cpa - 2015 kokopo conference kokopo 2015 - png economy.pdf · slide 1 png economic update cpa -...
TRANSCRIPT
Slide 1
PNG ECONOMIC UPDATECPA - 2015 Kokopo Conference
Paul Barker Institute of National Affairs
Slide 2
-2
0
2
4
6
8
10
12
14
2002 2004 2006 2008 2010 2012 2014 2016p
per
cen
t
Year
GDP Growth Rate 2002-2017 ('actual' and projected - Treasury)
% Growth
% Growth -Non Mining
Slide 3
-60
-40
-20
0
20
40
60
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015p 2016p 2017p
Per
cen
tage
gro
wth
-o
r d
eclin
e-
(per
an
nu
m)
Growth Rates (GDP) by Sector 2003-2017 - (Treasury)
Total GDP
Agric/forest/fish
oil/gas
Mining/Quarrying
Construction
Manufacturing
Commmunity/social etc
Wholesale/retail
Total Non-Mining
Slide 4
-
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
45.0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015p
percentage
Percentage of GDP by Economic Activity- projections 2014-15 (source: NSO and Treasury forecast) Agric/forest/fish
Oil and Gas extraction
Mining/quarrying
Construction
Manufacturing
Community/Social
Wholesale/Retail
Slide 5
-20.0%
-10.0%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
2002 2004 2006 2008 2010 2012 2014 Q3
per
cen
tage
ch
ange
Year
Employment Trends to 3rd Qtr 2014 (BPNG)
Mineral
Total
Slide 6
0
50
100
150
200
250
300
350
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014 Q2
Q3
Ma
rch
20
02
= 1
00
Year
Formal Sector Employment Growth 2001-2014 (qtr3)(BPNG Employment Survey) Agric/for/fish
Retail
Wholesale
Manufacture
Building/construction
Transport
Financial/business
Mineral
Slide 7
-
1,000.0
2,000.0
3,000.0
4,000.0
5,000.0
6,000.0
7,000.0
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
mill
ion
kin
a
year
Exports -Value FOB (million kina) 1999-2014(BPNG)2014 crude extrapolation
Total Agriculture (excl. forestry/fisheries)
Total forest products
Marine Products
Crude Oil
Gold
Copper
Nickel
Cobalt
Slide 8
-
100.0
200.0
300.0
400.0
500.0
600.0
700.0
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014.0
'000
to
nn
es (o
r o
ther
mea
sure
)
year
Commodity Exports - Quantity 1999-2014‘000 tonnes or specified (BPNG, with corrections, and crude extrapolation 2014)
Coffee
Cocoa
Copra
Coconut Oil
Palm Oil
Rubber
Tea
Logs ('0,000 m3)
Marine Prods
Crude Oil ('000 Barrels)
Copper
Gold (tonnes)
Nickel
Cobalt
Slide 9
-
100.0
200.0
300.0
400.0
500.0
600.0
700.0
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014.0
00
0 t
on
ne
s
Year
Agricultural Commodity Exports - Quantity (000 tonnes) 1999-2014 (BPNG) -crude data extrapolation 2014
Coffee
Cocoa
Copra
Coconut Oil
Palm Oil
Rubber
Tea
Slide 10
0
200
400
600
800
1000
1200
1400
1600
1800
2000
Feb
-02
Jul-
02
Dec
-02
May
-03
Oct
-03
Mar
-04
Au
g-04
Jan
-05
Jun
-05
No
v-0
5
Ap
r-06
Sep
-06
Feb
-07
Jul-
07
Dec
-07
May
-08
Oct
-08
Mar
-09
Au
g-09
Jan
-10
Jun
-10
No
v-1
0
Ap
r-11
Sep
-11
Feb
-12
Jul-
12
Dec
-12
May
-13
Oct
-13
Mar
-14
Au
g-14
Jan
-15
Gold Price USD/troy ounce 2002-May 2015
Most commodity prices affecting PNG
have dropped over since the boom years,
some, like hydrocarbons, heavily in mid-
late 2014i
Slide 11
0.00
2,000.00
4,000.00
6,000.00
8,000.00
10,000.00
12,000.00
Feb
-02
Jul-
02
Dec
-02
May
-03
Oct
-03
Mar
-04
Au
g-04
Jan
-05
Jun
-05
No
v-0
5
Ap
r-06
Sep
-06
Feb
-07
Jul-
07
Dec
-07
May
-08
Oct
-08
Mar
-09
Au
g-09
Jan
-10
Jun
-10
No
v-1
0
Ap
r-11
Sep
-11
Feb
-12
Jul-
12
Dec
-12
May
-13
Oct
-13
Mar
-14
Au
g-14
Jan
-15
Copper Gde A USD/tonne 2002-May 2015
Slide 12
0
20
40
60
80
100
120
140
160
Feb
-02
Jun
-02
Oct
-02
Feb
-03
Jun
-03
Oct
-03
Feb
-04
Jun
-04
Oct
-04
Feb
-05
Jun
-05
Oct
-05
Feb
-06
Jun
-06
Oct
-06
Feb
-07
Jun
-07
Oct
-07
Feb
-08
Jun
-08
Oct
-08
Feb
-09
Jun
-09
Oct
-09
Feb
-10
Jun
-10
Oct
-10
Feb
-11
Jun
-11
Oct
-11
Feb
-12
Jun
-12
Oct
-12
Feb
-13
Jun
-13
Oct
-13
Feb
-14
Jun
-14
Oct
-14
Feb
-15
Crude Oil Price (Brent) USD/Barrel 1992-May 2015
Slide 13
0
5
10
15
20
25
Feb
-02
Jul-
02
Dec
-02
May
-03
Oct
-03
Mar
-04
Au
g-04
Jan
-05
Jun
-05
No
v-0
5
Ap
r-06
Sep
-06
Feb
-07
Jul-
07
Dec
-07
May
-08
Oct
-08
Mar
-09
Au
g-09
Jan
-10
Jun
-10
No
v-1
0
Ap
r-11
Sep
-11
Feb
-12
Jul-
12
Dec
-12
May
-13
Oct
-13
Mar
-14
Au
g-14
Jan
-15
LNG (Indon) Prices USD/mill metric British thermal unit 2002-May 2015
Slide 14 palm oil and coconut oil prices (fob), Jun 1982-May 2015 USD/tonne
Slide 15
0.00
50.00
100.00
150.00
200.00
250.00
300.00
350.00
1998
2005
2012
US
cts/
lb
Year and month
International Coffee Prices (US Cts/lb) 1998-16 June 2015
Other Mild Arabicas - weighted ave
Robusta weighted ave
ICO Composite Price
Slide 16
0.00
500.00
1,000.00
1,500.00
2,000.00
2,500.00
3,000.00
3,500.00
4,000.00
Sep-02 Sep-03 Sep-04 Sep-05 Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14
International Cocoa Price (ICCO) USD/tonne Jan 2002 - May 2015
Cocoa is one export crop showing
continued good prices, which is needed if
PNG is to counter the handicap of cocoa
pod borer. But government needs to play
its part better in not handicapping the
agriculture sector with red tape and
cronyism and malpractice in the
regulatory bodies
Slide 17
0
50
100
150
200
250
300
No
v-85
No
v-86
No
v-87
No
v-88
No
v-89
No
v-90
No
v-91
No
v-92
No
v-93
No
v-94
No
v-95
No
v-96
No
v-97
No
v-98
No
v-99
No
v-00
No
v-01
No
v-02
No
v-03
No
v-04
No
v-05
No
v-06
No
v-07
No
v-08
No
v-09
No
v-10
No
v-11
No
v-12
No
v-13
No
v-14
Rubber - Monthly Price - No 1 smoked FOB Malaysia USD/lb (1985-May 2015)
Slide 18
0
50
100
150
200
250
300
350
400
Feb
-02
Jul-
02
Dec
-02
May
-03
Oct
-03
Mar
-04
Au
g-0
4
Jan
-05
Jun
-05
No
v-05
Ap
r-06
Sep
-06
Feb
-07
Jul-
07
Dec
-07
May
-08
Oct
-08
Mar
-09
Au
g-0
9
Jan
-10
Jun
-10
No
v-10
Ap
r-11
Sep
-11
Feb
-12
Jul-
12
Dec
-12
May
-13
Oct
-13
Mar
-14
Au
g-1
4
Jan
-15
Tea Prices US Cts/Kgs 2002-May 2015
Tea is one of the few crops with a recent,
really needed recovery in prices
Slide 19
0
200
400
600
800
1000
1200
Rice (Milled White) USD per tonne Dec 1991- Apr 2015 (Thailand -quote)
Slide 20
0
5
10
15
20
25
30
35
Ap
r-9
2
Jan
-93
Oct
-93
Jul-
94
Ap
r-9
5
Jan
-96
Oct
-96
Jul-
97
Ap
r-9
8
Jan
-99
Oct
-99
Jul-
00
Ap
r-0
1
Jan
-02
Oct
-02
Jul-
03
Ap
r-0
4
Jan
-05
Oct
-05
Jul-
06
Ap
r-0
7
Jan
-08
Oct
-08
Jul-
09
Ap
r-1
0
Jan
-11
Oct
-11
Jul-
12
Ap
r-1
3
Jan
-14
Oct
-14
Sugar US Cts/lb Apr 1992- May 2015
Slide 21
0
100
200
300
400
500
600
Ap
r-92
Dec
-92
Au
g-93
Ap
r-94
Dec
-94
Au
g-95
Ap
r-96
Dec
-96
Au
g-97
Ap
r-98
Dec
-98
Au
g-99
Ap
r-00
Dec
-00
Au
g-01
Ap
r-02
Dec
-02
Au
g-03
Ap
r-04
Dec
-04
Au
g-05
Ap
r-06
Dec
-06
Au
g-07
Ap
r-08
Dec
-08
Au
g-09
Ap
r-10
Dec
-10
Au
g-11
Ap
r-12
Dec
-12
Au
g-13
Ap
r-14
Dec
-14
Hardwood (meranti) log prices (to Japan) USD/m3 1992-May 2015
Slide 22
0
200
400
600
800
1000
1200
May
-84
Ap
r-85
Mar
-86
Feb
-87
Jan
-88
Dec
-88
No
v-89
Oct
-90
Sep
-91
Au
g-92
Jul-
93
Jun
-94
May
-95
Ap
r-96
Mar
-97
Feb
-98
Jan
-99
Dec
-99
No
v-00
Oct
-01
Sep
-02
Au
g-03
Jul-
04
Jun
-05
May
-06
Ap
r-07
Mar
-08
Feb
-09
Jan
-10
Dec
-10
No
v-11
Oct
-12
Sep
-13
Au
g-14
Hard Sawnwood Price (red Meranti) - UK Port CiF US Dollarsper Cu M May 2004-May 2015
Slide 23
-
5.00
10.00
15.00
20.00
25.00
30.00
35.00
40.00
45.00
50.00
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Per
cen
tage
% of Total PNG Exports - by Value 2001-2013(BPNG) -
Copper
Gold
Crude Oil
Total Agriculture (excl. forestry/fisheries)
Total forest products
Marine Products
Slide 24
-5
0
5
10
15
20
25
Consumer Price Index 1992-2015 (proj) NSO and Treasury forecast
Headline
Underlying
MYEFO 2014
Slide 25
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
USD
an
d A
UD
Kina Exchange Rates (against US$ and AU$)(BPNG and BSP mid-rates)
A$
US$
A$ (BSP)
US$ (BSP)
Slide 26
-3500
-3000
-2500
-2000
-1500
-1000
-500
0
500
1000
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 proj 2016 proj
Central Government Financing surplus-deficit 2006-2016 (proj. Treasury 2014 FBO-Kina mill – 2015 Budget forecast )
End of 2014 Public Debt – K15.365 bill, 37.7% of GDP(K11.83 bill domestic, K3.54 o’seas)
Slide 27 Central Government Expenditure 20142014 Original 2014 OutcomeBillion Kina
National Depts 7.3 7.3Prov Govt 3.3 3.5ABG 0.25 0.23CSAs 1.2 1.2Interest 0.75 0.95ITC 0.13 0.13Grants 1.6 0.9Total Exp/Net Lend 15.0 14.5Total Payments 20.6 20.4
Central Government Revenue 2014Tax Income/Prof 7.1 7.1Tax Goods/Services 1.9 1.7Tax on Trade 0.75 0.8Non-tax Revenue 1.3 0.9Total Revenue 11.0 10.5Tot Revenue/grants 12.7 11.5Gross Borrowing 7.9 9.3Total Receipts 20.6 14.5
Slide 28
0.0
2000.0
4000.0
6000.0
8000.0
10000.0
12000.0
14000.0
16000.0
Public Debt Outstanding (K million)1990-Sept 2014 (BPNG)
Treasury Bills
Inscribed Stock
Internat Agencies
Total Public Debt Outstanding
Slide 29
0.0
2000.0
4000.0
6000.0
8000.0
10000.0
12000.0
14000.0
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
PN
G K
ina,
mill
ion
s
Public and Private Debt and Foreign Equity 1997-2014 (kina,
mill) (Treasury and BPNG figures)
Public Debt total
domestic public debt
foreign public debt
Private (external) Debt
Foreign Equity holdings
Slide 30
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
Export Destinations and Value 2011-2013 (BPNG) (kina mill)
2011
2012
2013
Slide 31
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
PNG Export Destinations -1976-2013(value K million, BPNG)
1976
1981
1986
1991
1996
2001
2006
2011
2012
2013
Slide 32
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
Au
stra
lia
Jap
an
Ch
ina
Oth
ers
Ph
ilip
pin
es
Wes
t G
erm
any
Sou
th K
ore
a (c
)
Net
her
lan
ds
Un
ited
Kin
gdo
m
Spai
n
USA
Sin
gap
ore
New
Zea
lan
d
Ho
ng
Ko
ng
Ind
on
esia Fiji
Mal
aysi
a
Ital
y
Swit
z
Can
ada
Po
rt
Taiw
anBalance of Trade to Main Destinations and
Sources (Kina mill, BPNG)
2013 Exports
2013 Imports
Slide 33
0
2
4
6
8
10
12
14
16
18
Mo
nth
s
Months of Import Cover (Treasury & BPNG) -actuals and 2015-17 projs
Total import cover (months)
Non-mineral import cover (mths)
Slide 34
PNG’s aging diesel provincial and district
power plants – opportunities for
replacements using readily available
renewable and gas. Including here
(Popondetta) methane from palm oil
production, as in WNBP
Slide 35
New urban housing development – here
in NCD
Slide 36
Larger scale of vessels using PNG
ports...the need to reduce domestic and
international freight costs
Slide 37
Finally, the replacement of some of Oro’s
road infrastructure after the 2007
cyclone Guba and subsequent floods
(here the Girua river)
Slide 38
Road infrastructure – and meeting
standards of construction and oversight
(here the ADB-funded Mendi-Lai valley-
Kandep road)
Slide 39
Transport for most of PNG’s population
remains on foot
Slide 40
Use of other traditional transport – this is
surprisingly at high altitude..
Slide 41
Hagen city...prone to provincial govt
office fires...
Slide 42
The informal economy which provides
the livelihood, including cash income, for
most of PNG’s population (Karuka sold
near Ialibu, SHP)
Slide 43
Cruise tourism – a growing activity in
parts of PNG – here in MBP
Slide 44
Eco-tourism – near Samarai, MBP
Slide 45
The long established cash crop income
provider in several coastal provinces, esp
ENBP, Bougainville, ESP, Karkar island
Madang - nursery of clonal material as
part of effort to counter the effects of
CPB
Slide 46
The New Britain Highway – and the need
for more adequate road maintenance
funds, plus funds for PNG’s inevitable,
almost routine, natural disasters
Slide 47
The importance of reliable access
Slide 48
Oil palm – the agro-nucleus model and its
potential and challenges..including for
other crops
Slide 49
Local entrepreneurship...but recognising
the challenges for micro-small-medium
enterprises in PNG
Slide 50
Investment in the country’s future
Slide 51
A solid investment in Youth and human
capital –education, health and providing
access to services and economic
opportunities -is the basis for sustainable
development
Address to the CPA Conference, Kokopo
19th June 2015
State of Papua New Guinea’s Economy
Thanks..
Mid-2015 PNG’s economy should be very healthy..13th year of
continual economic growth, much of that period, particularly since
2016 at strong rates, even during the period of the global financial
and economic crisis of 2008-9. In most of these years, furthermore
the growth exceeded estimated population growth, making up for
some of the lost ground over the sluggish, heavily fluctuating and at
times negative growth of the previous decades.
Much of the growth of the 2000s driven by high commodity prices of
PNG’s major export products, ...not just mineral and oil...but
achievements of 2000s...fiscal restraint, lower debt, some
investment reforms (e.g. Central banking, Superannuation etc),
arrival of competition in mobiles and major new
projects...culminating in the major PNGLNG project and further
prospective gas developments (even with the current lower prices)
LNG – construction phase provided broad economic stimulation and
employment growth...production phase, commenced ahead of
schedule in 2014, contributes a once off boost to GDP, but main
benefit from future revenue. (8.4% in 2014 and 11.3% in 2015). GDP
a poor measure of economic benefit... Country performance...GDP
growth one measure, but only one and it only shows level of
economic activity overall, not how much is retained in PNG, nor how
its distributed; Other measures better record what’s retained..eg.
GNI (or other measures which show resource depletion etc).
GDP per capita is also only and average, but doesn’t take into
account the range of incomes and disparity and what portion of the
population is at, or below the poverty line. (Since the late last decade
GDP has in any case only been estimated, not actually calculated).
A country’s performance is really assessed on the basis of its social
indicators, including HDI and the MDGs..how well its population is
performing from the development process, including income,
nutrition, literacy and education levels for both men and women,
health status, again for men, women and children, including
maternal and child mortality rates, financial inclusion and access to a
range of public goods and a range of other factors.
Poor social indicators – partly bequeathed from poor economic
management of 1990s etc
Lack of investment in physical and human capital particularly over
the past 2 decades, including maintenance, let alone keeping pace
with population growth, encouraged the current govt to commit
itself to much higher expenditure on some very real priorities in
education, health, infrastructure, law and order, social protection,
the districts, anti corruption....albeit that some of these programs
seem stop and start or are even window dressing.
Another important initiative has been the approved Responsible
Sustainable Development Strategy (STaRS), and associated 2016-7
MTDS, with focus on diversifying the economy, moving away from
over-dependence upon transient extractive industries, and the need
to encourage sustainable activities, notably in agriculture, eco-
forestry, climate change/REDD+/PES, and to restrain the level of
population growth which is undermining the capacity for the
economy, employment generation and government services to keep
pace. Need to put this policy into practice..not just rhetoric.
It does supersede the DSP which drove some of the rather absurd
agricultural production forecasts that .Stephen Beach mentioned.
The challenge for PNG is to ensure it has viable industries which
provide broad-based employment and income earning opportunities
(whether in the formal sector or informal economy). Agriculture was
the main export earner until 1984, but remains by the far the major
employer or provider of livelihoods in PNG. But too often it’s taken
for granted. Farmers need to find it worthwhile to invest, and as with
other businesses, many of the costs relate to poor delivery of public
goods, notably access. Govt needs to stop tampering, with absurd
licensing arrangements/institutions etc and to listen and provide
professional support....
In essence, PNG is barely competitive in manufacturing and despite
the skills and much good land that Stephen mentioned, its costs are
far above those in many other producing countries... We need to
access premium prices for niche products, certified etc... PNG as
Stephen said is a price taker; most agricultural products are what are
called tradables, and if costs rise you cannot pass on these costs to
most consumers. Whereas the domestic market, with supermarkets
etc, are largely providing non-tradables and even without
monopolies and oligopolies (which exist widely in PNG, esp. with
some public utilities), and when costs, of fuel or wages etc, rise,
they’re simply passed on to the consumers, and for many of these
products there’s a relatively inelastic demand. For sustainability,
therefore, it’s not just about sustainable and environmentally
friendly production, but ensuring that the activity is viable, and
therefore, its costs are kept down...including that the exchange rate
isn’t set or drifts too high...
(re. Stephen’s question over the agricultural equity fund...I think it
was particularly intended for the major Sepik Plains oil palm project,
favoured by the Commerce Minister, but it seems that the big
partner, Wilmar, has withdrawn)...
BUT:
Atrocious public procurement, still lack of funding for maintenance
Throwing funds at Districts and activities with poor planning
capacity, oversight etc
Borrowing heavily, including for equity and (often over-priced) status
projects (with little sustainable economic benefit or multiplier effect,
and limited employment)
Caught in debt dependency trap, and then tied up with extra
resource projects, not on best terms (perhaps where no net benefit\)
where PNG (and resource owners not in control, etc...Debt pushing
interest rates up. 2014 K2.9 bill deficit, brings accumulated deficit
above K15 bill, to 37.7% of GDP..well above level allowed.
With end of stimulus from LNG construction, when much local
capacity stretched, govt intended to provide fiscal stimulus. Logical
counter cyclical measure. But needs to done within constraints. One
of achievements of 2000s: fiscal and debt restraint, including Fiscal
Responsibility Act, setting limits on public borrowing.
If borrowing, need to ensure sound investment on real priorities and
within limits. Unfortunately, much spending in areas, where
planning/implementation/oversight capacity weak (including
DSIP/DDAs..not acquitted and where acquitted often inadequate) ,
or activities which won’t have longer term or sustained mutliplier
effects. Still severe lack of funding for maintenance and standards of
construction etc poor...
Unwise borrowing for resource projects, especially newer/riskier
activities (e.g. deep-sea mining, where government should stick to its
regulatory role... Plus the right of the State to establish to set fiscal
conditions, including tax collection from natural resources –which
belong – which should be considered a form of low risk equity.
(Signing up to the EITI process is intended to enhance transparency
of resource projects and benefits to the State and through to the
people of PNG).
Many of PNG’s SOEs show weak accountability and poor
performance (as highlighted in the ADB’s review), and revenue is not
remitted properly to govt; sometimes undertaking their own public
expenditure activities, as well as some community service
obligations.
Unfortunately, at this time when most commodity prices of PNG’s
exports fell (with slowing econ growth and demand esp. from China
etc) , including LNG (lucky in 2014 to gain some early windfall)...(see
graphs). Severely in some cases..e.g. energy, but less so in other
commodities..in most cases prices, however, remain above the start
of the-boom period in 2006/7.
Some level of counter-cyclical expenditure justified, notably during
the (economic and employment) downturn after LNG construction
phase in 2013...but too much adds risk, raises interest rates and
costs to the State and, if excessive, encourages inflation (which has
so far remained reasonably steady) and lowers credit rating etc.
Limited private/institutional appetite for buying public debt, and
Central Bank buying a substantial portion since mid-2014; seemingly
printing money, is problematic.
With the Sovereign Wealth Fund, it’s somewhat late for the long
term investment function, and would have been best started in
about 2007, but since then debt levels have risen, and it’s best to
start setting that aside first; otherwise it’s too like 1990s, when PNG
also had a global peak year of growth in 1993 (16.8%), but since then
a series of monetary and fiscal crises and where the MRSF (a SWF
pre-cursor) was pre-committed by debt. GDP is not revenue, and a
high GDP is largely irrelevant in PNG, with its high FDR in resource
projects, to wider domestic benefits.
PNG should (have) learnt from other SWFs, literature and
commentaries, and realised stabilisation/and long term returns from
investment in a range of international bonds and some equity are
preferable, safer and cheaper than borrowing for that purpose,- If
the duration of resource earnings are very long then maybe they’ll
provide the stability..if shorter run, we need to plan out the fund life
and management...
The SWF’s stabilisation function, however, is still very relevant; it is
intended to counter the Dutch disease, wherein there is an
appreciating currency associated with large inflows of foreign funds
(as during the construction phase), but cyclically retaining funds
offshore, out of kina; but the SWF is only effective if it reaches the
highest standards of public awareness, governance and
accountability (in accordance with the Santiago principals).
No need to buy equity...govt the regulator and this is form of equity
with return gained without prior, up-front investment...could secure
better returns, if negotiate well AND provide stable investment
conditions...including provision of reliable public goods... (this an
issue for the Tax review..). (a major missed opportunity to have had
Exxon upgrade the Highlands Highway and end with the costly Komo
airstrip, which has relatively little public utility, whilst borrowing -
from China and others- for the Highway )...
Forex/Dutch disease, competitiveness – manipulated the market (of
course, may not be a fair market, as small and dominated by few
players, and v limited financial inclusion); shortage of foreign
exchange, a crisis for business and business confidence; drawing
down BPNG’s forex reserves, and putting pressure to bring export
earnings on shore. Uncertainty, how long will it continue? PNG
should avoid banking on income in due course from LNG (2016/17)
and/or rise in commodity prices; there has been some in energy
prices (with ME conflicts and in due course..)...(and new LNG project
etc), but better to be prudent...Yes, commodity prices usually
cyclical, unless major technology shift..(solar etc...but likely good
long term demand for gas in E Asia..including for local market)
Still big hole in govt funding in 2014 and continued into 2015 - from
Bank of PNG and commercial banks; pushed interest rates right up
for govt debt and other ..where funding now? Had some boost in
2014 from early start of PNGLNG, and early sales of gas on spot
prices at good prices, before market prices fell; yes, some protection
from long term contracts into Japan/China/Taiwan, but LNG still
follows oil prices and partial substitute...(the rabbit in the hat K2.5
bill landowner payments);
Yes, 2017..potentially a new LNG project may commence
development and commodity prices may rise etc...but they may also
fall, and PNG needs to stop thinking of individual projects as fixing
it’s problems, or rather it’s rather poor fiscal management, loose
expenditure control, deficient revenue collection and leakage
(including from corruption)
Commodity prices fell in 2014, and energy prices fell severely in late
2014, following failure by OPEC to cut supply and increased supply
from new sources (LNG projects/fracking etc). Made some cuts in
2014, but 2014 deficit still well above budget, and with fall in energy
prices at year end, commentators (and some within bureaucracy)
already advising need to make adjustments to 2015 budget.
Unfortunately, with a combination of over-confidence and believing
own statements that LNG prices long term and fixed, and a big focus
on status projects (often heavily over-priced) and front-end payment
of DSIP funds (presumably partly to safeguard ‘political stability’ govt
went on deferring the day of action.
Supplementary budget, should have happened when prices fell late
2014, or early 2015, to ensure max flexibility, but put off, so rel
unproductive expenditure has occurred, DSIP (‘political stability
funds’), Status projects, but Govt has already partly imposed aspects
of the Supplementary Budget, in practice, but pushing the cuts onto
the rest of budget expenditure, including apparent major cuts on
higher priority transport infrastructure (Highlands highway etc). One
fears that those same activities which were cut, with such
calamitous effect, in the late 1990s, -core human resource
development services, such as teacher training, nurse training, public
service capacity building (although that’s left to Australia), oversight
(we saw the anti-corruption strategy funds of 2014 frittered away
elsewhere)...immunisation programmes (no BCG for months in early
2015...), will again be the ones to suffer. Long term consequences
Government seems fixated on APEC, or rather a once of big
meeting...but should learn that these status projects around world
rarely cover financial, let alone economic costs... 2005 Olympics
contributed to Greece’s debt crises (and therefore European and
Global crises), and facilities now run down. Big meetings cost a very
large amount, and businesses, like hotels, don’t break even from
once off events...as some have observed, will we be pushing the
resource owners into investing in costly hotel infrastructure in NCD,
for prestige events, only to see them lose money in their businesses
hand over fist subsequently. Is that how PNG is to squander its
natural resource earnings, as Narau did in the 80s and 90s?
Open Budget Survey/ EITI/ Budget tracking...awareness, priorities
and accountability
SWF...Timor Leste.. best to save and invest, rather than borrow and
invest...but need balance of expenditure on priorities and
sustainability Must apply firm rules. Stabilisation and investment for
future..
In meeting on fragile states...PNG not deemed fragile under some
criteria (as just above the economic threshold)..but shows all the
other traits of fragile and conflict-affected states.. Evidence that
these characterises,-including conflict, poor investment in human
and physical capital, severe corruption, large income disparity and
not addressing resource revenue/ownership issues and disputes etc
severely undermines econ and social prospects. PNG showing the
confidence and bravado, with big events/ being a donor etc, but
unless focuses on core HDIs, especially governance and
accountability etc, severely undermines sustainable development
prospects and triggers further conflicts etc...
As this picture shows, the main asset a country has is it’s human
capital. Some of the world’s best and longest performing countries,
from the major economies like Japan, to smaller success stories in
the developing and emerging economies, do not even have much in
the way of physical natural resources, but have invested heavily in
their citizens, in human capital, institutional capacity and
governance, including the rule of law (which means the wide
acceptance of that rule of law). Countries like Finland and S Korea,
which perform best in education results, make a major commitment
to their teachers and education systems and have highly performing
economies, including in innovation.