K5.6bn economic stimulus package announced
The Minister for Treasury this afternoon announced a K5.6 billion economic stimulus package to support households, businesses and the health system.
Speaking in Parliament this afternoon, Treasurer Ian Ling-Stuckey said: “This is the largest economic stimulus package in our history because this is the greatest economic and social challenge in our history.
“The package is based on smart economic stimulus options with minimum impacts on the budget and maximum gains for our people and economy. The package is based on five principles and has six key components. Further announcements on measures will be made in coming days.
“The world is at war against the invisible COVID-19. On Tuesday, the US President indicated that deaths in the US from COVID-19 are expected to be at least 100,000 even with the very strong social isolation and travel bans put in place. This is more US deaths than the total of US deaths in the Korean, Vietnam, Iran and Afghanistan wars.
“PNG is also at war against the COVID-19. We are gifted that our Prime Minister acted early enough so that there has been only one known case in PNG – and that person has left the country. “Epidemiological studies – the science of understanding the spread of diseases – highlight the importance of acting early before there are deaths in the country. Even if COVID-19 is fully contained in PNG with no deaths, there are still enormous economic costs. Our economic modelling indicates that PNG will be entering a recession. This is caused by the global economy and the economic impacts of our shutdown to protect the health of our people.
“From the globe there are the costs flowing from the fall in commodity prices and the loss of tourism. These costs are estimated at 13 percent of our exports. PNG is estimated to lose K5 billion in export earnings in 2020 – so less foreign exchange and incomes for our miners and farmers. These external impacts are estimated to lose K1,000 million in government revenues.
“Domestically, the necessary shutdowns to protect our people during this war on COVID-19 are clearly having major impacts on our economy. We can all see this with the fewer people on the streets and markets, the closing of tourist facilities and hotels, the empty seats on aircraft.
“There are reports of looting in some areas, driven on occasions by increasing hunger from workers laid off jobs. The slowdown in growth and people losing their jobs will lower personal income tax, company income tax and GST collections. The domestic impacts are estimated to be a loss of revenues of K1,000 million – this is in addition to the K1,000 million drop in external revenues.
“So overall, we estimate the total fall in will be K2,000 million. This K2,000 million drop in revenue would add to our already record budget deficit of K4,631 million. The starting point because of COVID-19 is that the budget deficit could increase to K6,631 million. This is before any new spending to respond to the crisis. This is the starting point.
“The question is ‘How does the Marape-Steven Government respond to such an extraordinary, war-like, economic emergency?’
“An unsophisticated and dangerous approach would be to just spend big from our budget to stimulate the economy. However, the economic legacy from economic mismanagement means that we already have the largest deficit in our nation’s history of K4,631 million.
Wouldn’t it be nice to have a budget surplus based on the success of the PNG LNG project! But that is not our starting point.
“We must be careful and not only think about today, but also think about the impacts of simply spending more and more, building our debt more and more, leaving more and more of a debt burden which our children will have to pay for.
“It would be irresponsible to do this without exploring thoroughly all other options.
“So what do we do instead? There is a smarter response. Rather than just focusing on the budget, we can use other economic tools available to government. These are monetary policy and regulatory policies including superannuation. The positive links we have now built with the international community can be leveraged.
“The government has announced a K5,600 million economic stimulus package. Some increased expenditure is required – but it is less than one-tenth of the entire economic stimulus package being presented today.”
The Treasurer said the total package is based on five principles.
The Economic Stimulus Package’s Five Principles A smart, innovative, caring, responsive approach is required to build our country’s economic resilience – this is based on five principles:
PNG owned and driven approach to advance the Take Back PNG agenda with a mix of budget, monetary policies, business-2-business support and regulations.
Broad and comprehensive to cover rural and urban households and businesses both formal and informal of all sizes.
Smart and forward looking to prioritise high development impact projects to better build our economic capacity.
Responsible means making hard but necessary decisions to protect the budget and the economy today and in the future.
Friendly foreign support to access cheap and trusted funding and technical assistance to reinforce our own actions and reforms.
Six key measures of the K5,600 million Economic Stimulus Package These are a package of actions developed in close coordination and consultation across government, business and the NGO sectors.
K2,500 million in extra domestic funding raised through a COVID-19 Treasury Bond. The cash will be an important injection to support front-line health emergency services, including our Provincial Health Authorities, security and economic activities backed by BPNG quantitative easing.
K600 million credit line support to business and individuals. In coordination with banks and financial institutions to move towards 3-month interest and/or principal repayment holidays backed by BPNG quantitative easing.
K1,500 million in extra friendly foreign support that the IMF, World Bank and Asian Development have already agreed. We will continue to work with close trusted bilateral and multilateral partners for additional cheap funding to support our health and economic response.
K500 million from existing or planned superannuation savings. In coordination with the country’s superannuation providers to allow employees access to additional savings during the economic slowdown.
K500 million more for the heath, security and economic sector. There will be a K175 million for health, K50 million for police and K25 for defence forces. The remaining K250 million will directly support mums and dads, keeping jobs, our rural households and MSMEs and enhance food security.
A Supplementary Budget to accommodate for extra health spending and cutting less priority expenditures. Can be held after the Mid-Year Economic and Fiscal Outlook to better understand the budget impact and where best to reallocate spending.
“The extra direct spending focuses on our health services,” clarified the Treasurer.
“They asked for K45.5 million as an initial response. We are giving them K175 million. In addition, the World Bank is giving K70 million in medical supplies. In addition, Australia is providing assistance. Our health system is being supported with a package of support worth over one-quarter of a billion Kina.
“In addition to this package of six comprehensive actions, our economic response to COVID-19 includes items that do not have a specific cost but are vital. For example, we have been working with the Independent Consumer and Competition Commission to control the prices of essential commodities. We will continue actions in this area and there will be more announcements in coming days.
“Another example is our work with the IRC to defer the timing of a broad range of tax payments. Helping business and household cash flow in a wise way but without a cost to 2020 revenues.
“We are also working across all levels of government. Governors and members are also directing their resources towards the war on COVID-19. This truly is a national effort.”