Despite governments around the world having delayed issuing their national budgets due to the disruptions caused by COVID-19, in November the Papua New Guinea Government approved a record budget for the country, with expenditure projections to top US$4.55 billion for the fiscal year 2021.
At the same time, revenue projections are expected to hit $3.1 billion. The deficit of nearly $1.45 billion will be sourced mainly through concessional loans from the country’s development partners.
November is the prescribed month for PNG’s national budget to be passed by its parliament which is in accordance with the law that governs budgetary processes known as the Fiscal Responsibility Act (FSA).
Development partners such as the World Bank (WB), the International Monetary Fund (IMF), and the Asian Development Bank (ADB) will play a key role in financing the budget deficit through concessional loans and grants.
The Papua New Guinea Treasury Minister, Ian Lin-Stucky, said the budget was the most challenging in the country’s history and warned the population of the difficult times that lay ahead.
The official quoted the latest World Bank economic outlook when delivering his budget speech to the PNG Parliament, saying that the future period will be a ‘long and difficult ascent’ to recover from the COVID-19 pandemic.
“Using detailed World Bank economic data, which goes back 60 years, there have only been two years where the world economy went backwards,” the treasurer said.
According to him, the forecasted economic downturn for 2009 – 4.44% – is more than double higher compared to the 1.7% decline in 2009-global-financial-crisis.
The official believes that Papua New Guinea is in the middle of the world’s greatest economic crisis since the country obtained its independence back in 1975.
Despite the setbacks in the economy induced by the COVID-19 outbreak, the Government of PNG has increased the budget by a significant amount compared to 2019 and 2020 with the intention of stimulating economic growth.
The two main areas for expenditure increase are:
- Funding of $170 million for round 2 of COVID-19 anti-crisis activities
- Funding to increase repayment of arrears for amounts borrowed in previous years at high rates compared to those now offered by international partners such as the World Bank and the ADB
In it’s Budget Alert, Deloitte described the focus of the budget as to “consolidate the country’s economic and budget position and move back to a growth path with a view to rebuilding living standards for Papua New Guineans.”
The PNG Government has indicated it intends to continue to support key capital programs such as Connect PNG, the Micro Productivity Improvement Programs (PIP) for rural infrastructure, and Special Intervention Programs that aim to reduce the cost of doing business and to connect and expand economic corridors in order to stimulate economic growth while boosting income-generating opportunities in rural areas.
The 2021 budget will also see increased expenditure to stimulate sectors including agriculture, tourism, and SMEs – those most affected by the COVID-19 pandemic.
