PNG Govt prepares supplementary budget

2:04 pm on 7 August 2015

After widespread concern the Papua New Guinea government says it will bring in a supplementary budget as the economy nosedives.

Government revenue is set to drop by more than 20 percent this year with the budget deficit more than doubling to 9.4 percent.

In a statement the PNG Treasurer, Patrick Pruaitch, says the government will cut its spending but it will not impact on priority areas such as education, health, law and order, and provincial and district support grants.

He says the cuts will not detract from the economic growth momentum the government has achieved.

A visiting fellow at the Australian National University, Paul Flanagan, suggests the government look to how their predecessors handled a major economic downturn in the 1990s.

"These are pretty big discussions that need to occur within PNG and they did this at the end of the 1990s. Given these challenges [on that occasion after oil prices had plummetted] they set a group of people, with international experience also, to come and discuss some of those challenges."

Bogan Gapo building, or Revenue Haus, houses Papua New Guinea's Internal Revenue Commission and Customs Service.

Bogan Gapo building, or Revenue Haus, houses PNG's Internal Revenue Commission Photo: RNZ / Johnny Blades

Paul Flanagan sees the delivery of a supplementary budget as a good move.

He says it would be sensible to start cutting back by bringing a multi year budgetting package.

"It needs to include both the expenditure side, the revenue side and thinking how you can finance the differences. It means thinking about what is the appropriate role of government - are there certain functions that we should actually pass across to the private sector and let the government concentrate on areas of higher priority, such as education and health."

Mr Flanagan has indicated that PNG may need to look overseas for significant foreign borrowing.

He says this is something which brings big risks, including foreign exchange rate vulnerability if PNG's kina depreciates to "more sensible market-based levels".