All eyes will be on Treasurer, Charles Abel, next week when he presents budget that tries to deal with low commodity prices, tight revenue inflows and an ongoing foreign exchange crisis.
External pressures like the slow economic growth in Europe, the US and China are also having an effect on Papua New Guinea’s export revenue.
Commentators have repeatedly stated that the Government over-estimated revenue projections from the extractive industries while prices were high and did not take into account the slump being experienced now.
While there is some recovery in the global economy, the Treasury is not banking on comfortable ride over the 2018-2019 period. Some analysts are predicting the bad days will not be over until after the 2020 Financial period.
It is against this backdrop that the PNG Government is preparing the 2018 budget set to be presented in Parliament next week.
The warning signs have ben there for several years, a booming Chinese economy in 2005-2007, then a slow down in growth has meant less demand for raw materials.
In Europe, growth has also been slow.
How does that affect us?
In simple terms, big economies are not spending as much as they used to and we can’t sell as much as we need to, to keep our economy within the comfortable range.
Despite the talk about developing a diversified economy – that is having mining, oil, agriculture, manufacturing and all that, there has been no real effort to create a level of diversification that can keep us going comfortably during economic downturns.
In fact, we are so heavily dependent on the extractive industry, that when commodity prices drop, we also suffer.
So what about Agriculture?
For years, the government has talked about Agriculture and the need to create a strong Agriculture base. The rhetoric for a strong agriculture base is still ongoing since the payment of K100million for the National Agriculture Development Plan was released during the Somare government.
Economic commentators, also point out that we are getting the basics wrong.
The spending on transport infrastructure that will stimulate growth are going to the wrong places. There is too much going to Port Moresby while the access roads in agriculture production areas deteriorate.
So what should we expect from the 2018 budget?
It will be one that is focused on tightening spending. There will be more focus on tax revenue collection. The government said it will “broaden the tax base.”
There may also be increases in income tax or GST depending on which route the government takes.