MYEFO and cash flow problems
Post by Vincent Moses.
“As Treasurer, I have had to start cleaning up the fake numbers used by O’Neill. The due diligence process I started, led by well-respected PNG academics and former senior PNG public servants, has exposed major problems.
Fake budget numbers hiding expenditure such as inevitable wage costs and a massive build up in arrears. Fake revenue numbers based on excessively optimistic assumptions and hiding refunds.
These fake budget numbers continued into a fake MYEFO which once again severely understated the real problems facing the country. So for this Supplementary Budget, we have used revised budget numbers. How can we trust these revised figures?
“There are three reasons the figures used in the Supplementary Budget can be trusted. The first reason is that two-thirds of the change from MYEFO came directly from agencies such as the IRC and Customs and even Treasury itself on the true state of revenues and arrears.
So most of the changes just came directly from honestly listening to the relevant agencies on what was practical. A further sixth came from a conservative economic modelling check on the path of wages growth given wages expenditure to the end of August.
A further sixth also came from using economic regressions based on cash flows this year relative to earlier years to remove the optimistic bias in some MYEFO budget lines. A paper outlining the full due diligence process will be released on the Treasury website shortly.
“The second reason is because the due diligence figures were double checked and confirmed almost exactly by an independent referee, the International Monetary Fund. Specifically, the IMF considered the due diligence revenue totals were accurate to within K40 million – a change of only 0.3%.
The IMF considered the due diligence expenditure figures were accurate to within K89 million – a change of only 0.5%. So the variations were less than one percent. The overall result of the due diligence work and the IMF double check was the MYEFO understated the real state of the budget deficit by an extraordinary K2,263 million. These figures are shown in the table above. The MYEFO was not the true North this year as O’Neill’s influence had broken the country’s compass.
“The third reason is one that goes beyond just tables and estimates and economic regressions. It goes to the heart of the reasons why everyone in the country knows we have a cash flow shortage. Why do we have cash flow problems when the budget says we should have enough cash to pay for our spending?
This is because the MYEFO is fake – we don’t actually have enough cash even after including budgeted borrowing. This understatement of the budget deficit by K2,263 million is the reason for our continuing cash flow problems. Every week, we get K20 million less revenue than the MYEFO predicted.
Every week, we have expenditure pressures K25 million higher than the MYEFO predicted. So every week, there is a scramble deciding what bills not to pay. These pressures continue to build up week after week.
So at the start of the year, it involves only minor delays. By the end of the year, there are massive problems. This is not the way to run a country. Once we admit the fake budget projections, then we can actually start properly managing our cash flows.
Just as a business cannot survive on fake plans, a country cannot survive on fake budgets. With realistic budgets, we can now realistically go about cash flow management.
This is one of the great improvements from the due diligence work – I thank the due diligence team for getting the compass working again so we can start to take back PNG” stated the Treasurer, Ling-Stuckey.
Minister for Treasury
15 October 2019