Papua New Guinea economic survey: fiscal discipline needed

Abstract

Improved macroeconomic management has been a significant achievement of the Somare Government and the Bank of Papua New Guinea. But, despite the high level of minerals revenue, in recent years the public debt has not been reduced significantly, recurrent spending has increased rapidly, and the 2007 Budget is very vulnerable to downturns in minerals prices. Further, the lack of progress in overcoming the institutional problems facing investors means that it is likely the economy will not achieve the 4 per cent GDP growth forecasts for future years. Of particular concern is the likelihood of a ‘perfect storm’ of election-year misappropriation, given the combination of huge windfall gains from the high mineral prices committed to vaguely defined investment programs and politicians having in mind the nearly 80 per cent turnover at the 2002 election.