Fiscal recovery expected by 2027
Fiscal deficit falls to 6.7% of GDP
Promising signs of fiscal recovery
AN economist has indicated that there will be promising signs of fiscal recovery in the national economy by 2027.
University of PNG Economics lecturer Kelly Samof made this known on Friday when presenting the Final Budget Outcome (FBO) 2021 commentary in Port Moresby.
“In conclusion, the 2021 FBO released by department of Treasury advocates the government’s stance to repair the budget and bring PNG back to a balanced budget by 2027. There are promising signs of strong revenue growth and constraint in spending, leading to lower deficits compared to 2020. These signs indicate that PNG is on track to fiscal recovery, however the large structural gap between expenditure and revenue still exists, and closing it will be a challenge,” he said.
The Media Development Initiative (MDI) in a FBO commentary also indicated that the FBO shows that the fiscal deficit has fallen to 6.7% of GDP.
“In recent years, the PNG government has been running record deficits. The deficit reached
8.6% of GDP in 2020, the highest it had been in the last 10 years. Dealing with this deficit
was the center-piece of the 2022 budget, and rightly so. The government wants to eliminate
the deficit by 2027. How will it do this? With tight constraints on expenditure and strong
revenue growth. The recently released 2021 Final Budget Outcome (FBO) shows the fiscal
deficit has fallen to 6.7% of GDP. This reflects strong revenue growth in 2021 and
expenditure restraint,” it said.
MDI outlined that after two years of negative revenue growth, revenue grew positively in 2021.
“This is attributed to higher-than-expected collections in mining and petroleum taxes and higher drawdown of grants from development partners. Grants (foreign aid) increased by 47%, indicating strong support from foreign governments and multilaterals during COVID-19, including the first budget support grant after two decades from Australia,” it said.
“Expenditure was lower than expected, mainly due to reduced spending from government funded trust accounts and the governments public investment program. Importantly, interest payments and the public salary bill, both of which have been growing rapidly since the LNG boom ended in 2013, have been brought under control.”
MDI stated that despite these, “there are promising indications that PNG is on track to fiscal recovery”.
It also noted that the basic structural gap between expenditure and revenue still exists.
“Expenditure as a percentage of GDP is above 20%, whilst revenue is around 15% of GDP. This structural gap presents an issue for both debt sustainability and service delivery. In terms of service delivery, PNG’s population is growing rapidly. It is useful for us to examine revenue per capita and expenditure per capita. Adjusting for inflation we see that expenditure per capita is just over K2000, but revenue per capita was around K1,500, its lowest levels since the early 2000s. A falling revenue per capita will make it difficult for the government to increase spending in vital services such as health, education and infrastructure.”
