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Budget fails to solve revenue crisis

01 December 2017

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Stephen Howes is Director of Development Policy Centre at ANU.

Prior to joining the Crawford School in 2009, Stephen was Chief Economist at the Australian Agency for International Development.

In 2008, he worked on the Garnaut Review on Climate Change, where he managed the Review’s international work stream.

He teaches Aid and Development Policy (IDEC8007) and Government, Markets and Global Change (CRWF8000).

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PNG’s ‘revenue crisis’ reflects a deeper economic crisis - a recession in the non-resource economy, writes Stephen Howes.

PNG’s 2018 Budget Strategy – released just a couple of weeks before yesterday’s budget – candidly and for the first time admits that the country is facing a ‘revenue crisis’. That’s certainly true. Adjusting for inflation, revenue is back this year at 2006 levels.

Normally, a blog like this would look at the budget through a fiscal lens, and analyse revenue measures, expenditure measures and borrowing. Those are all certainly important, but in this post I’m going to take a different approach. That’s because the collapse in revenue reflects a deeper economic crisis: although the government won’t talk about it, the evidence points to a recession in the non-resource economy.

The crisis facing the PNG economy is shown by the behaviour of imports. Imports have fallen by 57 per cent in nominal value from their 2013 peak, and are now back at 2005 levels. (The exchange rate is also at about 2005 levels, meaning that PNG is importing the same dollar value of imports as it was 12 years ago.) This rapid decline in imports is throttling the economy. PNG needs to import machinery and equipment to grow. But imports in this category have fallen by 58 per cent since 2010, including by 20 per cent in 2016 alone.

This piece was first published on 29 November 2017 by Devpolicy Blog from the Development Policy Centre, to read the full post, please visit: http://http://devpolicy.org/png-budget-20171129/

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