PNG PM stands firm on govt handling of economy

Transcript

Papua New Guinea's prime minister Peter O'Neill remains upbeat about his government's management of the economy, in response to warnings about the country's fiscal position.

This follows the release of his own government's mid-year economic outlook, which revised the 2015 budget deficit from 4.4 percent of GDP to 9.4 percent, with revenue set to shrink by 20 percent this year.

Johnny Blades has more.

A former Australian official within PNG's treasury led the chorus of economists warning that the PNG government must make tough choices about spending cuts or face a Greece-style fiscal meltdown.  Now with the Australian National University's Development Policy Centre, Paul Flanagan claims that while driving factors such as the fall in international commodity prices and a growth slow-down were forecast some time ago, the big surprise in the midyear outlook is the fall in PNG's non-resource revenues.  He says the government should consider a multi year budgeting package.

PAUL FLANAGAN:  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 their 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?

Peter O'Neill has dismissed the likes of Paul Flanagan as critics with vested interests - who are talking about potential scenarios if his government did not attend to global economic challenges.  He says the PNG economy is stable and robust enough to ride out the current dip in commodity prices.

PETER O'NEIL:  If we do nothing, the economy will get worse. But we are managing the expenditure levels and we are also attacking the revenue side, where we are trying to make sure that people or government money are collected.

The government has promised cuts.  Mr O'Neill says these will not impact on priority areas such as education, health, law and order.  But PNG's Opposition Leader, Don Polye, says these areas are already facing cuts.  It appears to be backed up by the vice chancellor of the University of Technology in Lae, Albert Schram, who says their funding has been cut and greater reductions are likely.

ALBERT SCHRAM:  All the university bursars this year were called to Treasury on the 10th of June and cuts of 40% for the rest of the year were announced. We understand that is in line with all the other state agencies. And of course we protested because we have students here on campus and we need to provide the teaching and services.

Peter O'Neill claims that that the debt to GDP ratio is not greater than the 33% allowed under the Financial Responsibility Act.  But Don Polye, who was sacked as Treasurer last year, says the government already plunged far beyond this ratio to 40%.  He says the government must be held responsible, although the world slump in commodity prices is beyond its control.

DON POLYE: But we have been lucky with the LNG Project, that we have these proceeds coming in. But at the moment those proceeds are being mismanaged, and it's to the tune of three billion kina every year. And also those funds should be put to developing the agriculture sector, like I alluded to. And if we can create the agriculture sector in the next five years or so, although you've got commodity prices down for the extractive industries, I believe that agriculture can rescue PNG and that's where my focus would be.

At an ANZ-PNG conference in Port Moresby last week, Peter O'Neill reassured business figures that the government will end the year in a much better position.