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Old 22-02-2017, 11:30 AM
Cool_Guy1 Cool_Guy1 is offline
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Challenging Times ahead for PNG

2017 is going to be a challenging year for Papua New Guinea. Government cash flow problems experienced over the last 3 years is taking a toll on the government coffers. This year is an election year, and the government needs more funds to run the election. Coming out from an El Nino weather which had affected PNG's major export commodities, like coffee, cocoa, copra etc, foreign exchange inflows would be greatly affected. On the other hand, a government that is spending excessively, with no hindsight for future income flows to finance the excessive spending, while on the other side, the tap for foreign exchange flow is drying up, with low export commodity production. Mind you, research has shown that, during election period, production of export commodity especially coffee goes down, because every one is getting on the election bandwagon, looking for free lamb flaps, and not attending to their coffee patches.
On the international side of things, President Trump's, international policy on trade will definitely have an impact on PNG's exports, as trade partners of US scramble to adjust their positions on world trade, with Trump's emphasis on reviewing most of the trade agreements between US and rest of the world.
Challenge for the Government still comes down to how and from where income will be generated to fund the 2017 budget. SOE's have been forced to pay dividends without proper declaration of profits, resulting in lots of restructures happening within the SOE's, while high tax revenue from the mineral sector, usually resulting from high mineral prices have dried up due to lower crude oil and mineral prices. People and companies operating in the country have been over-taxed and there is no leeway for more tax increases. Government's ceiling on debt to GDP ratio has far exceeded the legislated cap, which is 35 percent.
Looking at the expenditure side, far outweighs the budgeted revenue. Over half the budgeted expenditure would be taken up by, Free Education and Healthcare costs, election related costs, infrastructure for APEC, repayment of existing international and domestic loans.
Given this scenario, the only bail out situation i see is, to go for a bigger international loan, even if it means going above the required ceiling. Otherwise, ask for bail out from the IMF, who will come in with structural reforms. I see, a bleak 2017 for PNG, and i hope those people in power see this too and act accordingly, to bail out the economy, otherwise we become another Greece, who faced the similar mis-fortune.
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