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Papua New Guinea – Tainted O’Neill Returned as PM

Voting took place over a two-week period in late June and early July to fill the 111 seats in the unicameral National Assembly, and the process was marred by widespread incidents of fraud, intimidation, and even arson, all of which contributed to doubts about the legitimacy of the outcome. Despite the corruption scandals that have dogged Prime Minister Peter O’Neill, his PNC finished first by a wide margin, doubling its seat total to 54, leaving the party just two short of an outright majority. Some of O’Neill’s erstwhile coalition partners teamed up with the opposition in a bid to deny the prime minister another term, but he managed to secure sufficient backing to parliamentary approval of a new government, which will be protected from being toppled by a vote of no-confidence during the first 18 months of the current term.
O’Neill remains vulnerable to legal jeopardy owing to still unresolved corruption cases, he must contend with a larger opposition bloc in the National Assembly, and he faces the challenge of dealing with a fiscal crisis at a time when the pace of economic expansion is running far below potential. The new administration has identified a $309 million hole in the public finances that points to a widening of the budget deficit to 3.8% of GDP this year, compared to a target of 2.5% of GDP. Borrowing required to finance the larger shortfall is projected to push the public-sector debt burden above the statutory limit of 30% of GDP.
Treasurer Charles Abel has said he will undertake a thorough review of the government administration, and a supplementary budget is expected, but Abel will need to proceed carefully with efforts to rein in expenditure. O’Neill sacked Abel’s predecessor for being too candid about the government’s financial difficulties, and a serious effort to impose fiscal discipline will necessarily require a crackdown on the corruption that contributes to significant lost income.
The government is expected to pursue a somewhat more aggressive program of economic diversification, but PNG’s economic fortunes will continue to be determined to a great extent by conditions in the hydrocarbons sector. Oil Search discovered new gas reserves in December, and along with its partners, ExxonMobil and Total, is examining ways to utilize the existing downstream infrastructure to produce more LNG.
The main gas facilities sit uncomfortably in one of the poorest regions where anger and frustration often boils over into violence, creating a huge security risk for foreign investors. Promised benefits to local communities, such as schools and roads, have not materialized, and the use of money flowing into the local economy to purchase weapons had increased the risk of the militarization of conflict, with negative implications for the security of oil-and-gas facilities and personnel.
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