Date: August 6, 2015 - 12:23AM
Asia Pacific editor
for Fairfax Media
Prime Minister of Papua New Guinea,
Peter O'Neill. Photo: Joosep Martinson
Australia's nearest neighbour could be on
the brink of a Greek-style fiscal crisis following one of the most spectacular
budget blow-outs in regional history.
The projected budget deficit in Papua New
Guinea's has been revised up, hitting 9.4 per cent, which is more than double
last year's deficit and getting close to the 12.3 per cent figure which helped
tip Greece into meltdown last year.
The commodities price downturn, worsened
by poor oversight of the nation's mining industry, has been brutal to Papua New
Guinea's budget. Photo: Jon Reid
The budget implosion will come as a shock
to leaders in PNG and also Australia, who have consistently played down the
impact of corruption and sliding commodity prices.
In December the top adviser to PNG Prime
Minister Peter O'Neill accused a former Australian Treasury officer, Paul
Flanagan, of "political
interference" when he warned
that such a crisis could be coming.
Foreign Minister Julie Bishop assured
reporters at the time that PNG was about to become the fastest growing economy
in Asia, with GDP growth as high as 20 per cent.
"Huge revenues are going to be coming
into PNG," she said on December 14.
And PNG has since become Australia's
largest aid recipient, overtaking Indonesia, with budget outlays expected
to reach $554 million this financial year.
But this week's mid-year budget
estimate in PNG admits that the huge rivers of resource revenue have
failed to materialise.
Instead, economic indicators have all
turned south, with overall government revenue expected to shrink by a whopping
20.7 per cent this calendar year.
"This is a frightening
document," said Mr Flanagan, in a fresh
analysis which he released on Wednesday, showing that the looming
crisis had exceeded even his pessimistic expectations.
The resulting budget deficit "would
be the highest in PNG's history", he said, surpassing the figures that
pushed PNG into balance of payments and economic crises in the late 1990s.
"In Australia, such a rapid change in
the estimated fiscal position would go well beyond being termed 'a budget
crisis'," he said.
Economists say PNG could either slash
spending on crucial services, risking a humanitarian crisis, or seek a bail-out
from international partners.
PNG, like Australia, has been struck by
collapsing commodity prices. But the impact of falling prices has been
compounded by management problems at major resource projects, particularly the
recently-nationalised Ok Tedi copper and gold mine.
And it has been compounded by a series of
huge corruption scandals. Many of those scandals are closely connected with
Australia, which has been accused of sheltering corrupt officials and turning a
blind eye to laundered funds.
Last month Fairfax revealed video footage
which showed Australian lawyers coaching clients on how
to pay bribes "in dribs and drabs" and launder the
proceeds in Australia.
A warrant was issued but not executed for
the arrest of the Treasury Secretary Diari Vele on corruption charges recently.
Anti-corruption activists in PNG have
claimed that Canberra has been compromised by its reliance on Prime Minister
Peter O'Neill and the Manus Island asylum seeker detention centre.
Ms Bishop told Fairfax she
would not
let Australia become a safe haven for proceeds of corruption in PNG
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