Editorial | The National | Wednesday 25th March, 2026

THE World Bank this week revealed two of the most significant flaws in PNG government financing arrangement in this country since Independence.

The first is an issue this newspaper has raised often in this space. This is the matter of the provincial and districts services improvement programme funds.

That second has to do with tax exemptions that the government seems to offer willy-nilly to all and sundry as incentives.

Both issues have been matters of tremendous concern but when the World Bank brings it up in a review of the country’s public finances it speaks volumes.

DSIP and PSIP as they are termed are going out at K960 million for the 96 districts and K480 million provinces. These items alone make a sizeable dent in the national budget each year totaling K1,440 million or K1.44 billion.

Their use has never been reported to Parliament and fall outside the purview of the Public Finances Management Act and the Auditor General.

The funds delivered via a political structure called the District Development Authority in the cash of the District Service Improvement Programme and in the cash of the PSIP, via the provincial treasury but strictly managed by the Governor.

The Auditor General, which must audit all government bodies and instrumentalities, has said repeatedly that it lacks capacity to audit districts and provinces services improvement allocations.

And now the World Bank has stated in a new review of the Public Finances of PNG 2026 that there are serious gaps in accountability and monitoring at district and provincial levels and has pointed to the service improvement programmes as the culprits in this.

Hans Fraeters, World Bank Division Director PNG, Solomon Islands and Vanuatu, has said there was little oversight over these funding which comprised a large portion of the national budget.

“There is no real mechanism to make sure that the state finds out what exactly is being done with those funds,” Fraeters said.

He added that while some funds may be managed well, others may fail to deliver the intended results because monitoring systems were weak.

 Fraeters said that there was currently no clear system to confirm whether these funds were actually improving services for citizens.

“There is no accountability or monitoring system that reports back to say the funds have done what they were meant to do, to improve services to citizens through these improvement funds,” he said.

The World Bank has called for stronger accountability measures and better reporting systems to track how public funds were spent.

The report also suggested linking funding to performance in sectors like education and other public services as this could help improve results.

The second area of concern for the country which the World Bank has highlighted in the same report is the government’s use (others might more accurately suggest abuse) of tax exemption.

Fraeters said while the government gives tax exemptions (tax breaks) to certain groups, he warned that these breaks often do not do what they were supposed to do.

Traditionally, tax exemptions were granted to non-profit and charitable organisations, church groups and certain health and education institutions. Often aid organisations and their agents were also offered tax exemptions.

But the exemptions are now increasing applied as incentives to companies – including major foreign direct investments – that really do not need a tax break.

This is a bother because the country’s biggest revenue earner is taxation. But when there are fewer than 800,000 individuals working in the formal economy paying taxes and a far fewer companies paying tax, it is not too difficult to deduce that there are too many mouths to feed and too few working to feed those mouths.

So it stands to reason when the World Bank economist, Reshika Singh says: “There are a lot of exemptions, which basically takes away the revenue from the government, the potential revenue that the government can get.”

In such a situation tax breaks or exemptions should be the last thing that should be offered as an incentive to businesses because this means actual loss of revenue.

The World Bank Public Finance Review 2026 released this week provides recommendations to help the government evaluate these tax breaks.