Central bank urges Govt to cut and re-prioritize

Caption: Bank of PNG Governor Loi Bakani

 

 


Sunday, January 10, 2016 (Sunday Chronicle, PNG)



PAPUA New Guinea’s central bank, Bank of Papua New Guinea, has urged the National Government to reconsider its revenue estimates in the 2016 National Budget.

The call was made by Central Bank Governor Loi Bakani in light of the continued depreciation in global commodity prices in the Quarterly Economic Bulletin for the September quarter of 2015.

With the 2016 budget already cut from the 2015 budget estimate by 2.4%- the bank has raised its concerns for the K14.8 billion money plan for the year, which is K12.7 billion in revenue, and a deficit of K2.1 billion or 3.3 percent of GDP.
Concerns about the 2016 Budget includes the K12.7 billion revenue expected to be largely driven by mineral and petroleum tax.

Since the release of the 2016 Budget, international prices for mineral and petroleum has dropped further and are forecast to be even lower. The IMF forecast for the two commodities are US$42 per barrel and US$9.5 per million metric British thermal units (mmbtu) in 2016.

Bakani is concerned that the Government’s price forecast of US$60 per barrel for oil and US$12.0 per mmbtu for LNG are on the high side and that the revenue targets may not be achieved.

“Fiscal deficits have inflationary effects on the economy. In cases where there is revenue shortfall, it is crucial for the Government to cut and re-prioritize its expenditure.”

With the accumulation of national debt to around K16.9 billion, the Governor stressed that money borrowed should be spent on productive and quality investments to grow the economy with more emphasis on the agriculture and the export sector as well as tourism.

“This should lessen the burden on future debt repayments and avoid more financial resources being diverted away from productive investments to debt repayments.”

The level of gross foreign exchange reserves at the end of September 2015 was K5, 586.8 (US$1,972.6) million, sufficient for 10.5 months of total and 18.4 months of non-mineral import covers. The level of gross foreign exchange reserves as at 31st December 2015 was K5,526.2 (US$1,865.1) million.