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2016 National CIMC Development
Forum
Update on the PNG Economy
Tuesday, 18 October 2016
Dairi Vele
Secretary
Department of Treasury
Outline

Economic Update
 Global and Domestic Economy
 Commodity Prices Update

Fiscal Update
 Fiscal Performance
 2016 Supplementary Budget

2017 Budget Parameters

Going Forward
2
Macroeconomic Performance
Strong & Sustained Economic Growth (7.5% on average)
16
Per cent
Per cent
Steady growth in Employment (7% on average)
500
March 2002=100
March 2002=100
500
Total Real GDP
12
425
425
350
350
275
275
8
4
0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
200
Mar-06
Mar-08
Mar-12
200
Mar-16
Mar-14
Improvement in PNG’s Trade Balance
Inflation at Manageable Levels (below 6%)
12
Mar-10
15000
CURRENT ACCOUNT BALANCE
PNG Inflation
International Reserves
10000
9
5000
6
0
2006
3
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
-5000
0
-10000
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
3
State of the Economy
- Global recovery to be more gradual than October 2016 WEO forecast.
- Sustained growth in domestic economy though lower than previous forecasts.
- Inflation slightly picking up but at manageable levels.
15
Per cent
Per cent
15
12
12
9
9
6
6
3
3
0
0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Total Real GDP
World GDP
PNG Inflation
Source of all Charts and Data,
Department of Treasury
4
Commodity Price Developments
Most Commodity prices remain below expectations
Copper Prices
9000
US$ per tonne
Gold Prices
US$ per tonne
US$ per ounce
9000
US$ per ounce
2055
2055
2016 Budget=US$5,149/ton
7000
7000
1670
5000
5000
1285
2016 Revised = US$4,714 /ton
YTD=US$4,729 /ton
3000
Sep-12
Sep-13
Sep-14
2016 Revised=US$1,234/oz
YTD=US$1,261/oz
1670
1285
2016 Budget=US$1,157 per ounce
Sep-15
3000
Sep-16
900
Sep-12
Sep-13
Sep-14
Sep-15
900
Sep-16
Agricultural commodities Price Index
Oil Prices
110 US$ per barrel
US$ per barrel
80
110
80
2016 Budget=US$54/bbl
50
50
2016 Revised US$43/bbl
YTD=US$42/bbl
20
Sep-12
Sep-13
Sep-14
Sep-15
20
Sep-16
5
2016 Supplementary Budget
2016
2016
Supplementary
MYEFO
Budget
10,764.10 11,722.10
 Revenue affected by external
factors, depressed commodity
prices, China’s moderating
growth, Brexit etc.
Total Expenditure and Net Lending* 14,762.60 4,785.00
14,762.60
13,834.60

Net Lending (+)/Net Borrowing (-)
% of GDP
-3,998.50
-5.9
-2,112.50
-3.8
Expenditure Adjustments via
2016 Supplementary Budget
– expenditure-saving
measures, cuts to nonessential expenses,

Focus on essential services
and Government’s priorities

Revenue-raising measures
also adopted.

Fiscal performances since
2012 remains well within
fiscal anchors – Debt ratios
below 30% Debt to GDP ratio.
Figures in Kina (miilions)
2016
Mid-Year
Budget Results
Total Revenue and Grants
12,650.10 4,160.20
-2,112.50
-3.8
-624.8
-0.9
6
Fiscal Performance
Expenditure, revenue, Debt as % of GDP
40.0%
35.0%
30.0%
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
2012
2013
2014
2015
2016
-5.0%
-10.0%
Debt as % of GDP
Deficit as % of GDP
Expenditure as % of GDP
Revenue as % of GDP
7
2017 Budget Parameters
1. Low Government Revenue
 Diversify Revenue Base
 Focus on Tax Reforms & Compliance
 Restrict Tax exemptions and special arrangements
1. Managing Government Expenditure






DSIP/PSIP
Debt Servicing & Salaries
Fixed Commitments
Health, Education, Infrastructure, Law & Order
Reducing release or Warrants
Avoid Exceeding TAF limit
Ensure Efficiency and Quality of Spending
3. Managing Government Debt
 Maintaining Debt at prudent levels.
 Return to Balanced Budget by 2020.
8
Going Forward…

Reform and Broad-based Growth Agenda must continue.

Fiscal restraint will be required across the next four years.

Government revenues were already projected to be flat across the
forward years. Declining oil prices will further reduce these
projections.

Even more important to recognize and focus on the Priority
Expenditures for the National Government including reining in debt
program until we improve implementation.

Unlikely to be any capacity for increased spending.

Ongoing pressures on operational costs and servicing of debt will
severely limit space for new non-essential project spending.
Source of all Charts and Data,
Department of Treasury
9
End of Presentation
Thank you
10
POCKET SLIDES
Source of all Charts and Data,
Department of Treasury
11
Contribution by Sectors
•
Growth in 2016 driven by the Agriculture, Forestry and Fishery sector
•
To achieve a Broad-Based Growth and Diversified & Sustained Economy.
Construction
Transport, storage and
communication
Finance, real estate and business
services
Wholesale and retail trade
Community, social and personal
services
Agriculture, Forestry and Fishing
Electricity, gas and water
Manufacturing
Mining & Quarrying
Oil & Gas Extraction
Source of all Charts and Data,
Department of Treasury
12
2016 Supplementary Budget
Figures in Kina
(millions)
2015 Final
2016
Budget
Original
Outcome
2016
Sup.
Budget
Variation
from
Original
Budget
Total Revenue &
Grants
10,963.5
12,650.1
11,722.1
- 928.0
Total Expenditure
& Net Lending
13,496.1
14,762.6
13,834.6
-928.0
Budget Balance
2,532.6
-2,112.5
-2,112.5
-0.0
% of GDP
Debt as % of GDP
-5.0
-3.8
-3.8
35.2%
35.8%
28.9%
0.0

Compared Supplementary Budget
– Budget Deficit remains at
K2,112.5

Reflects lower Total
Expenditure & Net Lending
being offset by lower Total
Revenue and Grants

Compared to 2016 Budget –
Deficit as a % of GDP remains at
3.8%

Compared to 2016 Budget – Debt
to GDP ratio decreased from
35.8% to 28.9% of GDP
Source of all Charts and Data,
Department of Treasury
13
Revenue Performance
2015
Outcome
Total Tax Revenue
8,797.6
Tax on Income & Profit
6,216.0
Domestic Tax on Goods & Services 1,723.4
Trade Taxed
858.2
Non Tax revenue
1,126.8
ICT
219.5
Grants
819.5
Total Revenue & Grants
10,963.5
•
•
2016 2016 Sup. Variation from
Budget Budget
Budget
9,976.6 8,269.0 -1,707.6
7,097.4 5,977.1 -1,120.3
1,959.7 1,456.4 -503.3
919.5
835.5
-84.0
1,068.4 1,847.9 779.5
0.0
0.0
0.0
1,134.1 1,134.1
0.0
12,179.1 11,251.0 -928.1
Continue to support IRC & PNG Customs to ensure Immediate Revenue Raising.
State Entities to pay Dividends
Source of all Charts and Data,
Department of Treasury
14
Macroeconomic Parameters
2015
2016 Budget
2016 MYEFO
Total Real GDP
11.8
4.3
2.2
Non-mining GDP
2.0
3.4
2.6
6.0
5.7
6.6
Gold (US$/ounce)
1,160
1,157
1,234
Copper (US$/ton
5,502
5,149
4,714
Oil (US$/barrel)
49
54
43
Economic Growth
Inflation
Average on Average
Commodity Prices
Source of all Charts and Data,
Department of Treasury
15
2017 Budget Overview
Government Expenditures
-
Ensure Efficiency and Quality of Spending
Improve Implementation
Reprioritize Spending to priority areas including maintenance
of key infrastructures.
Government Revenues
-
-
Declining revenues will require much greater focus on tax
reforms and compliance;
Diversifying the revenue base is critical; and
Restrict tax exemptions and special arrangements.
16