An eight per cent increase in government spending and a five percent real GDP growth rate are two of the key predictions Papua New Guinea’s 2024 National Budget, announced by Treasurer Ian Ling-Stuckey in Parliament this week. So, what’s in the budget for business?

Treasurer Ian Ling-Stuckey introducing the 2024 National Budget in Parliament on Tuesday this week. Credit: EMTV

The National Budget presented this week is the largest on record for both revenue and expenditure, even offering a slight reduction in the budget deficit.

Inflation, which has slowed to 3.5 percent during 2023, is expected to rise to five percent in 2024.

Increased spending is underpinned by a predicted 14.5 percent increase in tax receipts, largely due to expected increased economic activity, an 8.9 percent increase in donor grants, and improved receipts from the resources sector.

Revenues from the resources sector in 2023 were lower than budgeted but the government expects them to bounce back in 2024.

Foreign exchange

The budget papers contain numerous references of the difficulties created by the current shortage of foreign exchange in PNG. FX shortages are frequently nominated as the biggest issue facing business in the country.

For this issue, the Treasurer foreshadowed positive developments.

‘The external accounts are strong, with major trade surpluses and foreign exchange reserves continuing at record levels at over K13 billion,’ notes the Treasurer in his Foreword to the Budget papers.

‘A key development is that under the next stage of the IMF program, the level of releases of foreign exchange reserves is expected to increase significantly higher than current releases of US$100 million per month on average.

‘The focus has moved to reducing the size of the outstanding FX order book for imports, although there will be continuing restrictions on external capital flows.’

Spending priorities

Credit: KPMG PNG

Government spending on its Public Investment Program will increase, with K7.28 billion set to be spent in 2024, compared to K6.63 billion in 2023 – a 10.1 percent increase.

This amount includes spending on such infrastructure and transport-related initiatives as Connect PNG and the Civil Aviation Development Investment Program, as well as support for MSMEs.

Business will welcome the Treasurer’s announcement that there will be an increase from K756 million to K1.2 billion on spending on power and water, both of which are areas requiring major capital injection.

‘The largest expenditure increase of nearly 60% is in the utilities sector, which is pleasing to note and an indication of the government’s intent to settle arrears in this area,’ noted KPMG PNG’s Managing Partner Ces Iewago in the firm’s budget analysis.

There is also an 12.8 per cent increase on spending on law and order-related areas – another area of business concern.

Tax changes

While no major new taxes were announced, there are some changes that will affect businesses.

PNG’s manufacturers will welcome the removal of import tariffs on some goods used as inputs in local value-adding such as soaps, packaging materials and bed springs.

Modest new revenue measures include a doubling of the excise on unprocessed fish exports to encourage more onshore value-adding. Tobacco products will face an increase in excise.

Last year’s 20 percent increase on the excise for unprocessed log exports has been wound back, however.

Meanwhile, the 45 percent tax rate on banks profits remains.

The Budget also locks in the previously temporary tax-free threshold on wages at K20,000 per annum.

Those waiting for news on when the long-awaited revision to PNG’s Taxation Act will be introduced will have to wait a little longer.

Debt

Government debt is expected to be 51.1 percent of GDP in 2024, but the Treasurer outlined plans to reduce this to below 40 percent by 2028, in accordance with previously stated debt management objectives.

Around 11 percent of government spending in 2024 will be to meet its debt repayments. As analysis on the Budget by PwC noted, the State will spend more on servicing debt next year than it will spend on health.

2024 National Budget Projections

Real GDP growth: 5 percent (2023: 2.7 percent)

Non-mineral GDP growth: 4.7% (2023: 4.5 percent)

Inflation: 5 percent (2023: 3.5 percent)

Government expenditure: K27.377 billion (up 14.7 percent*)

Government revenue: K23.393 billion (up 8 percent*)

Budget deficit: K3.98 billion (2023: K4.938 billion)

Government debt: K62.599 (51.1 percent of GDP)

* on 2023 Supplementary Budget