3 Nov 2015

Brutal cuts to PNG govt spending expected

11:25 am on 3 November 2015

An economist says this week's budget in Papua New Guinea is likely to herald brutal cuts to government spending.

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Photo: RNZI

A collapse in commodity prices and the current severe drought have the government forecasting as much as 20 percent less revenue.

The treasurer, Patrick Pruaitch, has already pushed back a forecast return to surplus from 2017 to 2020, and says the budget will seek to reduce government expenditure by as much as a third.

An economist at the Australian National University, Paul Flanagan, says too much faith has been put in the resource sector, and the country needs to diversify its economy.

"PNG had a 20 percent hit on its revenue this year already. About 10 percent of that was a fall in international commodity prices, about another 10 percent of that due to a general economic slowing down driven in part by issues such as drought, but also because of government policy such as the restrictions on foreign exchange, which is starting to hurt business and starting to hurt growth in PNG."

He says the budget is expected to be harsh, but there are ways the government can reduce spending without cuts to essential services.

"We've seen a tendency for the government to be involved and to look at, for example, taking out equity purchase in some large resource companies and one has to ask whether that's really a priority for government expenditure and using scarce capital relative to things such as health, education, law and order."

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