Viewpoint: Shamshad Akhtar
While Papua New Guinea continues to account for the lion’s share of output among the Small Island Developing States (SIDS) in the Pacific region with 60%, concerns remain that modest economic growth could have a knock-on effect on the country’s capacity to achieve sustainable development in the long term.
The latest figures indicate that a slowdown in economic expansion in PNG— from 9.9% in 2015 to 2.5% in 2016 — was largely due to subdued global commodity prices and reduced exports of minerals. Growth in 2017 is projected to be lacklustre, which could further weaken government efforts to tackle a range of socioeconomic challenges. Around 65% of the population still continues to live under the $3.10-per-day poverty line (at 2011 purchasing power parity) and only 40% of the population has access to clean water, 19% to improved sanitation facilities and 18% to electricity.
On the whole, recent assessments have shown that the lack of public resources, combined with inadequate social policies and low efficiency in delivering public services, have hindered meaningful progress in reducing poverty and improving health, education, infrastructure and jobs creation. Moreover, the country has the highest income disparity in the Pacific region, which serves to undermine social cohesion and deepens inequality.
As in a number of countries in the Asia-Pacific region, low tax collection in PNG has been largely responsible for the lack of adequate public resources. The net result is that with a tax-to-GDP ratio of 15.1% in 2015 and similar or even lower levels anticipated in 2016, the country is far from reaching the target needed to finance sustainable development investments. Current estimates indicate that tax-to-GDP ratios of about 25% are required to finance sustainable development in the developing countries of Asia and the Pacific While a large proportion of the labour force employed in the informal sector or in agriculture has contributed to low tax revenue levels, weak governance has also led to inadequate revenue. In its annual regional economic review, ESCAP illustrated the extent to which weak governance has a negative impact on the tax morale of taxpayers, the incentives to operate in the formal sector and the level of compliance of tax officials with relevant laws. The 2017 report, “Governance and Fiscal Management”, argued that the quality of governance affects the achievement of sustainable development through its impact on the composition and efficiency of public expenditure. At its worst, the absence of good governance can distort the structure of public spending by reducing the portion of social expenditure that goes to education, health and social protection.
In PNG, public expenditure on health amounted to 4.5% of GDP in 2014, which was the lowest of the 11 Pacific SIDS for which data is available. Social protection expenditure stood at 0.1% of GDP, which was by far the lowest of 38 Asia-Pacific economies for which data was available between 2011-13.
It is clear that a greater push to improve fiscal management and further enhance the quality of governance is needed, both of which are fundamental prerequisites if the country is to ultimately attain its sustainable development goals. Accomplishing these core conditions requires improving transparency and strengthening accountability in public administration.
Producing meaningful fiscal information and strengthening public administration capacities to monitor, evaluate and audit policies and actions should translate into more robust audit and procurement control functions. Developing more inclusive institutions, where public services beneficiaries can exchange views with the government, has in several countries shown to be instrumental in raising tax revenues and making expenditures more efficient.
By tightening fiscal management and through a concerted effort to comprehensively enhance the quality of governance, PNG shall move closer to delivering services efficiently and effectively, which is key to achieving the 2030 Agenda for Sustainable Development.
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