Mr. Speaker,
I am once again humbled to present an economic update to this Parliament. In addition to some good news for our struggling families, I will present key messages from the 2024 Final Budget Outcome, also known as the FBO, and 2025 budget implementation.
Cost of Living Pressures
Mr. Speaker, reading our papers over the last few days, I have been filled with joy. As most of you know, feeling joy is not my usual experience with newspaper stories! Monday’s “The National” headline: “Prices slashed: Relief for Consumers on 13 essential items”. The front page goes on “The prices of 13 essential household items have been slashed by 10 per cent …” In Tuesday’s Post Courier, and again in today’s, we see the cost of these goods in Port Moresby have dropped from K99, to K77 – a saving of K22 in a family shopping basket. In Lae, the price drop was K11, still substantial. The response from readers also brought joy. “The tax relief is great, it will help the people save some of their money,” said one. “I am happy with the 10% GST cuts because now I can be able to buy basic goods at a much convenient price,” said another. Following through on our promises of the 2025 Budget of… “No more GST.” Unfortunately, the GST cuts were not immediately passed on in Mt Hagen, Kokopo, Goroka or Buka. But let me be clear, we will use the resources of the IRC, and ICCC, to ensure that all of the GST cuts are passed on, throughout all of our country. The Marape-Rosso Government is a caring Government.
PNG’s Economic Recovery is Continuing.
Mr. Speaker, 2024 was pretty tough. Opening with the 10 January riots, global uncertainty with wars in Europe and the Middle East, and violence at home, at unacceptable levels, and the most disruptive, unproductive and costly VONC in PNG’s history, yet underlying domestic growth remained strong, with forecasts continuing to suggest historically high improvements averaging over 4.5% real growth in our non-resource economy from 2021 to 2025. Yesterday, I was pleased to see an article in Business Advantage, asking the question “Is Papua New Guinea’s forex crisis finally drawing to an end?” While I will want to double check the accuracy of the data, reports from ANZ and Westpac are that, sometimes, FX orders are being filled the same day, and for BSP, generally within a week.
FX shortages have been identified as the greatest barrier to growth in PNG for eight of the last ten years. A home goal created by poor decisions back in 2014. The Marape-Rosso Government tackled this problem with historic Central Banking Act reforms, a new team at BPNG, and IMF support. Finally, there may be a light at the end of this tunnel, with all the improvements this could bring to growth, and investment.
On-Going Budget Repair – the 2024 Final Budget Outcome (FBO)
Mr. Speaker, I am pleased to table the 2024 Final Budget Outcome today.
There are several key messages from this year’s FBO. First, as we all know, 2024 was a tough year for the budget. This is most clearly set out in the table on “Page B” in the FOREWORD of the document – about 6 pages in. Starting from the second row, we had a shortfall in tax revenues of K248 million, and an even larger shortfall in non-tax revenues of K1,295 million. Overall GoPNG revenues down by K1,543 million.
In addition, we had major wage over-runs in the costs of teachers’ and health workers’ salaries, totaling K737 million. Combined, we needed to find K2,280 million in cuts or deferrals in other areas of the budget to stay within our budget repair strategy of reducing the 2024 budget deficit to under K3,984 million. Through some hard work, and tough judgement calls, these cuts and deferrals were made. Most of these cuts and deferrals, some K1,225 million, were in the operational budget. Cuts and deferrals were also required in our Public Investment Program of K893 million, as well as the drawdown of Concessional Loans. The second key message is that the Marape-Rosso Government kept to its 13 Year Budget Repair Plan. The 2024 budget deficit outcome of K3,931 million, is K53 million lower than the 2024 budget estimate. This represents a reduction in our budget deficit from 8.9% of GDP during the global COVID-19 crisis in 2020, down to an outcome of 3.2% in 2024. Very strong fiscal discipline, over the last 5 years. One of the benefits of remaining on the budget repair path is that
our debt to GDP ratio continues to fall, from 52.6 per cent in 2021, and now down to 49.5 per cent in 2024. The third key message, is that despite the revenue shortfalls, and the continuation of the budget repair strategy, together, we delivered 94.2% of the GoPNG budget. I have already talked about the major increases in funding for teachers and health workers. Our GoPNG capital budget is still over three times higher than 2018 levels. The fourth key message, and this is more technical but important, is looking at Table 17 on page 20, is that we had a net domestic financing shortfall of nearly K2 billion. This is the gap between the K2,320 million budget estimate, and the K231 million Outcome. The tightening of monetary policy by BPNG in the second half of 2024 had very major impacts on our domestic banks. I am pleased that they have been unwinding some of these pressures in last night’s Monetary Policy Statement. In response to this impending shortfall of K2 billion, which would have been devastating for our budget, we worked closely with our friends in Australia to replace nearly three quarters of this domestic financing, with additional international financing of over K1.4 billion. We thank Australia for this continued support, noting that they are effectively allowing us to piggyback off their triple AAA credit rating, at little cost to the Australian budget itself. The fifth key message is that this financing shortfall has led to a significant carryover of 2024 expenditures into 2025. This has required us to use some of our 2025 cash to finance reported 2024 expenditures as part of PNG’s budget system. As of last week, there remained K300 million in 2024 cheques still to be paid, and K252 million in 2024 Provincial functional grants to be paid.
The final key message is that the FBO contains a lot of detailed information. In Parliament last week, I undertook to provide details on 2024 expenditures. Part 3 of the FBO, starting on page 56, provides 35 pages of detailed information on the 2024 budget. Surprising for some, as we look at the very top line of this table on page 56, we see that Provinces overall spent 105.4% of their revised budget. Indeed, if we compare the 2024 Budget Outcome of Provincial expenditure at K6.3 billion, we see that is some K900m higher than the original budget of K5.4 billion. Even allowing for the K252 million in 2024 functional grants yet to be paid, Provinces overall spent well above their actual budget appropriations. We are sure these Provincial funds were spent well by our good Governors. Overall, 2024 was a tough budget year, but not as tough for some, as others, and this should be remembered in our Parliamentary debates.
2025 Budget Implementation Update
Mr. Speaker, I also undertook to provide more details on 2025 budget implementation. Attached to this statement, I have included 3 key tables. Appendix 1 deals with the Operational Budget, and Appendix 2 with the Capital Budget. These tables set out detail on budget implementation. As of 30 May, we see total 2025 expenditures of K4,001 million in the operating budget, and K816 million in the capital budget. We then need to add K1,021 million in interest costs, and K476 million in GST and Book-makers transfers to Provinces. The total is K6,314 million in expenditure this year. In addition, we have paid K2,606 million in outstanding 2024 expenditures. After a slow start, cash is flowing. There remain revenue challenges in 2025, mainly from an unexpected drop in PNG LNG taxes of some K2 billion, and we await the MYEFO to see if we may need a 2025 Supplementary Budget. Until then, given the revenue news, some warrants will need to be held back. Appendix 3 sets out balances in Provincial and District bank accounts. These are split into various types of accounts to help provide clarity on cash flexibility at the sub-national levels. There is a significant balance of over K3.1 billion.
Conclusion
Mr. Speaker,
There is good economic news this week. The costs of 13 essential household items have gone down, reflecting the Marape-Rosso Government’s understanding of the cost-of-living pressures facing our families. There are signs of hope that foreign exchange availability is significantly improving, and we are one step closer to Kina convertibility. Despite a tough year in 2024 for revenues and financing, the 2024 Final Budget Outcome demonstrates 94% of the GoPNG Budget was delivered. PNG remains on track with our Budget Repair program. And finally, after a slow start, 2025 budget implementation is well underway. The Marape-Rosso Government, year-after-year, being responsive, being responsible, being reliable.
I commend the 2024 FBO to the House.
The Hon.Ian Ling-Stuckey, CMG.MP
Treasurer
Download 2024 FBO Report