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PNG Economic Survey 2007: Fiscal Discipline Needed

PNG Economic Survey 2007: Fiscal Discipline Needed. Roderick Duncan Charles Sturt University. The macro story. Successes of the Somare government Inflation down to 4-6% range (from 10-16% range) Public debt down to 43% of GDP (from 72% of GDP). Inflation. Public debt. The macro story.

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PNG Economic Survey 2007: Fiscal Discipline Needed

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  1. PNG Economic Survey 2007: Fiscal Discipline Needed Roderick Duncan Charles Sturt University

  2. The macro story • Successes of the Somare government • Inflation down to 4-6% range (from 10-16% range) • Public debt down to 43% of GDP (from 72% of GDP)

  3. Inflation

  4. Public debt

  5. The macro story • Troubles • Spending and the budget deficit (running a deficit during a boom) • Poor growth in per capita terms

  6. Government spending

  7. Real GDP growth?

  8. Manning (1999)- formal sector 1. crime and theft 2. corruption 3. poor infrastructure 4. policy instability 5. inflation 6. taxes and regulation Eugenio (2001)- informal sector 1. lack of access to finance 2. lack of infrastructure support 3. impeding regulations 4. lack of business skills The micro story- obstacles

  9. Why doesn’t PNG grow?

  10. A “perfect storm” of misappropriation • New spending outside the usual 2006 and 2007 Budgets. • 2006 Supplementary Budget- K682.5 million • 2006 Windfall Gains- K650 million • 2007 Windfall Gains- K450 million • 2007 Supplementary Budget- K700 million • Net new spending K2,382.5 million

  11. Should we be worried? • 1. An election this year • 2. Unpopular incumbents (75% of incumbents were thrown out in 2002) • 3. Large amounts of undirected cash outside the standard budgetary channels

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