries that provide the cushion to withstand external shocks. For instance, if copper prices drop, we still make money from cocoa, copra and coffee. This is JUST an example.
But we are so heavily dependent on the extractive industry, that when commodity prices drop, we also suffer.
So what about agriculture?
For years, the government has talked about agriculture and the need to create a strong agriculture base. The rhetoric for a strong agriculture base is still ongoing since the payment of 100 million for the National Agriculture Development Plan was released during the Somare government which was happily lapped up by “paper farmers.”
Economic commentators, also point out that we are still getting the basics wrong. (We did have it right in the 70s and 80s.) The resources for transport infrastructure that will stimulate growth are going to the wrong places. There’s too much going to places like Port Moresby while the access roads in agriculture rich areas deteriorate.
So what should we expect from the 2018 budget?
It will be one that is focused on tightening spending. There will be more focus on tax revenue collection. The government says it will “broaden the tax base.”
There may also be increases in income tax or GST depending on which route the government takes.