Abstract
Despite strong growth relating to a large liquefied natural gas (LNG) project, Papua New Guinea (PNG) faces strong headwinds from severe revenue shortfalls due to lower global commodity prices and temporary suspension of a large mining operation. Given the large drop in government revenues, decisive consolidation will be needed to keep the government debt-to-GDP ratio on a downward trajectory over the medium term. To this end, expenditure growth should slow and budget resources should focus on high-impact spending, while safeguarding social outlays.
1. On October 19, 2015, the Government of Papua New Guinea (PNG) released the 2016 Budget Strategy Paper. Highlights are as follows. The projected fiscal deficit in 2015, at 4.5 percent of GDP, is 3.1 percentage points of GDP lower than the staffs projection (Table 1), and close to the 2015 budget of 4.4 percent. Revenues are projected to be K 1.1 billion higher than budgeted and expenditures K 1.4 billion lower. The debt-to-GDP ratio is projected to be 34.4 percent, slightly below the 35 percent of GDP ceiling in 2015 (lower than staffs projection of 39.4 percent). Staff welcomes the intention for faster consolidation and is looking forward to hearing more about the measures underpinning this effort.
2. The government envisages further fiscal consolidation beyond 2015, with a gradual reduction of deficit for 2016–19 leading to a balanced budget in 2020. Underpinning this more ambitious consolidation than envisaged by staff are further expenditure prioritization, the planned refining of the tax regime, and structural reforms in public enterprises. The 2016 budget and the medium-term strategy continue to give priority to the core development enablers, namely, health, education, law and order, agriculture, and infrastructure.
3. The 2016 Budget will be reported under the GFSM 2014 methodology, and aggregate numbers for total revenue and expenditure will be revised accordingly.1 The macroeconomic and fiscal forecasts will be updated with the 2016 budget to reflect any changes in economic and financial conditions.
4. The proposed 2016 budget strategy does not change the staff assessment as reported in the staff report.
Papua New Guinea: Selected Budget Indicators
Papua New Guinea: Selected Budget Indicators
| 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Staff Report | 2016 Budget Strategy | Staff Report | 2016 Budget Strategy | Staff Report | 2016 Budget Strategy | Staff Report | 2016 Budget Strategy | Staff Report | 2016 Budget Strategy | Staff Report | 2016 Budget Strategy | |||
| (Percentage change) | ||||||||||||||
| Real GDP growth | 8.5 | 9.0 | 11.0 | 3.1 | 3.0 | 4.4 | 2.4 | 1.4 | 2.6 | 3.2 | 2.7 | 3.2 | 3.1 | |
| Nonresource | 0.7 | 1.5 | 3.3 | 3.8 | 3.4 | 5.5 | 3.3 | 1.9 | 3.3 | 4.0 | 3.6 | 4.0 | 3.9 | |
| CPI Inflation | 5.3 | 6.0 | 4.9 | 6.0 | 5.6 | 5.0 | 5.2 | 5.0 | 5.1 | 5.0 | 5.0 | 5.0 | 5.4 | |
| (In percent of GDP) | ||||||||||||||
| Overall balance | −7.2 | −7.6 | −4.5 | −5.5 | −3.1 | −4.4 | −1.8 | −3.7 | −1.2 | −3.3 | −0.4 | −3.0 | 0.0 | |
| Government gross debt | 35.6 | 39.4 | 34.4 | 41.1 | 34.8 | 40.7 | 34.6 | 42.8 | 33.8 | 43.9 | 32.3 | 44.6 | 30.2 | |
Papua New Guinea: Selected Budget Indicators
| 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Staff Report | 2016 Budget Strategy | Staff Report | 2016 Budget Strategy | Staff Report | 2016 Budget Strategy | Staff Report | 2016 Budget Strategy | Staff Report | 2016 Budget Strategy | Staff Report | 2016 Budget Strategy | |||
| (Percentage change) | ||||||||||||||
| Real GDP growth | 8.5 | 9.0 | 11.0 | 3.1 | 3.0 | 4.4 | 2.4 | 1.4 | 2.6 | 3.2 | 2.7 | 3.2 | 3.1 | |
| Nonresource | 0.7 | 1.5 | 3.3 | 3.8 | 3.4 | 5.5 | 3.3 | 1.9 | 3.3 | 4.0 | 3.6 | 4.0 | 3.9 | |
| CPI Inflation | 5.3 | 6.0 | 4.9 | 6.0 | 5.6 | 5.0 | 5.2 | 5.0 | 5.1 | 5.0 | 5.0 | 5.0 | 5.4 | |
| (In percent of GDP) | ||||||||||||||
| Overall balance | −7.2 | −7.6 | −4.5 | −5.5 | −3.1 | −4.4 | −1.8 | −3.7 | −1.2 | −3.3 | −0.4 | −3.0 | 0.0 | |
| Government gross debt | 35.6 | 39.4 | 34.4 | 41.1 | 34.8 | 40.7 | 34.6 | 42.8 | 33.8 | 43.9 | 32.3 | 44.6 | 30.2 | |
In the 2016 Budget Strategy Paper, total revenue in 2016 is projected at approximately K 10.4 billion with K 9.9 billion tax revenue and K 0.6 billion non-tax revenue. Total expenditure in 2016 is projected at K 13.4 billion.