png: fiscal policy at a...
TRANSCRIPT
KUM HWA OH
YONGZHENG YANG
A S I A P A C I F I C D E P A R T M E N T
I N T E R N A T I O N A L M O N E T A R Y F U N D
P N G U P D A T E
J U N E 1 2 , 2 0 1 4
PNG: Fiscal Policy at a Crossroads
PNG: Fiscal Policy at a Crossroads
I. Fiscal Performance during 2002-11
II. Changing Fiscal Policy: MTFS 2013-17
III. Prospects for 2015-19 and Long-Term Fiscal Sustainability
IV. Summary and Policy Implications
1
Successful fiscal consolidation: 2002-11
2
The government
debt fell from 74
percent of GDP
in 2002 to 22
percent of GDP
in 2011.
The achievement
was remarkable
and compares
well with Asian
economies. 10
20
30
40
50
60
70
80
90
100
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
PNG Fiji
Solomon Indonesia
Malaysia Philippines
Vietnam
Government Debt (In percent of GDP)
Successful fiscal consolidation: political commitment
3
Fiscal consolidation was guided by two MTFSs. MTFS 2002-07: Targeting a balanced budget; Achieved in 2004
MTFS 2008-12: Capping non-mineral fiscal deficit at 8% of GDP: Mineral revenue ≤ 4% of GDP; Trust accounts ≤ 4% of GDP; Additional mineral revenue: 30% for debt
reduction; 70% for public investment
Successful fiscal consolidation: outcome
4
Strong implementation.
-14
-12
-10
-8
-6
-4
-2
0
2000 2002 2004 2006 2008 2010 2012
Non-Resource Budget Deficit
Non-resource budget deficit/GDP
8% ceiling
(In percent of GDP)
Successful fiscal consolidation: good luck
5
Upward trends in resource prices.
0
100
200
300
400
500
600
700
1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
Resource Prices 1/
Gold price
Copper price
Crude oil price
1/ The prices are indexed by adjusting year 2000 to 100.
Expansionary fiscal stance: 2012-14
6
Non-resource
primary balance
(NRPB) in 2012-
2014 has been
significantly
lower (deficit
higher) than the
average of the
past decade. -16
-14
-12
-10
-8
-6
-4
-2
0
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
NRPB/NRGDP (In percent)
NRPB/NRGDP
NRPB/NRGDP (Average 2002-2012 = 5.4%)
Reduced fiscal space
7
Fiscal deficit:
8.5% of GDP in
2013; 8.3% of
GDP (projected)
in 2014.
Central
government debt
rebounded to
around 34% of
GDP in 2013;
expected to
exceed 35% of
GDP in 2014.
0
10
20
30
40
50
60
70
2008 2009 2010 2011 2012 2013 2014
Proj.
Government debt and other non-contingent
liabilities
(In percent of GDP) Other liablilities
Debt (RHS)
Competing fiscal frameworks
8
0 T0 T1 Time
Incremental Consumption from a Resource Windfall
Bird-in-hand rule
Permanent Income (PIH) rule
Optimal frontloading of domestic investimet
Resource windfall
Fiscal framework for PNG: considerations
9
Resource horizon is highly uncertain but finite;
Social and physical capital is scarce; so some
frontloading is desirable, but should not cause
instability;
In this environment, priority should be given to
macroeconomic stability, high-quality development, and
inter-generational sharing of wealth;
Limited absorption capacity must be a consideration.
Resource revenue projections
10
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
20
02
20
04
20
06
20
08
20
102
012
20
142
016
20
182
02
02
02
22
02
42
02
62
02
82
03
02
03
22
03
42
03
62
03
82
04
02
04
22
04
42
04
62
04
8
Resource Revenue (Real term)
PNG LNG Other resource revenue
(Million kina)
0
1,000
2,000
3,000
4,000
5,000
6,000
20
02
20
04
20
06
20
08
20
102
012
20
142
016
20
182
02
02
02
22
02
42
02
62
02
82
03
02
03
22
03
42
03
62
03
82
04
02
04
22
04
42
04
62
04
8
Resource Revenue (Nominal term)
PNG LNG Other resource revenue
(Million kina)
Assumptions for PIH exercise: an illustration
11
• NRGDP growth rate: 4.5%
• Inflation: 5.5%
• Population growth: 2.5%
• Resource revenue up to 2018: based on WEO
price projections and Budget 2014 projections
of export volumes.
• Resource revenue from 2019 onward: LNG
revenue from Budget 2013. Other resource
revenue fixed at 2018 level in real term.
Sustainable fiscal balance under PIH
12
-12.0
-10.0
-8.0
-6.0
-4.0
-2.0
0.0
Non-Resource Primary Balance (NRPB) (In percent of NRGDP, constant in real term)
PIH2013 PIH2014 PIH2015
Baseline (MTFS) for 2015-19
13
Fiscal deficit
declines over
time (sharply in
2015; partially
due to LNG-
boosted GDP)
Debt-to-GDP
ratio remains
above 30% of
GDP even after
2015.
10
15
20
25
30
35
40
45
-10.0
-8.0
-6.0
-4.0
-2.0
0.0
2.0
4.0
2010 2011 2012 2013 2014
Proj.
2015 2016 2017 2018 2019
Overall fiscal balance and debt
(In percent of GDP)
Deficit (LHS)
Debt (RHS)
Three scenarios for 2015-19: Non-resource primary balance
14
-16
-14
-12
-10
-8
-6
-4
-2
0
2013 2014 2015 2016 2017 2018 2019
Non-Resource Primary Balance
Baseline (MTFS)
Alternative
Current fiscal stance
Average 2002-12 = -5.4%
(In percent of non-resource GDP)
Source: IMF staff calculations.
Three scenarios for 2015-19: overall balance
15
-9
-8
-7
-6
-5
-4
-3
-2
-1
0
2013 2014 2015 2016 2017 2018 2019
Overall Balance
Baseline (MTFS)
Alternative
Current fiscal stance
(In percent of GDP)
Source: IMF staff calculations.
Three scenarios for 2015-19: government debt
16
0
10
20
30
40
50
60
2013 2014 2015 2016 2017 2018 2019
Government debt
Baseline (MTFS)
Alternative
Current fiscal stance
(In percent of GDP)
Source: IMF staff calculations.
Summary and policy implications
17
Major achievements in the past underpinned by strong
commitment to fiscal and macroeconomic stability, helped by rising
commodity prices.
MTFS 2012-17 is heading in the right direction, but fiscal
consolidation may not be fast enough to meet government debt target
given large fiscal expansions in 2013-14 and weaker commodity prices.
Critical choices to be made:
Current (2013-14) fiscal stance not sustainable.
Sustainable policy requires steadfast fiscal consolidation over
the medium term.
Focus on spending quality within the resource envelope.