Author: Aaron Batten

PNG had another interesting year in 2008. The first half of the year saw economic growth remain strong as the country continued to benefit from yet another boom in the price of its commodity exports. High resource prices underpinned a significant expansion in the manufacturing, construction and agriculture sectors. Towards the middle of the year, however, poor monetary responses to a prolonged growth in domestic liquidity, coupled with a continued strong external sector, meant that inflationary pressures began to increase, with inflation rising to 13.5 per cent in September 2008.

September, of course, also marked the onset of global financial crisis. Barring a couple of jitters on the PoMEX, PNG’s economy weathered the direct impacts of the crisis relatively unscathed. In large part this was because of the healthy supply of foreign exchange reserves and domestic bank liquidity built up over previous years which gave the financial sector sufficient flexibility to cope with any adjustment costs.

The flow on effects of the crisis have led to a large downturn in the price of many of PNG’s key commodity items which had been driving revenue and output growth. This has had an immediate impact on the Government’s fiscal position with the 2009 Budget predicting a 25 per cent overall decline in domestic tax revenue.
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Author: Aaron Batten

Just like the 1990’s trust accounts are shaping up to be a defining component of how PNG manages its resource revenues in this decade. Unlike the 1990’s however current revenues are being channeled into numerous smaller trust accounts instead of the single consolidated Mineral Resource Stabilization Fund (MRSF). Has PNG learnt from its mistakes or is it heading towards a repeat of the past? To answer these questions it is necessary to understand why these trust accounts have increased so much in prevalence over the last few years and what implications this has for fiscal management.

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