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KBL – 2021 National Budget Review

Budget Overview

With the theme “Consolidation for Growth” the 2021 National Budget demonstrates a shift in focus towards the non-resource sector, with the aim of forming a foundation for tangible economic growth outside the resource sector. Fiscal consolidation is a key overarching medium-term goal and requires tightening of public service expenditure, improving efficiencies in service delivery, and expanding the tax base sustainably. Public investments and similar levels of borrowing towards this end are expected until 2022, with budget repair projected to start in 2023.

This Budget is critical for the economic future of the country after such a dramatic downturn witnessed in 2020. This past year saw shortfalls in revenue, increased expenditure, and a global pandemic that forced changes in fiscal priorities and precipitated unprecedented levels of national debt. The likelihood of pandemic lockdowns is still high, and restrictions on business activity continue with varying degrees of severity.

The fiscal priorities, and the framework of policies and principles that underpin them, look good on paper and inspire some confidence for the medium term. Increased public spending in infrastructure and capital investment in the 2021 National Budget bodes well for PNG’s medium-term outlook. Capital expenditure injections worth 8.3% of GDP in the 2021 Budget will provide much-needed stimulus to the PNG economy after the COVID-19 downturn.

Capital expenditure has increased by 16.9% from the 2020 Supplementary Budget, while Operational expenditure increased by 4.6%. Continuous outlays by the Government in similar proportions through subsequent Budgets will set a solid foundation for inclusive and sustainable growth in the non-resource economy. The Government has also tightened spending in the public sector decreasing by 2.6% as a proportion on the full Budget but increasing by K247.1m in kina terms. The payment of Capital and Operational arrears remains a top priority in the 2020 National Budget. The political uncertainty has given rise to the creation of the Finance & Treasury Miscellaneous Vote which holds funds for big-ticket expenditure. The Miscellaneous Vote coordinates spending on arrears for rentals, superannuation payments, utility bills, and capital arrears. Funds for COVID-19 and the Higher Education Loan Program are also kept in the Vote.

Consistent with the revised Medium Term Fiscal Strategy, the 2021 National Budget is centred around the following key principles:

  • Spend Money More Wisely;
  • Raise Revenues More Fairly;
  • Finance Debt More Cheaply;
  • Leverage Friendly International Support More Intelligently;
  • Focus On Growth in the Agriculture Sector & Informal Sector;
  • Distribute Resource Benefits More Equitably;
  • Stimulate Non-Resource Growth Back to 5.0 Per Cent Annually;
  • Comprehensive Government SOE Reform Program;
  • Free Up Foreign Exchange; and
  • Create At Least 10,000 Jobs Annually.

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