The 2022 National Budget is a ‘big-spending budget’ aimed at stimulating economic growth. At a special online briefing held this week, Business Advantage PNG‘s readers heard from three experts on its likely impact on business.

Treasurer Ian Ling-Stuckey introducing the 2022 Budget to Parliament last week. Credit: EMTV

‘It’s been a very challenging set of five-to-six years for the business sector in Papua New Guinea … the business community would’ve been looking for a couple of things,’ says Kishti Sen, Pacific Economist for ANZ.

‘The first is some relief on the cost of doing business in PNG and, in particular, no additional tax load. And the second angle is how the PNG government intends to lift the economic performance in 2022 and beyond.

‘Against these two benchmarks, you could argue perhaps the budget does not quite hit the mark.’

The 2022 National Budget in a nutshell

• Predicted 2022 GDP: K101.67 billion
• Predicted GDP growth: 5.4%
• Govt expenditure: K22.175 billion (up 9.3% on 2021 MYEFO)
• Government revenue: K16.19 billion (up 18.3% on 2021 MYEFO)
• Budget deficit: -K5.985 billion
• Government debt to GDP ratio: 51.9%
• Predicted inflation: 5.6%

Source: Dept of Treasury

Increased spending

ANZ’s Kishti Sen.

The K22.175 billion of spending in the 2022 budget is a record and, as Kishti Sen observes, much of that spending is welcome.

There is a boost for spending on infrastructure, notably to fund the Connect PNG road infrastructure program, plus more funds to address the country’s challenges with power generation, distribution and transmission. (The latter spending is partly due to the ramping up of the Papua New Guinea Electrification Partnership, which is being funded by the United States, Australia, Japan and New Zealand.)

‘The government plans to invest more money in roads, health, education and infrastructure. It has allocated a budget of K4.8 billion for its public investment program in 2022, which is up 19.4% on the 2021 figure,’ says Sen.

‘Now, the infrastructure spend is good, we support that. We have said all along that construction lifts all boats.’

Also welcome were the government’s commitment to pay down the money it owes to the country’s superannuation funds, and the arrears it owes to business, according to the Business Council of PNG’s Executive Director, Douveri Henao.

‘Because the election is just around the corner [mid-2022], I think the can of budget repair has been kicked down the road to the next government.’

‘For the first time, we’re actually seeing some serious allocation to the Department of Information, Communication and Technology, shifting from analog to digital,’ he noted, positively.

Growth outlook

The Business Council of PNG’s Douveri Henao

However, Sen suggested the projected 5.4% GDP growth for 2022 represented a ‘slightly optimistic outlook’.

‘A lot of that [expected growth] is coming from the mining sector,’ observes Douveri Henao, ‘So a restart of the Porgera [gold mine] has got a lot to do with it.’ At present, hopes are that Porgera could restart as early April 2022, but a delay would impact the government’s projections.

‘If the government can get that over the line, that will be a big signal to foreign investors,’ says Sen.

Henao is also concerned that expectations for the growth of PNG’s agricultural sector may not be met.

‘Papua New Guinea’s real challenge is in the agriculture sector, and I’m not sure whether building more roads is the right fix for it in the near term. [The key] is to provide support to the growers so they’re maximising the use for every hectare they’re farming.

‘One of the reasons lenders are providing a lot of support to the PNG government because they can see the potential for the economy going forward.’

‘This is where I think the government should have put a lot of energy and focus into.’

Election budget?

The high level of spending in the budget was a slight surprise.

‘The Marape government was all for conservative government, reduced expenditure, reduced deficit and debt over time. And if you remember back in 2020, the IMF Staff Monitored Program was brought in precisely for the reason to return the budget to a more sustainable footing,’ observes Sen.

‘Because the election is just around the corner [mid-2022], I think the can of budget repair has been kicked down the road to the next government.’

Indeed, Treasurer Ling-Stuckey told Parliament last week that the budget deficit was not projected to return below 40 per cent of GDP until 2028.

‘This was meant to be the year where the government should have now focused on expenditure repair,’ says Douveri Henao. ‘Unfortunately, that hasn’t been the case.

‘What we do have is a big government that needs big budgets that need big funding. Unfortunately, it’s going to fund big inefficiencies and at the end of the day, that’s going to cause massive challenges right across not just the public service, but the market as a whole.’

The budget, he says, is ‘not really designed to grow the private sector.’

Nevertheless, Kishti Sen thinks the Treasurer has done a good job financing the K5.985 billion budget deficit, which he sees as manageable and well within appropriate limits.

‘One of the reasons lenders are providing a lot of support to the PNG government because they can see the potential for the economy going forward.

‘Debt as the proportion of GDP is still under 52%, well below the legislated limit of 60%. And 52% for a developing country like Papua New Guinea is not even close to the median for similarly rated countries.’

More revenue

The Institute of National Affairs’ Paul Barker

Government revenue is also projected to grow next year, by 18.3 per cent, largely due to a significant increase in corporate taxes (including higher revenues from the mining and petroleum sector) and more revenue from the GST.

‘If you go back to 2006, you had 40% of your tax revenue coming from mining and petroleum and that disappeared almost down to almost zero by 2016,’ notes Paul Barker, Executive Director of the Institute of National Affairs.

‘Since then, it’s been picking up somewhat, but you’ve seen this big increase in [government] dependency on personal taxes and on growth in the GST, and a real decline in tax revenue collections from normal company tax.’

The controversial levy on dominant players in the banking and telecommunications sectors – the BSP and Digicel Super Tax, if you will – is very much a part of the government’s revenue projections, slated to deliver K285 million to government coffers in 2022.

Both Henao and Barker feel the levy is a negative move.

‘It has significant ramifications on customers, on superannuation funds and on rural households who are dependent on telecommunications,’ notes Barker.

‘There are multiple ways in which these two entities can definitely support the government in its revenue raising … taxation definitely should not be one of them,’ agrees Henao.