Managing fiscal risks amid resource booms: lessons from Papua New Guinea and Timor-Leste

The two largest developing member countries in the Asian Development Bank’s (ADB’s) Pacific region – Papua New Guinea (PNG) and Timor-Leste – also continue to be the region’s fastest growing economies. PNG has now recorded 11 consecutive years of economic growth averaging around 6% per annum, while Timor-Leste has been growing at around double digit rates since 2007. A major driver of the rapid growth in both countries has been their resource export sectors. Government spending from the Timor-Leste Petroleum Fund rose by 65% in 2012, with the ratio of expenditure to non-oil GDP reaching 193%–surpassing the previous high set in 2011. Resource revenues and higher government spending have also helped to drive growth in the PNG economy over the last decade… While the justifications for significant increases in government expenditure in both countries are clear, it is also vital that these priorities be balanced with maintaining, or in some cases strengthening, the fiscal buffers required for managing the volatility that is endemic to small open resource-export-based economies [read more].