Papua New Guinea’s fiscal decentralisation: A way forward

MP “slush funds” should be phased out in a bid to reverse the governance problems that are preventing Papua New Guinea from effectively decentralising fiscal responsibilities, a new Lowy Institute Analysis argues.

The report by Maholopa Laveil, entitled Papua New Guinea’s fiscal decentralisation: A way forward, shows attempts to improve governance have been hindered by a lack of accountability and capacity, and political interference.

A push towards regionalism in PNG in the 1980s, as a form of decentralisation, led to the development of Constituency Development Funds designed to improve infrastructure, health, and education initiatives.

Laveil argues these funds are frequently used to buy electoral support, while an inadequate proportion is spent on necessary regional infrastructure and services.

“The political barriers to improving governance are significant, given MPs are embedded in three tiers of government: national, provincial, and district administrations,” writes Laveil.

“This gives MPs considerable control over sub-national finances, particularly slush funds, which leads to these funds not being spent effectively, or at worst being misused.

“For any meaningful reform in governance to occur, the influence of MPs over province and district funds must first be curtailed.”

Maholopa Laveil teaches undergraduate economics at the University of Papua New Guinea. He was the inaugural FDC Pacific Fellow at the Lowy Institute, where he worked in the Institute’s Pacific Islands Program as part of a one-year secondment from UPNG.

KEY FINDINGS

• Papua New Guinea’s fiscal decentralisation efforts have not improved governance, which has been hindered by a lack of accountability and capacity, coupled with political interference.

• Revenue to provide services at the provincial and local levels remains inadequate. In 2021, no province possessed the fiscal capacity to meet all its spending needs, and total real (adjusted for inflation) revenue collected in the provinces was lower than in 2019.
   
• To improve outcomes from decentralisation, the PNG government needs stronger reporting and accountability standards, a better understanding of capacity constraints, more effective oversight and anti-corruption agencies, and the phasing out of MP “slush funds”.

The Analysis Papua New Guinea’s fiscal decentralisation: A way forward is available to read and download at the Lowy Institute website.

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