PNG K2 billion into the red to pay for infrastructure

AAP

Papua New Guinea's treasurer has handed down a K14.55 billion ( $A6.8 billion) budget for 2013, plunging the developing nation more than K2.14 billion ($A1 billion) into the red in a bid to improve the country's failing infrastructure.

Don Polye yesterday announced increased spending for PNG's health, education, infrastructure and law and order sectors, as well as a plan to shift control of some state monies away from the nation's capital, Port Moresby, to provincial governments.

PNG's economy is expected to grow by four per cent over the next year, substantially slower than the 9.2 per cent growth in real gross domestic product (GDP) in 2012.

The deficit announced yesterday amounts to 7.2 per cent of PNG's GDP and is projected to decline to 5.9 per cent in 2014, before falling sharply to 1.6 per cent in 2017.

Mr Polye said the next budget surplus was expected in 2017.

Inflation, which dipped to four per cent year on year in 2012, is expected to climb to eight per cent in 2013, just under 2011 levels.

"The 2013 budget is set against assumptions of a modest acceleration of activity in the global economy in 2013 compared to 2012," Mr Polye told parliament.

"Real growth is expected to slow down ... before rebounding to 5.5 per cent in 2014.

"The slowdown in growth is largely due to the PNG Liquefied Natural Gas project having already reached its peak levels of investment."

Government debt is projected to peak at 74 per cent by 2017, while PNG's debt to GDP ratio will peak at 34.6 per cent in 2014 before dropping to 25.5 per cent by 2017.

The government will also spend K781.27 million ($A365.1 million), up from K683.86 million ($A310.23 million), on improving primary and secondary education, with the vast majority of that money going into boosting teacher's salaries.

Many of PNG's roads, including vital but heavily dilapidated links such as the Highlands Highway, can expect an upgrade and maintenance as well.

PNG's strained police force can also expect a pay rise and some new colleagues, with the government announcing 400 officers are to be hired a year for the next five years.

In a move labelled historic by Mr Polye, the national government will also relinquish some control of state money to give PNG's 22 provinces and districts K5 million ($A2,295,700) and K10 million ($A4,591,400) respectively.

Every province in PNG has one or more district.

"The O'Neill-Dion government believes key services can be better delivered by the parts of government that are closest to its people," Mr Polye said.

Institute of National Affairs director Paul Barker says the plan to hand money to the districts comes with considerable risks.

"It's a large amount of money going out to the local governments, but a lot of them don't have any professional skills," he told AAP.

"As someone in treasury said to me, the national government level has little capacity and the local level is worse.

"A lot of it could end up in Cairns real estate, so there should be some good parties there."

Mr Barker was referring to recent media reports that some PNG politicians and bureaucrats had made substantial property deals in Cairns with public monies.