Urgent action needed to tackle PNG’s growing debt crisis

18 October 2017

By student correspondent Dot Mason

Papua New Guinea is currently experiencing one of the worst economic downturns in its recent history, according to ANU researcher Rohan Fox.  Mr Fox, from the Development Policy Centre, provided insight into the downturn at the ‘PNG after the elections: the economy’ forum last week.

The Forum, presented by the Crawford School of Public Policy, is one of a two-part series of events addressing PNG’s 2017 election held at the ANU.

In June and July of this year, thousands headed to the polls to vote in Papua New Guinea’s controversial General Election.

Peter O’Neill, from the People’s National Congress, eventually came out on top after several days of difficult coalition negotiations.

His campaign has been rife with controversy. Those critical of Mr O’Neill claim they were excluded from the electoral process, and Mr O’Neill himself is facing outstanding charges of corruption.

But with the economy continuing to decline, strong leadership seems necessary now more than ever.

“The fiscal story is one of falling revenue combined with moderate to high inflation, high debt, and expenditure cuts,” says Mr Fox.

In a supplementary budget speech given last week, Treasurer Charles Abel confirmed that revenue levels would be just 5 per cent above the 2016 figure. Once inflation is taken into account, this means revenue has declined for the third consecutive year.

The decline may seem small, but cumulatively it reflects a significant slump. Accounting for inflation, current revenue is 25 per cent below its 2014 peak.

“The economic downturn, which initially was the result in a decline in commodity prices, is now a much more general downturn in economic activity,” explains Mr Fox. “This can be seen not only in the collapse of resource sector revenue, but in revenue declines across non-resource related sectors as well.”

Particularly worrisome is the fall in tax revenue, which has translated into government cuts to essential services.

“Budget spending on police and hospitals has been cut by just under half since 2014. In per capita terms, it’s as if the commodity boom has never happened at all for these sectors,” says Mr Fox.

There’s also concern for the gap between expenditure and revenue that has led to a sharp rise in borrowing since 2012.

“Every deficit increases the stock of debt that the government has to repay. As a result of these deficits, nominal debt has more than tripled since 2012.”

Addressing Papua New Guinea’s economic difficulties is likely to prove one of the key challenges for the incoming government. However amid allegations of corruption and fraud, many fear the new leadership does not have sufficient political clout to implement necessary reforms. 

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Updated:  24 April, 2017/Responsible Officer:  Dean, ANU College of Asia & the Pacific/Page Contact:  CAP Web Team