## tarea2024019

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---

### Mission background and context
- Mission: in-person technical assistance mission in Port Moresby during August 2–15, 2023 to assist the Department of Treasury (DOT) in improving compilation and dissemination of government finance statistics (GFS) and public sector debt statistics (PSDS) and to assess progress against previous recommendations under the IMF Results Based Management framework.
- Conducted under: the GFS and PSDS workstream of the Data for Decisions (D4D) Fund and the Pacific Financial Technical Assistance Center (PFTAC).
- Context:
  - Initial success in implementing international standards since 2012; PNG became a regional leader in production and dissemination.
  - Recent setbacks: Covid-19 pandemic effects, high staff turnover, and a 2021 malware attack.
  - Limited progress in recent years as priorities shifted from development to sustaining compilation and rebuilding staff expertise.
- Importance:
  - Implementation of recommendations is essential to enhance fiscal transparency and support IMF Extended Credit Facility arrangements and debt sustainability work.
  - Robust balance sheet estimates are particularly relevant.

### Summary of findings
- General:
  - GFS for the budgetary sector generally produced to an adequate standard but requires resolution of longstanding methodological issues.
- Specific deficiencies:
  - Fragmentary balance sheet information.
  - Inconsistent treatment of transfers.
  - Imprecise allocation of expenditure to functional categories.
  - Material imperfections in FY 2021 dataset (some corrected before mission, others requiring broader analysis).
  - Need to enhance quality assurance procedures and assign formal responsibilities for quality checks.
- Institutional coverage:
  - No exhaustive list of public entities and their statistical classification across hundreds of statutory and commercial authorities at national and subnational levels.
  - Recommendation to create a single public sector institutional list and establish a formal committee to maintain it.
- Provincial government:
  - DOT already collects financial information from 21 provincial governments and the Autonomous Region of Bougainville Government sufficient to compile GFS flow statements; recommended to commence compilation methods immediately.
- SOE debt:
  - Previous missions developed methods; mission updated estimates and handed over production files to DOT staff.
  - Compilation of SOE debt statistics ready to be embedded into regular production; authorities should initiate domestic compilation and may use further TA for upskilling.

### Priority recommendations (selected and with target dates)
- High Priority:
  - Disseminate the debt data through the QPSD and GFS databases — DOT—FMD — November 2023
  - Maintain the compilation and dissemination of the SOE debt data — DOT—FMD — January 2024
  - Establish a formal institutional sector classification committee — DOT—MEPD — June 2024
- Other selected priorities and target dates:
  - Develop a draft mapping of the provincial chart of accounts to the GFSM 2014 taxonomy — DOT—MEPD — January 2024
  - Reinstate dissemination through the International Financial Statistics (IFS) database — DOT—MEPD — November 2023 (Medium)
  - Validate the preliminary market test of the SOEs accomplished by the mission — DOT—SPD — December 2023 (Low)
  - Compile a comprehensive list of data sources for each of the GFS and PSDS statements — DOT—MEPD — August 2024 (Medium)
  - Compile a full set of business process documentation for GFS and PSDS — DOT—MEPD — August 2024 (Medium)
  - Establish data verification procedures to ensure year-on-year consistency of GFS reporting — DOT—MEPD — November 2023 (Medium)

### Methodological issues (key findings and recommendations)
- Transactions in cash:
  - Current practice: statistical discrepancy reported as zero by using transactions in cash assets as a residual and disregarding available data.
  - Recommendation: estimate transactions in cash using the actual data and transparently report any statistical discrepancy.
  - Recommendation (extract): Estimate transactions in cash using the actual data, instead of treating them as a residual item — DOT—MEPD — November 2023 (Medium).
- On-lending of SDRs:
  - August 2021: BPNG credited with 252 million of SDRs, worth about 1.2 billion kina (PGK), then on-lent an equivalent amount in PGK to the National Government.
  - Recording guidance: on-lending between the central bank sector and the BCG sector in national currency should be recorded as a transaction in loans; PSDS should reflect a liability in the form of loans rather than SDRs.
- Rollover of budget funds:
  - Under cash accounting, unspent cash in year t-1 should lead to lower expenditure and higher cash asset balance at year end and opening balance in year t; when spent in year t, record above-the-line expenditure and below-the-line disposal of cash asset.
- Employer’s social contributions vs social benefits:
  - Employer’s social contributions create employees’ entitlement to future benefit; social benefits provide income in the present.
  - Recommendation: delineate these in FMIS with sufficient granularity to map separately.
- Social assistance vs social insurance:
  - Payments related to employer-employee relationship (e.g., retirement benefits to ex-members of armed forces and public servants) fall under social insurance, specifically ‘employment-related social benefits in cash’.
  - This transaction category is presently missing from the National Budget (Volume I) fiscal tables and should be added.
- Grants and sector coverage:
  - Principle: for BCG subsector, amounts advanced to provincial governments, districts, statutory authorities and public schools should be recorded as current or capital grants (not itemized by ultimate purpose in BCG accounts); at General Government (GG) level, such grants to other GG units should consolidate to zero and expenses should be itemized.
  - Recommendation (extract): Break down the expenditure on grants in accordance with the underlying functional purpose in the COFOG presentation — DOT—MEPD — November 2023 (Medium).
  - Additional methodological recommendations (with target dates preserved):
    - Populate the GFS balance sheet with all information available to the DOT, including on government equity holdings — DOT—MEPD — November 2023 (Medium)
    - Remap expenditure to COFOGs at a sufficiently granular level to avoid the data being reported under ‘not elsewhere classified’ or other summary categories — DOT—MEPD — November 2023 (Medium)
    - Review the transactions recorded as subsidies, grants and other transfers to ensure their mapping is aligned with the GFSM 2014 terminology — DOT—MEPD — November 2024 (Medium)
    - Separate out payments under the social insurance schemes, including employment-related old age benefits, from social assistance — DOT—MEPD — November 2023 (Low)

### Institutional coverage, PSIT, and classification committee
- Institutional coverage issues:
  - PNG has about one thousand legal entities and no exhaustive list of public sector units and their statistical classification.
  - An exhaustive public sector institutional table (PSIT) is a pre-requisite for expanding GFS sector coverage.
- Committee and governance:
  - Recommendation: establish a formal institutional sector classification committee to assist GFS compilers, including representatives from relevant authorities; classifications should follow GFSM 2014 and be invariant to legal form.
  - Main objectives of the committee include promoting expansion of GFS and PSDS coverage; including all stocks and flows under the statistical framework; promoting higher frequency and timeliness; fostering data sharing; facilitating institutional coordination; and maintaining the PSIT for GFSM 2014, 2008 SNA, BPM6 and the MFSMCG 2016.
- Practical approaches:
  - Use group classifications to define public sector and subsector boundaries where appropriate.
  - Examine samples of each type of provincial entity and collect financial information from a small number of entities of each type.
  - DOT, in consultation with the National Economic and Fiscal Commission (NEFC), should refine the list of public entities operating at provincial level to be exhaustive.

### State (provincial) government GFS and chart mapping
- DOT already collects budget information from the 21 provincial governments and the Autonomous Region of Bougainville Government containing actuals and budget estimates sufficiently granular to compile basic GFS statements for the budgetary part of the state government sector.
- Recommendation: commence compilation of the state government GFS without waiting for full FMIS transition.
- Recommendation: develop a mapping of the provincial chart of accounts to the GFS taxonomy using the national chart of accounts mapping as a starting point; request bilateral assistance from PFTAC if required.
- Priority recommendation (extract): Develop a draft mapping of the provincial chart of accounts to the GFSM 2014 taxonomy — DOT—MEPD — January 2024 (High)

### Balance sheet reporting, SOE debt compilation, and scope
- Cash accounting prevalence:
  - Pure cash accounting remains prevalent in PNG public sector except for national-level SOEs; this limits comprehensiveness of balance sheet information (e.g., imputed loans from finance leases not recognized).
- Data availability and use:
  - DOT holds more data on assets and liabilities than currently reported (examples: national government equity holdings and on-lending to SOEs).
  - Recommendation: extend the GFS balance sheet to include all financial instruments for which information is available and include readily available data annually.
- SOE debt statistics:
  - Mission compiled a time series of SOE gross debt stock covering FY 2018 to FY 2021 using available AFS.
  - Findings and statistics:
    - Measured change: Gross debt stock of the remaining market SOEs increased by PGK 205.4 million between 2020 and 2021.
    - Level: Gross debt reached 4.7 percent of GDP by end-2021—an increase of 0.2 percentage points between 2020 and 2021.
    - Four-year average: Average gross debt stock of the market SOEs stood at 4.5 percent of GDP across FY 2018–FY 2021.
  - Coverage note: Estimates likely understate the complete public nonfinancial corporation subsector debt due to excluded entities and gaps in coverage (exclusions noted: PNG Power Limited AFS unavailable; Kumul Agriculture Limited fails the market test).
  - Recommendation: embed SOE debt compilation into regular production and disseminate with transparent metadata on limitations.
  - Priority recommendations (extracted):
    - Maintain the compilation and dissemination of the SOE debt data — DOT—FMD — January 2024 (High)
    - Disseminate the debt data through the QPSD and GFS databases — DOT—FMD — November 2023 (High)

### Dissemination channels and databases
- Current practice:
  - FMD unit within DOT disseminates debt statistics via the World Bank’s QEDS database (focused on external debt).
- Recommendations:
  - Treat QEDS as one part of a wider statistical collection and also disseminate debt and broader balance sheet data through the World Bank QPSD and populate the balance sheet section of the GFS annual questionnaire template.
  - Reinstatement of dissemination through the International Financial Statistics (IFS) database — DOT—MEPD — November 2023 (Medium)
- High-priority dissemination actions:
  - Disseminate the debt data through the QPSD and GFS databases — DOT—FMD — November 2023
  - Maintain the compilation and dissemination of the SOE debt data — DOT—FMD — January 2024

### Business process resilience, quality assurance, and capacity building
- Resilience and shortcomings:
  - DOT sustained domestic compilation and the annual GFS submission despite disruptions (e.g., 2021 ransomware attack); quarterly IFS submissions were interrupted.
  - Shortcomings: slow progress on formal business continuity procedures and desk instructions; undue reliance on a small group of key individuals.
- Quality issues:
  - Recent IMF GFS annual database submissions contained misclassifications and erroneous entries; many anomalies could have been detected via line-by-line year-on-year comparisons.
  - Recommendation: strengthen internal data verification procedures and assign formal responsibility for quality assurance to a staff member.
- Capacity issues and training:
  - High staff turnover has reduced conceptual expertise at junior levels, increasing demand for capacity rebuilding.
  - Training delivered during mission: 2.5 days of formal training on introductory and advanced topics (including institutional sector classifications).
  - Recommendations and target dates:
    - Compile a comprehensive list of data sources for each of the GFS and PSDS statements — DOT—MEPD — August 2024 (Medium)
    - Compile a full set of business process documentation for GFS and PSDS — DOT—MEPD — August 2024 (Medium)
    - Establish data verification procedures to ensure year-on-year consistency of GFS reporting — DOT—MEPD — November 2023 (Medium)

### Progress made with respect to previous mission recommendations (status as at August 2023)
- Summary of selected statuses (status codes preserved as reported):
  - Respond to the World Bank QPSD invitation and complete QPSD — Responsible: DOT–FMD — Status as at August 2023: 1-Not achieved
  - Collect the outstanding AFS for SOEs and update balance sheet data — Responsible: DOT–SPD, DOT–FMD — Status as at August 2023: 3-Largely achieved
  - Collect financial information for provincial governments, local governments and statutory authorities and resume institutional unit classification and completion of the PSIT — Responsible: DOT, NEFC — Status as at August 2023: 2-Partly achieved
  - Reconcile debt tables published in the national budget with Statement G—Borrowing annex to the government annual financial statements — Responsible: DOT–FMD — Status as at August 2023: 1-Not achieved
  - Reintroduce the table on other economic flows and publish it as part of the statistical tables to the national budget — Responsible: DOT–FMD — Status as at August 2023: 1-Not achieved
  - Verify the data completed during the mission (the working file summarized in table 6 of the report) — Responsible: DOT–FMD — Status as at August 2023: 1-Not achieved
  - Review the formulas for calculating the aggregate ‘net transactions in financial assets and liabilities’ and report correct figures — Responsible: DOT–MEPD — Status as at August 2023: 4-Fully achieved
  - Continue with the compilation and dissemination of BCG quarterly GFS — Responsible: DOT–MEPD — Status as at August 2023: 1-Not achieved
  - Collect outstanding financial statements from SOEs — Responsible: DOT–FMD, DOT–SPD, DOT–MEPD — Status as at August 2023: 3-Largely achieved
  - Many other prior recommendations remain partly achieved or not achieved; compilation and documentation tasks are frequently outstanding.

*IMF | Technical Report – Papua New Guinea GFS and PSDS — excerpts from tarea2024019*

### 1. Priority Recommendations  ___________________________________________________________ 6

### 1. Priority Recommendations

### Summary of Mission Outcomes and Priority Recommendations
- Background:
  - Mission: in-person technical assistance mission in Port Moresby during August 2–15, 2023 to assist the Department of Treasury (DOT) in improving compilation and dissemination of government finance statistics (GFS) and public sector debt statistics (PSDS) and to assess progress against previous recommendations under the IMF Results Based Management framework.
  - Conducted under the GFS and PSDS workstream of the Data for Decisions (D4D) Fund and the Pacific Financial Technical Assistance Center (PFTAC).
- Context:
  - Initial success in implementing international standards since 2012; PNG became a regional leader in production and dissemination.
  - Recent setbacks: Covid-19 pandemic effects, high staff turnover, and a 2021 malware attack.
  - Limited progress in recent years as priorities shifted from development to sustaining compilation and rebuilding staff expertise.
- Importance:
  - Implementation of recommendations is essential to enhance fiscal transparency and support IMF Extended Credit Facility arrangements and debt sustainability work.
  - Robust balance sheet estimates are particularly relevant.

### Summary of Findings
- General:
  - GFS for the budgetary sector generally produced to an adequate standard but requires resolution of longstanding methodological issues.
- Specific deficiencies:
  - Fragmentary balance sheet information.
  - Inconsistent treatment of transfers.
  - Imprecise allocation of expenditure to functional categories.
  - Material imperfections in FY 2021 dataset (some corrected before mission, others requiring broader analysis).
  - Need to enhance quality assurance procedures and assign formal responsibilities for quality checks.
- Institutional coverage:
  - No exhaustive list of public entities and their statistical classification across hundreds of statutory and commercial authorities at national and subnational levels.
  - Recommendation to create a single public sector institutional list and establish a formal committee to maintain it.
- Provincial government:
  - DOT already collects financial information from 21 provincial governments and the Autonomous Region of Bougainville Government sufficient to compile GFS flow statements; recommended to commence compilation methods immediately.
- Dissemination:
  - DOT disseminates debt statistics through World Bank’s QEDS database; should use QPSD and IMF’s GFS annual databases as complementary dissemination channels.
- SOE debt:
  - Previous missions developed methods; mission updated estimates and handed over production files to DOT staff.
  - Compilation of SOE debt statistics ready to be embedded into regular production; authorities should initiate domestic compilation and may use further TA for upskilling.

### Summary of Priority Recommendations (Table 1)
- Priority recommendations, responsible institutions, and target completion dates:
  - Disseminate the debt data through the QPSD and GFS databases — DOT—FMD — November 2023
  - Maintain the compilation and dissemination of the SOE debt data — DOT—FMD — January 2024
  - Establish a formal institutional sector classification committee — DOT—MEPD — June 2024

### Detailed Recommendations (Selected from Table 2)
- Institutional and legal environment:
  - High Priority: Establish a formal institutional sector classification committee — DOT—MEPD — June 2024
  - High: Identify public sector entities that are likely to be institutional units (not advisory groups with no economic substance) — DOT—MEPD — November 2024
  - Medium: Create an exhaustive list of all public sector entities at national and subnational levels — DOT—MEPD — September 2024
- Data compilation and dissemination:
  - High Priority: Disseminate the debt data through the QPSD and GFS databases — DOT—FMD — November 2023
  - High Priority: Maintain the compilation and dissemination of the SOE debt data — DOT—FMD — January 2024
  - High: Develop a draft mapping of the provincial chart of accounts to the GFSM 2014 taxonomy — DOT—MEPD — January 2024
  - Medium: Reinstate dissemination through the International Financial Statistics (IFS) database — DOT—MEPD — November 2023
  - Low: Validate the preliminary market test of the SOEs accomplished by the mission — DOT—SPD — December 2023
- Methodology and classification:
  - Medium: Break down expenditure on grants according to underlying functional purpose in COFOG presentation — DOT—MEPD — November 2023
  - Medium: Estimate transactions in cash using actual data rather than as a residual — DOT—MEPD — November 2023
  - Medium: Populate the GFS balance sheet with all information available to the DOT, including on government equity holdings — DOT—MEPD — November 2023
  - Medium: Remap expenditure to COFOGs at sufficient granularity to avoid ‘not elsewhere classified’ — DOT—MEPD — November 2023
  - Medium: Review transactions recorded as subsidies, grants and other transfers to ensure mapping aligned with GFSM 2014 terminology — DOT—MEPD — November 2024
  - Low: Separate out payments under social insurance schemes, including employment-related old age benefits, from social assistance — DOT—MEPD — November 2023
- Statistical systems and quality assurance:
  - Medium: Compile a comprehensive list of data sources for each of the GFS and PSDS statements — DOT—MEPD — August 2024
  - Medium: Compile a full set of business process documentation for GFS and PSDS — DOT—MEPD — August 2024
  - Medium: Establish data verification procedures to ensure year-on-year consistency of GFS reporting — DOT—MEPD — November 2023

### Detailed Technical Assessment — Methodological Issues (Background and Findings)
- Background:
  - BCG fiscal statistics produced to an adequate standard, but balance sheet information remains fragmentary and several methodological issues (e.g., recording of arrears) unresolved.
  - FY 2021 dataset contained irregularities requiring closer methodological review.
- Key methodological findings:
  - Transactions in cash:
    - Transactions in cash should be based on actual data and the statistical discrepancy should be calculated.
    - Current practice: statistical discrepancy reported as zero by using transactions in cash assets as a residual and disregarding available data — masking potential issues and inconsistent with missing balance sheet segments.
    - Recommendation: use actual data for transactions in cash and transparently report any statistical discrepancy.
  - On-lending of SDRs:
    - August 2021: BPNG credited with 252 million of SDRs, worth about 1.2 billion kina (PGK), then on-lent an equivalent amount in PGK to the National Government.
    - Recording: on-lending between the central bank sector and the BCG sector in national currency should be recorded as a transaction in loans (acquisition of a loan asset for public financial corporation sector; incurrence of a loan liability for BCG).
    - For PSDS purposes: BCG balance sheet should reflect a liability in the form of loans rather than SDRs.
  - Rollover of budget funds:
    - BCG accounts compiled on a cash basis; rollover of funds into following year’s budget should not give rise to transactions in other accounts receivable/payable.
    - Under cash accounting, unspent cash in year t-1 should lead to lower expenditure and higher cash asset balance at year end and opening balance in year t; when spent in year t, record above-the-line expenditure and below-the-line disposal of cash asset.
  - Employer’s social contributions vs social benefits:
    - Employer’s social contributions create employees’ entitlement to future benefit; social benefits provide income in the present.
    - Authorities should delineate these in FMIS with sufficient granularity to map separately.
  - Social assistance vs social insurance:
    - Social assistance: non-contributory, tax-funded schemes for the general population.
    - Payments related to employer-employee relationship (e.g., retirement benefits to ex-members of armed forces and public servants) fall under social insurance, specifically ‘employment-related social benefits in cash’.
    - This transaction category is presently missing from the National Budget (Volume I) fiscal tables and should be added.
  - Grants and sector coverage:
    - Sector coverage must determine whether an expense is recorded as a grant or itemized by ultimate economic purpose.
    - Fiscal tables appear neither fully consolidated nor fully unconsolidated.
    - Principle: for BCG subsector, amounts advanced to provincial governments, districts, statutory authorities and public schools should be recorded as current or capital grants (not itemized by ultimate purpose in BCG accounts).
    - At General Government (GG) level, grants to other GG units should consolidate to zero and expenses should be itemized.

*IMF | Technical Report – Papua New Guinea GFS and PSDS — 1. Priority Recommendations*

### 19. The institutional identity of the grant recipients should be established. Owing to the lack of

### 19. The institutional identity of the grant recipients should be established.

### Institutional identity of grant recipients
- Some payments to the provincial tier of government are recorded as grants in the fiscal tables of the National Budget (Volume I), whereas others are consolidated out.
- Authorities indicated that the nonconsolidated payments may be made to the regional equivalents of the extrabudgetary units (EBUs) — provincial-level entities that are separate from the provincial governments.
- If such units are EBUs separate from provincial governments, recording the associated grants as grants (i.e., outside the present boundary of the fiscal tables) would be conceptually appropriate.
- Metadata is insufficient to verify the institutional identity of the grant recipients; responsibility for establishing it rests with the DOT.
- If grants are found to be paid to the provincial governments themselves, they should be treated consistently with other payments from the national to the provincial government and consolidated in the GG-level reporting.

### Arrears: classification of flows by economic activity
- PNG has had a significant stock of arrears for a prolonged period; difficulties remain in measuring total arrears-related liabilities despite progress with the Arrears Verification Committee.
- Under cash accounting, payments in arrears are recorded as above-the-line transactions at the time they take place.
- Historically, property rental arrears were among the largest components of the total stock; arrears on other forms of operating and project expenditure are also material.
- Non-rental arrears are not disaggregated by underlying economic activity in the FMIS and are currently mapped to a single natural account.
- As a result, non-rental arrears are included within uses of goods and services irrespective of the nature of the underlying economic activity.
- Misclassification risk: some arrears likely related to acquisitions of nonfinancial assets being misclassified as uses of goods and services, complicating reconciliation of flows and stocks of nonfinancial assets.
- Recommendation: revise the practice of mapping all payments in arrears to a single natural account in the FMIS; DOT often has more detailed information and should allocate arrears to appropriate economic transaction categories.

### COFOG mapping of operating expenses and project expenditure
- Authorities assign COFOGs to project expenditure at a high level of granularity.
- Baseline operating expenses are approximately mapped to COFOG, causing large amounts to be reported within single COFOG categories and allocated to ‘not elsewhere classified’ or equivalent summary categories.
- Examples:
  - About half of the expenditure on health is reported as ‘health not elsewhere classified’.
  - A significant proportion of education expenditure is mapped to ‘subsidiary services to education’, suggesting misclassification and lack of granularity; authorities indicated amounts mostly relate to transfers to schools, preventing splits between primary and secondary education.
- The information required to produce an accurate functional split is often available to the DOT but is sometimes lost during processing and data aggregation.
- Recommendation: restructure business processes to maintain the correct functional mapping of all expenditure transactions and remap expenditure to COFOGs at a sufficiently granular level to avoid summary-category reporting.

### Expenditure on grants: functional breakdown in COFOG presentation
- Grants to other GG units are often reported under ‘transfers of general character between levels of government’ within ‘general public services’ in COFOG tables disseminated to the IMF.
- The category ‘transfers of general character between levels of government’ should be reserved for general budget support.
- Grants with an identifiable functional objective should be reported under the corresponding functional category (for example, ‘community development’ or ‘transport’).
- Authorities compile a supplementary table detailing the functional purpose of grants to provincial and local government for the budget document, but this information had not been retrofitted into the statistical tables disseminated by the DOT.
- Recommendation: update DOT tables to use available information about the functional purpose of grants.

### Recommendations — Methodological issues (extracts from Table 3)
- Medium: Break down the expenditure on grants in accordance with the underlying functional purpose in the COFOG presentation — DOT—MEPD — November 2023
- Medium: Estimate transactions in cash using the actual data, instead of treating them as a residual item — DOT—MEPD — November 2023
- Medium: Populate the GFS balance sheet with all information available to the DOT, including on government equity holdings — DOT—MEPD — November 2023
- Medium: Remap expenditure to COFOGs at a sufficiently granular level to avoid the data being reported under ‘not elsewhere classified’ or other summary categories — DOT—MEPD — November 2023
- Medium: Review the transactions recorded as subsidies, grants and other transfers to ensure their mapping is aligned with the GFSM 2014 terminology — DOT—MEPD — November 2024
- Low: Separate out payments under the social insurance schemes, including employment-related old age benefits, from social assistance — DOT—MEPD — November 2023

### Institutional coverage: boundaries and institutional lists
- PNG’s institutional complexity (21 provincial-level governments, the Autonomous Region of Bougainville, several hundred statutory and commercial authorities) means there is no exhaustive list of public sector bodies and their statistical classification.
- An exhaustive list of public sector units (public sector institutional table, PSIT) is a pre-requisite for expanding GFS sector coverage.
- Previous missions recommended the PSIT be coordinated by the Sectoral Policy Division (SPD) within the DOT; frequent staff changes and remoteness from the GFS compilation process hindered implementation.
- This mission recommends that the team leading GFS compilation (presently the Fiscal and Monetary Policy Branch within the Macroeconomic Policy Division (MEDP) of the DOT) maintain the PSIT, noting that establishment of a designated GFS team remains under consideration.

### Classification committee and transaction/COFOG support
- A formal classification committee should assist GFS compilers in producing and maintaining the PSIT; classifications should follow GFSM 2014 principles and be invariant to legal form.
- Because GFS compilers may lack detailed knowledge of all entities’ activities, the committee should include representatives of relevant authorities to assist in sector classification.
- The same or a separate committee should assist in applying correct transaction classifications and COFOG breakdowns; depending on membership, the institutional classification committee could have its remit extended or a separate advisory group could be formed.
- The mission shared a model terms of reference (TOR) for such a committee (Annex 2 of the report) to accelerate establishment.

### Practical approaches to classification and provincial coverage
- Group classifications are a permissible, practical way to define the public sector and subsector boundaries given the large number of entities (about one thousand legal entities) and many advisory bodies lacking economic substance.
- Many advisory bodies do not meet institutional unit criteria and should be considered part of parent units.
- To manage workload, examine a small sample of each type of entity operating at provincial level and collect financial information from a small number of entities of each type.
- DOT, in consultation with the National Economic and Fiscal Commission (NEFC), should refine the list of public entities operating at provincial level to be exhaustive and include all entities under provincial control, irrespective of incorporation form.

### State government GFS and provincial chart mapping
- Despite delimitation challenges, DOT should compile the annual GFS for the state tier of government using information already in its possession (budget information collected from the 21 provincial and the Autonomous Region Bougainville governments).
- These data contain actuals and budget estimates sufficiently granular to compile basic GFS statements for the narrow, budgetary part of the state government sector, albeit without balance sheet information.
- Ongoing FMIS deployment at the provincial level enhances DOT’s ability to access data in real time and automate conversion to GFSM 2014-compliant format.
- Recommendation: commence compilation of the state government GFS at the earliest opportunity without waiting for full FMIS transition.
- Develop a mapping of the provincial chart of accounts to the GFS taxonomy so compilation can commence; provincial governments use a harmonized chart of accounts.
- Recommendation: utilize the mapping of the national chart of accounts to create a draft mapping for the state sector; request bilateral assistance from PFTAC if required.

### Recommendations — Institutional coverage (extracts from Table 4)
- High Priority recommendation: Establish a formal institutional sector classification committee — DOT—MEPD — June 2024
- High: Identify the public sector entities that are likely to be institutional units, i.e., are not advisory groups with no economic substance — DOT—MEPD — September 2024
- Medium: Create an exhaustive list of all public sector entities operating at both the national and sub-national levels — DOT—MEPD — September 2024
- High: Develop a draft mapping of the provincial chart of accounts to the GFSM 2014 taxonomy — DOT—MEPD — January 2024

### Balance sheet reporting and SOE debt compilation
- Pure cash accounting remains prevalent in PNG public sector except for national-level SOEs; this limits comprehensiveness of balance sheet information (e.g., imputed loans from finance leases not recognized).
- A wealth of balance sheet data is available to DOT but not fully utilized in PSDS and GFSM 2014-based balance sheet compilation; not all dissemination tools are employed.
- Compilation of the debt of state-owned enterprises (SOEs) should be embedded into the regular production process.
- The previous missions assisted in obtaining and mapping SOE financial data; this mission updated estimates and handed over revised production files to the authorities.
- No further development is required for national-level SOE debt compilation; the process should be embedded into regular production.
- The Financial Management Division (FMD) within the DOT, responsible for broader public sector debt statistics, can start annual SOE debt statistics compilation in the short term due to low labor intensity.
- Continuous provision of TA may remain useful for staff upskilling and output quality improvement.

*IMF | Technical Report – Papua New Guinea GFS and PSDS (excerpts from the provided content)*

### 36. The SOE data availability has increased but does not extend to all entities likely to be

### 36. The SOE data availability has increased but does not extend to all entities likely to be 

### SOE data availability and coverage
- Kumul Consolidated Holdings (KCH) has considerably improved dissemination of annual financial statements (AFS), including the AFS of Air Niugini Limited.
- Source data remain incomplete for the public corporation (PC) sector; Kumul Petroleum Holdings Limited and Kumul Minerals Holdings Limited, while not SOEs in a legal sense, would likely meet criteria for inclusion in the PC sector under GFSM 2014.
- Subsidiaries of SOEs and some commercial authorities are likely to fall under the statistical definition of PCs.
- Recommendation: The DOT, in consultation with relevant ministries, should endeavor to collect the AFS of these entities to assess classification status for potential inclusion in PC sector debt statistics.

### Compilation and dissemination of SOE debt statistics
- Authorities should compile debt statistics for SOEs with available data while working with agencies to obtain information from remaining entities.
- Available SOE information indicates a significant stock of gross debt; fiscal transparency requires early dissemination of these data.
- Recommendation: Do not defer compilation and dissemination until full coverage is achieved; transparently report dataset limitations in metadata and supplementary notes while continuing efforts to secure remaining data.

### Preliminary estimates of SOE gross debt (FY 2018–FY 2021)
- The mission compiled a time series of SOE gross debt stock covering FY 2018 to FY 2021 using available AFS.
- Estimates likely understate the complete public nonfinancial corporation subsector debt due to excluded entities and gaps in coverage.
- Exclusions from estimates: PNG Power Limited (AFS unavailable to the mission) and Kumul Agriculture Limited (fails the market test over a multiyear period and should be considered as an EBU).
- Measured change: Gross debt stock of the remaining market SOEs increased by PGK 205.4 million between 2020 and 2021.
- Level: Gross debt reached 4.7 percent of GDP by end-2021—an increase of 0.2 percentage points between 2020 and 2021.
- Four-year average: Average gross debt stock of the market SOEs stood at 4.5 percent of GDP across FY 2018–FY 2021.
- The magnitude reinforces the recommendation to formalize regular compilation.

### Scope of the GFS balance sheet and data inclusion
- Recommendation: Extend the GFS balance sheet to include all financial instruments for which information is available.
- Current practice: PNG authorities compile a narrow measure of debt for the BCG sector (liabilities in domestic and external loans and debt securities) using cash-based accounting at the BCG level.
- Limitation: Cash-based approach excludes accounts payable and other instruments recognized under accrual or modified cash basis (e.g., finance lease liabilities).
- Asset information is sparse and not generally available from a single source.
- DOT holds more data on assets and liabilities than currently reported—examples include national government equity holdings and on-lending to SOEs.
- Recommendation: Include readily available data (e.g., equity holdings, on-lending) in the GFS balance sheet on an annual basis.

### Dissemination channels and databases
- Current dissemination: FMD unit within DOT disseminates debt statistics via the World Bank’s QEDS database (focused on external debt).
- Recommendation: Treat QEDS as one part of a wider statistical collection and also disseminate debt and broader balance sheet data through the World Bank QPSD and populate the balance sheet section of the GFS annual questionnaire template.
- High-priority dissemination actions and target completion dates:
  - Disseminate the debt data through the QPSD and GFS databases — DOT—FMD — November 2023.
  - Maintain the compilation and dissemination of the SOE debt data — DOT—FMD — January 2024.
- Additional actions and target dates:
  - Reinstatement of dissemination through the International Financial Statistics (IFS) database — DOT—MEPD — November 2023 (Medium priority).
  - Validate the preliminary market test of the SOEs accomplished by the mission — DOT—SPD — December 2023 (Low priority).

### Business process resilience, quality assurance, and capacity building
- Resilience: DOT sustained domestic compilation and the annual GFS submission despite disruptions (e.g., 2021 ransomware attack); quarterly IFS submissions were interrupted.
- Shortcomings: Slow progress on formal business continuity procedures and desk instructions; undue reliance on a small group of key individuals.
- Quality issues: Recent IMF GFS annual database submissions contained misclassifications and erroneous entries; similar anomalies appeared in National Budget Volume I tables.
- Internal validation: Many anomalies could have been detected via line-by-line year-on-year comparisons; detailed economic classification sometimes overlooked in favor of aggregate consistency.
- Recommendation: Strengthen internal data verification procedures and assign formal responsibility for quality assurance to a staff member.

### Capacity building and documentation
- Staff issues: High staff turnover has reduced conceptual expertise at junior levels, increasing demand for capacity rebuilding.
- Training delivered: The mission provided 2.5 days of formal training on introductory and advanced topics (including institutional sector classifications).
- Recommendations and target dates:
  - Compile a comprehensive list of data sources for each of the GFS and PSDS statements — DOT—MEPD — August 2024 (Medium priority).
  - Compile a full set of business process documentation for GFS and PSDS — DOT—MEPD — August 2024 (Medium priority).
  - Establish data verification procedures to ensure year-on-year consistency of GFS reporting — DOT—MEPD — November 2023 (Medium priority).

*IMF | Technical Report – Papua New Guinea GFS and PSDS*

### 7. In view of promoting improvements to the GFS and PSDS in the aforementioned areas, the

### tarea2024019 - 7. In view of promoting improvements to the GFS and PSDS in the aforementioned areas, the

### Main objectives of the Committee
- Promote the expansion of the GFS and PSDS coverage to public sector;  
- Facilitate the comprehensive coverage of the GFS and PSDS through the inclusion of all stocks and flows recognized under the statistical framework;  
- Promote the higher frequency and better timeliness of the GFS and PSDS through the identification and suitability assessment of new and emerging data sources; 
- Foster data sharing among institutions involved in the compilation of the GFS and PSDS;  
- Facilitate institutional coordination in the production of GFS and PSDS through the exchange of information about methodology and business processes;  
- Maintain and update the public sector institutions table and promote its use across all macroeconomic statistics compiled in accordance with   the GFSM 2014, 2008 SNA, BPM6 and the MFSMCG 2016. 

### Participating agencies
- 1.    [Agency 1] 
- 2.    [Agency 2] 
- 3.    [Agency 3]

### Annex 3 — Progress made with Respect to Previous Mission Recommendations
#### A. Status of recommendations made—January 2022 mission
- 1 Respond to the World Bank QPSD invitation letter and complete QPSD for CG (2020-Q4& Q-to date) and submit to the World Bank (Immediate).  
  - Responsible authority: DOT–FMD  
  - Comments: The authorities continue to disseminate the external debt statistics through the QEDS database but are yet to start using the QPSD database for dissemination.  
  - Status as at August 2023: 1-Not achieved
- 2 Collect the outstanding AFS for SOEs and update the balance sheet data started during the mission (February 2022).  
  - Responsible authority: DOT–SPD, DOT–FMD  
  - Comments: The annual financial statements (AFS) of the national SOEs are now being published on the website of Kumul Consolidated Holdings, with the exception of Kumul Agriculture Limited whose report for the latest years remains unavailable.  
  - Status as at August 2023: 3-Largely achieved
- 3 Collect financial information for provincial governments (PGs), local governments (LGs) and statutory authorities and resume institutional unit classification and completion of the public sector institutional table (June 2022).  
  - Responsible authority: DOT, NEFC  
  - Comments: Limited progress has been made: the flow information of the provincial governments continues to be collected, and the deployment of the FMIS to provinces has facilitate the data collection. However, little information remains available on the equivalents of the extrabudgetary units operating at a provincial level, as well as on all units operating at a local level.  
  - Status as at August 2023: 2-Partly achieved
- 4 DOT—SPD with support of DOT—MEPD, BPNG, and the NSO should collect the financial information for statutory authorities, PGs and LG’s, perform the market test and progress with the classification of public sector units to advance the completion of the PSIT.  
  - Responsible authority: DOT–SPD, DOT–MEPD, NEFC, NSO, BPNG  
  - Comments: With the exception of the national-level SOEs, the market test for which had been conducted with the assistance of the previous missions, no progress on the institutional sector classification has been made. Furthermore, the very list of entities under potential public sector control remains incomplete, with only fragmentary information about non-statutory regional units.  
  - Status as at August 2023: 1-Not achieved
- 5 The DOT—FMD should reconcile the debt tables published in the national budget with the Statement G—Borrowing annex to the government annual financial statements.  
  - Responsible authority: DOT–FMD  
  - Comments: The inconsistences are yet to be resolved. Different data vintages are a likely cause for at least some of the discrepancies.  
  - Status as at August 2023: 1-Not achieved
- 6 The DOT—MEPD should reconcile the expenditure arrears numbers presented in the 2022 national budget.  
  - Responsible authority: DOT–MPD  
  - Comments: The work on estimating the value of arrears remains an internal priority for the DoT and is ongoing. Despite the best efforts, the complexity of this longstanding issue means that the authorities do not yet poses a single, robust estimate of arrears across the government sector.  
  - Status as at August 2023: 2-Partly achieved
- 7 The DOT—FMD should reintroduce the table on other economic flows and publish it as part of the statistical tables to the national budget.  
  - Responsible authority: DOT–FMD  
  - Comments: With the relatively week balance sheet accounting, the information on non-transactional flows is only partially available and is not comprehensively disseminated.  
  - Status as at August 2023: 1-Not achieved
- 8 The DOT—FMD to follow up with the Secretary for the Treasury to acknowledge receipt of the World Bank request to participate in QPSD and start submitting the data to the World Bank.  
  - Responsible authority: DOT–FMD  
  - Comments: The authorities continue to disseminate the external debt statistics through the QEDS database but are yet to start using the QPSD database for dissemination.  
  - Status as at August 2023: 1-Not achieved
- 9 The DOT—MEPD to formally request via the Secretary for the DOT to the Secretary for the DOF, accounts payable balances for all national and subnational governments as well as statutory authorities at year end. The information should be provided as a standard annual best practice under the auspices of the public financial management act (PFMA).  
  - Responsible authority: DOT-MEPD  
  - Comments: Strengthening data sharing arrangements remains an area for development. Separately, the continued application of the cash accounting leads to the ad hoc nature of any data relating to the accrued concepts, even when partial information is occasionally complied.   
  - Status as at August 2023: 1-Not achieved
- 10 The DOT, to maintain and implement the actions included in the PSDS action plan.  
  - Responsible authority: DOT-FMD, DOT-MPD  
  - Comments: The DOT continues to maintain the preexisting debt compilation and dissemination arrangements, however little to no progress has been made on implementing the recommendations of the recent missions.  
  - Status as at August 2023: 1-Not achieved
- 11 The DOT—SPD, MPD, FMD, should collect the outstanding AFS completed from the KCH and complete the times series of the balance sheet in the SOE working file compiled during the mission. Refer to Appendix II for outstanding AFS.  
  - Responsible authority: DOT–SPD, DOT–MPD, DOT–FMD  
  - Comments: The exercise has been completed by the August 2023 mission with the exception of one SOE whose accounts were unavailable at the time of the mission. However, the compilation of these data had not been embedded into the regular business process at the time of the mission.  
  - Status as at August 2023: 2-Partly achieved
- 12 Verify the data completed during the mission (the working file-summarized in table 6 of the report).  
  - Responsible authority: DOT-FMD  
  - Comments: The quality assurance of the SOE data compiled by the previous missions had not been undertaken.  
  - Status as at August 2023: 1-Not achieved
- 13 DOT—SPD, MEPD, FMD verify entities included the market test sectorization file and complete the rest of the units not completed during the mission.  
  - Responsible authority: DOT–SPD, DOT–MEPD, DOT–FMD  
  - Comments: The market test of the national-level SOEs had been conducted with the assistance of the previous missions and reaffirmed by the August 2023 mission. No other sectorization work had taken place.  
  - Status as at August 2023: 1-Not achieved
- 14 DOT—SPD, MEPD, FMD should collect subsidiaries AFS associated with SOEs and determine the relationship for including the data in the public sector (as relevant).  
  - Responsible authority: DOT–SPD, DOT–MEPD, DOT–FMD  
  - Comments: No sectorization work had taken place other than relating to the SOEs themselves.  
  - Status as at August 2023: 1-Not achieved
- 15 DOT—FMD to reconcile SOE loan liabilities, as on-lend arrangements, with government loans receivable.  
  - Responsible authority: DOT–FMD  
  - Comments: No progress has been made. The task may require in-depth methodological analysis due to application of cash accounting at the BCG level and the accrual, International Financial Reporting Standards (IFRS)-based accounting by the SOEs.  
  - Status as at August 2023: 1-Not achieved
- 16 DOT—FMD, to compare the data of individual SOEs with the balance sheet of the General Business Trust.  
  - Responsible authority: DOT–FMD  
  - Comments: The action remains incomplete. However, with the improved overall availability of the SOE data, its priority has decreased.  
  - Status as at August 2023: 1-Not achieved

#### B. Status of Recommendations made by the June 2021 Mission
- 1 Collect outstanding financial statements from SOEs to expand coverage for IU  
  - Responsible authority: DOT–FMD, DOT–SPD, DOT–MEPD  
  - Comments: Good progress has been made by the authorities in the publication of the SOE financial statement. The accounts of Kumul Agriculture Limited for the latest years remains unavailable, which may potentially be related to a restructure of the unit.  
  - Status as at August 2023: 3-Largely achieved
- 2 Review the Quarterly BCG GFS compilation and resolve statistical discrepancies (September 2021).  
  - Responsible authority: DOT–MEPD  
  - Comments: The discrepancies are eliminated through mechanical adjustments to the changes in cash data. At the same time, the balance sheet, and thus the associated transactions in financial assets and liabilities, remains incomplete, which prevents even the estimation of the statistical discrepancy in an internally consistent way.  
  - Status as at August 2023: 2-Partly achieved
- 3 Incorporate recommendations and improvements to Budget Volumes I and II (January 2022).  
  - Responsible authority: DOT–BCAD  
  - Comments: The action remains mostly outstanding but superseded by the recommendations of the 2023 mission.  
  - Status as at August 2023: 2-Partly achieved
- 4 Continue with the classification of IUs with inputs of all agencies in the IU committee (January 2022).  
  - Responsible authority: DOT–SPD  
  - Comments: With the exception of the national-level SOEs, the market test for which had been conducted with the assistance of the previous missions, no progress on the institutional sector classification has been made. Furthermore, the very list of entities under potential public sector control remains incomplete, with only fragmentary information about non-statutory regional units.  
  - Status as at August 2023: 1-Not achieved
- 5 Invite representatives from DOT-Macroeconomic Policy Division (MEPD) and Sectoral Policy Division (SPD), NSO, DOF, NEFC, KCH and BPNG to the IU sectorization committee.  
  - Responsible authority: DOT–MEPD  
  - Comments: The committee has not been created and the sectorization work has not progressed.  
  - Status as at August 2023: 1-Not achieved
- 6 Collect outstanding financial statements from SOEs.  
  - Responsible authority: DOT–SPD  
  - Comments: Good progress has been made by the authorities in the publication of the SOE financial statement. The accounts of Kumul Agriculture Limited for the latest years remains unavailable, which may potentially be related to a restructure of the unit.  
  - Status as at August 2023: 3-Largely achieved
- 7 Collect comprehensive data from statutory bodies and continue IU classification process.  
  - Responsible authority: DOT–SPD, NEFC  
  - Comments: Limited progress has been made: little information remains available on the equivalents of the extrabudgetary units operating at a provincial level, as well as on all units operating at a local level.  
  - Status as at August 2023: 1-Not achieved
- 8 Prepare a formal request to the IMF STA Department for further assistance in completing IU classification (on the condition that all the financial information is collected, and the IU committee has continued to classify the outstanding units).  
  - Responsible authority: DOT–SPD, DOT–MEPD  
  - Comments: The list of units under potential public sector remains incomplete, and the financial information is only available for a small subset of such units.    
  - Status as at August 2023: 1-Not achieved
- 9 Review the formulas for calculating the aggregate ‘net transactions in financial assets and liabilities’ and report the correct figures in the next submission through ICS.  
  - Responsible authority: DOT–MEPD  
  - Comments: Specific formula errors have been corrected; however the general quality assurance arrangements should be strengthened as recommended by the August 2023 mission.  
  - Status as at August 2023: 4-Fully achieved
- 10 The DOT to continue with the compilation and dissemination of BCG quarterly GFS.  
  - Responsible authority: DOT–MEPD  
  - Comments: Following an interruption caused by the ransomware attack in 2021, the DoT has resumed the compilation of the quarterly GFS statements.  
  - Status as at August 2023: 1-Not achieved
- 11 The DOT and the BPNG should discuss and reconcile the balances between the public accounts and the cash balances kept by the central bank for the government.  
  - Responsible authority: DOT–MEPD, DOT, BPNG  
  - Comments: The exercise has been completed by the August 2023 mission with the exception of one SOE whose accounts were unavailable at the time of the mission. However, the compilation of these data had not been embedded into the regular business process at the time of the mission.  
  - Status as at August 2023: 2-Partly achieved
- 12 Greater use of the donor aid template shared with DOT in the January 2020 mission.  
  - Responsible authority: DOT  
  - Comments: No additional information is being collected on the donor aid, which results in its imperfect treatment in the GFS. Notably, a split between in-cash and in-kind is not always available; the ratio between current and capital is also being estimated.  
  - Status as at August 2023: 1-Not achieved
- 13 Review the mapping of the COFOG codes to have at least four-digit detail for each account.  
  - Responsible authority: DOT  
  - Comments: Expenditure on specific projects is mapped to the COFOG at a reasonably detailed level. However, this partial accuracy is counterbalanced by the assignment of the baseline operating expenses to COFOGs at a relatively high level of aggregation. This leads to the reporting of a large proportion of expenditure as ‘not otherwise classified’ in the detailed COFOG tables.  
  - Status as at August 2023: 2-Partly achieved
- 14 Maintain an updated COFOG mapping table.  
  - Responsible authority: DOT  
  - Comments: The COFOG mapping is actively maintained for the new projects. A review of the operating expenditure mapping is yet to be undertaken.  
  - Status as at August 2023: 2-Partly achieved
- 15 DOT (MEPD, BCAD and BOD) officials should work on implementing the proposed changes to budget book volume I and II.  
  - Responsible authority: DOT–MEPD, DOT-BOD, DOT–BCAD  
  - Comments: The action remains mostly outstanding but superseded by the recommendations of the 2023 mission.  
  - Status as at August 2023: 1-Not achieved
- 16 The DOT should invest in the development of the business process documentation, by compiling proper compilation and dissemination guidelines for GFS and PSDS.  
  - Responsible authority: DOT–MEPD, DOT–FMD  
  - Comments: The production of the business documentation remains outstanding. The August 2023 mission reiterated the importance of creating and maintaining comprehensive desk instructions.  
  - Status as at August 2023: 1-Not achieved
- 17 Make the business process document available for internal users.  
  - Responsible authority: DOT  
  - Comments: The production of the business documentation remains outstanding.  
  - Status as at August 2023: 1-Not achieved

*IMF | Technical Report – Papua New Guinea GFS and PSDS*

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_Source: https://www.imf.org/-/media/files/publications/tar/2024/english/tarea2024019.pdf_