PAPUA New Guinea must maintain fiscal discipline throughout the second half of 2015 after its fiscal outlook deteriorated in the first half, according to the nation’s Mid-Year Economic and Fiscal Outlook (MYEFO), released in August.
“With no adjustment to budgeted expenditure in 2015, the fiscal position is expected to be a deficit of K4,817.4 million or 9.4 per cent of gross domestic product (GDP),” the MYEFO said.
This is an increase of K2.54 billion compared to the initial forecast deficit of K2.27 billion, or 4.4% of GDP at the time of the 2015 budget.
“Overall, a total of K4.43 billion, or only 32% of the 2015 budget estimate has been collected in the first half of the year,” the MYEFO said.
The change in the forecast was largely due to a downward revision in the government’s forecast revenue of K2.54 billion, which the MYEFO said was affected by declining commodity prices – which translated into lower mineral and petroleum revenue outcomes.
Anticipated tax revenues were revised downward by K2 billion to K9.2 billion, while taxes on income and profits was also down K1.53 billion on the back of lower than anticipated collections in the Mining and Petroleum tax (MPT), Personal Income tax and Company tax.
MPT receipts in particular were significantly lower than expected, the MYEFO said, with only K31.1 million collected from the K1.75 billion forecast in the budget estimate.
“The lower than anticipated collection was due to the decline in the commodity prices and the use of the Infrastructure Tax Credits (ITC),” the MYEFO said.
“This has resulted in MPT being revised down by K1.335 billion to K400 million.”
Despite this, ITC claims were below projections, with only K312.6 million in grants and K40.9 million in ITC spent, while projections were K1.4 billion and K207.8 million respectively.
Speaking at a business conference at the end of August, PNG prime minister Peter O’Neill said the government would defer non-essential spending through a supplementary budget to be introduced in October.
However, he assured attendees the government would not increase any taxes in Papua New Guinea and would not withdraw from core policies of free education, the provision of universal healthcare, improving law and order and investing in key economic infrastructure.
“Through careful management we will weather this economic storm and come through even stronger at the end of it,” Mr O’Neill said.
“It is a wake up call for Papua New Guinea that we needed, given the excitement surrounding all the anticipated revenue coming from LNG and other mineral exports.”
Forecasts for PNG’s real GDP growth were revised to 11% in the MYEFO, down from the 15.5% predicted in the budget, due to lower than anticipated growth in the oil and gas sector in 2015.
“The mining and quarrying sector is anticipated to rebound in 2015 and grow at 10.8% after a disappointing performance of negative 1.9% in 2014,” the MYEFO said.
This rebound was due to an anticipated return to normal production in a number of mines, it said, despite the challenge posed by low commodity prices, rising input costs and the weaker Kina exchange rate.
“It is understood that most mines are adjusting to the current developments and are undertaking cost cutting measures,” the MYEFO said.
Lower commodity prices in the agriculture, forestry and fishery sector and unfavourable weather conditions would lead to lower anticipated coffee and palm oil production led the MYEFO to revise its growth expectations for 2015 to 3.2%, down from 3.6% reported in the budget.
This would have a deeper impact outside of Port Moresby, where businesses involved in other industries, such as construction, were expanding their capacity in preparation for upcoming events such as the Asia Pacific Economic Cooperation meetings, set for 2018.
Food security for a burgeoning Asian middle class represented and opportunity for PNG’s agricultural and fisheries sector, Mr O’Neill said.
“But to do so we need to re-align what we grow and produce to meet regional requirements and to meet the demands of the middle class in Asia,” he said.
“We also need to be able to get our produce to the markets of the Asian region much more efficiently.”