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Kina Bank: Budget is Critical

The budget for 2021 is critical after an economic downturn this year, said Kina Bank.

In a budget review, the bank said that next year’s budget showed a shift in focus towards the non-resource sector - with the goal of establishing a foundation for tangible economic growth outside the resource sector. It added that fiscal consolidation was part of its over-arching medium-term goal and required tightening of public service expenditure, enhancing the delivery of services and expanding the tax base sustainably.

“Public investments and similar levels of borrowing towards this end are expected until 2022, with budget repair projected to start in 2023,” the bank said. “This past year saw shortfalls in revenue, increased expenditure, and a global pandemic that forced changes in fiscal priorities and precipitated unprecedented levels of the national debt. The likelihood of pandemic lockdowns is still high and restrictions on business activity continue with varying degrees of severity. The fiscal priorities, and the framework of policies and principles that underpin them, look good on paper and inspire some confidence for the medium term. Increased public spending in infrastructure and capital investment in the 2021 national budget bodes well for PNG’s medium-term outlook.”

The bank continued, “Capital expenditure injections worth 8.3 per cent of gross domestic product in the 2021 Budget will provide a much-needed stimulus to the PNG economy after the Covid-19 downturn. Capital expenditure has increased by 16.9 per cent from the 2020 Supplementary Budget, while operational expenditure increased by 4.6 per cent. Continuous outlays by the Government in similar proportions through subsequent Budgets will set a solid foundation for inclusive and sustainable growth in the non-resource economy. The Government has also tightened spending in the public sector decreasing by 2.6 per cent as a proportion on the full Budget but increasing by K247.1 million in kina terms. The payment of capital and operational arrears remains a top priority in the 2020 national budget.”

It said, “The political uncertainty has given rise to the creation of the finance and treasury miscellaneous vote which holds funds for big-ticket expenditure. The miscellaneous vote coordinates spending on arrears for rentals, superannuation payments, utility bills, and capital arrears.”

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