The Governor of the Bank of Papua New Guinea, Loi M Bakani, has urged the Papua New Guinea Government to fund its projected large deficits over the next few years from the high levels of liquidity in the domestic banking system.

The 2013 Budget forecasts a deficit of K2.6 billion (US$1.2 billion) or 7.2% of GDP. It is projected to decline to 5.9% in 2014, before falling sharply to 1.6% in 2017, according to revised figures released last Friday by Treasury Minister, Don Poyle.

Polye also last week revealed the Final Budget Outcome for 2012, which was a budget deficit of K339.4 million (US$157 million). This represents one per cent of GDP.

The next budget surplus is not expected until 2017.

Addressing the Port Moresby Chamber of Commerce and Industry last week, Governor Bakani said he was concerned about the high level of liquidity in PNG’s banking system, which was made ‘even more challenging by the large fiscal deficit for 2013, and the impact of proposed large government expenditure’.

Bakani said there was sufficient liquidity in the local banking system to fund the deficit and to meet private sector borrowing needs.

He said there were numerous benefits of raising funds locally, including the development of a savings culture. It was also cheaper, given exchange rate movements, risks and returns.