Friday, 24 February 2017

PNG Prime Minister Peter O'Neill denies country is heading for economic crisis

by LIAM COCHRANE - ABC Correspondent in PNG

PAPUA New Guinea's prime minister Peter O'Neill has defended his country's economic outlook, accusing an Australian economist and journalist of spreading "doom and gloom".

In 2015 when PNG's Treasury released its Mid Year Economic and Fiscal Outlook (MYEFO) report, which charted the impact of plummeting commodity prices on the resource-dependent nation.

The report was described as "PNG's frightening fiscal figures" by Paul Flanagan, who once worked in Papua New Guinea's Treasury and is now an academic at the Australian National University.

A story by Fairfax journalist John Garnaut likened PNG's outlook to the economic melt down of Greece.

However, PNG's prime minister Peter O'Neill defended the country's economic situation, saying GDP growth is expected to remain around 11 per cent, although cuts to spending will be needed because of reduced revenue.
Mr O'Neill also took aim at both Australians who had reported on the MYEFO analysis.
"One of the leading critics is a former Australian staff member of the Treasury who was asked to leave Papua New Guinea," Mr O'Neill said.

Paul Flanagan told the ABC he was invited by PNG and Australia to extend his contract at Treasury but declined for family reasons.

"The other is a journalist who is the son of a former Chairman of the PNG Sustainable Development Program who we asked to leave as well," Mr O'Neill said in his statement on Sunday.
John Garnaut's father Ross Garnaut was banned from entering the country by Mr O'Neill in 2012 after expressing an opinion over control of a trust set up by BHP and financed by the Ok Tedi mine.

"It's true that my old man has maintained a deep commitment to PNG over forty years, while many Australians have lost interest [and] there are few things that make me prouder," said John Garnaut, who has won a Walkley Award for his reporting of China.
"It sounds like Paul Flanagan's careful economic analysis has touched the rawest of political nerves: How does the PNG patronage system work after the money has run out?" Mr Garnaut said.

"At the very least, Mr O'Neill has opened a debate that Australia needs to have."
We are confronting global challenges: O'Neill
Mr O'Neill said PNG was confronting global challenges and would be cutting or deferring spending in non-priority areas.
He said health, education, law and order and infrastructure would be exempt from cuts.
"The facts are that the recent publication by the Bank of PNG indicates that the economy is stable and we are confronting global challenges," Mr O'Neill said.
However, some of the analysis in his statement appeared to contradict his Treasury's MYEFO report.

One of the contentious points is PNG's debt-to-GDP ratio that, by law, must be less than 35 per cent.
"Today our debt to GDP ration runs at around 33 per cent of GDP so is below the Financial Responsibilities Act requirement," Mr O'Neill said.
The Treasury report agreed on the current rate, but said "the updated MYEFO estimate is, however, expected to increase to 41.3 per cent of GDP, which is 6.3 per cent higher than the legislated debt limit."

There was also a different view of the nature of PNG's debt.
"Around 60 per cent of debt is domestic unlike so many countries around the world that are terribly exposed," Mr O'Neill said.
But Treasury experts saw things differently.
"Heavy reliance of the 2015 Budget on domestic borrowings has also increased financing risks associated with interest rate and refinancing risks, as well as face a major risk of crowding out private investment," the report stated.

Mr O'Neill stressed the 11 per cent growth rate predicted, but the MYEFO report noted the revised estimated had softened from the earlier forecast of 15.5 per cent.
Overall, the Government's own report offered many negative statements about the state of Papua New Guinea's economy.

"On the domestic front things have worsened for the Government in the first half of 2015 and over the medium term," the MYEFO report stated.
"Risks have emerged from the deterioration of the Government Fiscal Balance as a result of lower than expected revenue due to low commodity prices, while the expenditure cut exercise may be insufficient to fully compensate for this."

Government departments have been asked to suggest areas for savings and a supplementary budget is expected to be introduced before Parliament resumes on October 26.


Prime Minister Peter O’Neill has described the latest report by the International Monetary Fund (IMF) as ‘rubbish’ and nuisance.

The IMF report noted that Medium-term growth is expected to converge to about 3 percent, supported by agriculture and preparations for the hosting of APEC 2018.

The Report stated that the Government plans to spend K3 billion over 2015-18 on the preparations for APEC 2018 (e.g., upgrading the airport).

Thus, 2018 will see a winding down of construction activity, with overall growth projected to slow down to 1½ percent in 2018 and stabilise at 3 percent over the longer term.

Inflation is also expected to stabilise at around 5 percent, which is in line with its 10-year historical average, as imported price inflation remains stable and domestic agricultural supply continues to expand.

However, O’Neill today in Parliament said “The amount mention by IMF is utterly rubbish, inaccurate and not true.”

“How can you spend K3b, when the country has only K12b budget every year?” O’Neill asked.

He said the Government always reflects the cost of APEC in every Budget.

He added that the Government is not crazy in dealing with the APEC costings.

“We know what we can afford and what we cannot afford.”

He said such misleading statements will create unnecessary debates based on innuendo and not facts.

O’Neill further reiterated that the only major expenditure the Government will be putting through is the K120m on the construction of the APEC Haus while the rest was about hosting meetings around the country.

He was responding to Rabaul MP Dr Allan Marat to justify the costing highlighted by IMF in its recent report.


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