Government Borrowing
By Allan Bird – Governor ESP
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Government should never borrow for consumption purposes. Government should only borrow to invest in strategic projects that will result in economic returns that can then go towards loan repayment and services.
The K28b borrowed and spent by PNC in the last 8 years HAS NOT BROUGHT ANY TANGIBLE RETURNS to our country. If those borrowings had been spent well for a 10% return, we should see an extra K2.8b a year in government revenue.
The fact is government revenue has stalled at below K10b a year since 2011. There has been zero financial gain from the spending of the O’Neil government.
Having said that, if we are not going to borrow then we have to cut the budget to offset the debts.
With a K37b debt and a shrinking economy would it have been wise to cut spending this year? The simple answer is no. We have a poorly developed economy and the government remains the largest spender in the economy, cut back government expenditure in the economy and we risk a recession.
These are our choices in 2020 up until perhaps 2027. If we are going to be leaders of any worth, we should educate ourselves on what is needed to manage our country. Rather than just screaming and shouting and pointing fingers.
The choice PNG had was a Government LYING about the true state of finances and a new Government telling the TRUTH about it. It seems we in PNG have short memories. People were enjoying free education, free health care and free just about everything else and they forgot that nothing is free.
What our people were enjoying for free, was actually piling up in hidden debts. The government was living on bookings. Just like most of our people do every lus week.
We have a duty to understand the underlying economic problems facing our country. So can I encourage all of you to do that and to take the long view. Once we understand then we can debate meaningfully.
Our economic problems will not be fixed this year or next year. It will take 5-10 years of prudent investment and budget management to achieve it.
I am not a fan of borrowing but given our situation, I must admit, how do you get out of debt without borrowing?
The debt is absolutely staggering. So we either borrow or we die. At least borrowing gives us a fighting chance assuming we don’t squander it.
But anyone expecting a magic bullet to fix the budget and fix the debts is dreaming. It took 8 years to get the debt to this level. It’s going to take at least 8 years to bring it back to acceptable levels. Only fools expect miracles in 8 months.
Give the Marape/Steven government a chance. And judge us in 2022. That’s two and a half years from now, well short of the 8-10 years required to put this country back on track.
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I understand that much of the borrowing was to fund infrastructure developments in various part of the country. These developments were and are part of the service delivery obligations of the government of the day. And PNC led Govt should be given credit for delivering some of the best roads or developments that the country has ever had since beginning of time.
If these developments were to realise some returns, what would the Govt do to get a return from its capital investment??? Charge tolls and fees for the use of roads and the buildings etc?? If these tolls and fees were charged what would the become of the Government’s drive in terms of service delivery?? What about the citizens? What be our reaction(s)?? More condemnation for the costly expensive services?? Who would use these developments if the Government charged for their usage by people? Would such charges cause people to be responsible or abusive and reckless??
As an ordinary simple citizen, I figure that there seems to be so much criticism rather than critique among politicians, bureaucrats and well to do citizens.. . we need to suggest simple solutions to our problems.
Would the Government consider generating returns from the capital invested in all past, present and future infrastructure developments by way of toll gates and fee collection points??
Petu, you have made a valid point. Apparently some of the main centers in PNG changed under the leadership of Peter Oneil. Though those changes, people suffered from bad to worse. Lets go back to the 85% rural populace. Living standards have not been improved. The worst things that any Papua New Guinean can imagine is Peter Oneil kept on repeatedly lying to the people of Papua New Guinea. Even though he did some good things, Peter Oneil will always be well remembered as the most corrupt Prime Minister in the History of Papua New Guinea and a serial liar.
Honourable Allan Bird has made an important observation stating that “we have a poorly developed economy with large spending and thAt means conversely, the revenue capacity is less than spending. Our technocrats and advisors will have to really get real number crunching evidence of such status quo.
A good turnaround strategy is needed to improve the economy. These might include identifying the real indicators of our economic status quo and propose smart ways to eliminate the (1) leakage and wages in the spending (2) identify heavy expenditure burdens and proposed reduction strategies, (3) re-invest savings into short to medium term investments,
(4) re-look at policies relating to equity sharing in large resource projects, and increase the national share to more than 50%,
(5) Free SME policy from policy influences. While the funds are allocated (K200m), let it be purely administered based on merit of applicants and business propositions with technical support given to local indigenous businesses development and growth.
6. Provide enabling environment for the SME growth with enabling financial infrastructure, knowledge capital investments, and market and supply & value chain and transport infrastructure.
These aren’t new, I suppose but in the light of the discussions, reiterated to emphasise the importance to improving the economy of the country, not just for now, but for the next decade and for the ones after that. There has be somewhere in the economic life of a country, an equilibrium, where spending reaches a balance with and better income, in access.
Good call there Arilla. Some things that we need to look deeply and seriously focus into our economy to create more income opportunity for our people and the country.