My take on what PNG Govt needs to do improve the economy

By Busa Jeremiah Wenogo

What I have here is my own opinion on what measures the government should take to address the current state of the economy. I may be repeating some of the things that have been said by other astute economists like Sir Mekere Morauta but it seems the public still needs to be educated to an extent where they are able to appreciate the situation we have at hand. Subsequently, I felt compelled to provide a personal view on the economy when prompted to do so by a friend out of his concern for the country's economic welfare. I hope this will be of benefit to the readers as it is to my dear friend. From the outset it is important to understand that that to get to the core of the problem and fix it there is a need for reforms to take place at all levels of government. Otherwise, not much will be achieved.

1)     The government’s 2016 budget

The government should urgently introduce a revised budget or a mini-budget as the 2016 budget is no longer realistic given its assumptions have become irrelevant. We are already in the middle half of the year and if the government endeavours to persist with this budget it will be forced to seek additional loans domestically and internationally to support it. This will further increase our debt level. Right now rising debt means it is unwise and not prudent to seek additional financing to support the budget.

Introducing a mini budget will require humility from the government. Since taking over, the O’Neill government has pursued expansionary policies/deficit budget. Such a budget gives the government leverage over its opponents as it generates spending and popularity with voters.

Examples in PNG include the introduction of the free tuition fees, free primary health, massive infrastructure development and hosting regional and international events.

Right now Peter O’Neill is still popular amongst the general population because of such ‘populist’ policies and any move away could be politically damaging for the government.

In this context, introducing a new budget would be an admission by the government that its initial plan has stumbled. In fact it is looking ominous as each day passes that this is the case.

There is a real need for the government to quickly rein in expenditure and instill control and discipline in spending. Given that we are a year away from a general election, it will be a test of character for the government to adopt this stance.

2)     The domestic economy – support the informal economy

Apart from a rise in prices, local industries - including the construction and manufacturing industries - that depend on imports will struggle to operate.

The informal economy so often neglected by the government is poised to once again soak up the bulk of the spillover from a faltering mainstream economy.

The government is once again urged to support the informal economy as a key strategy. Any attempt to suppress the informal economy in these challenging times could backfire against the government.

3)     Increase in commodity prices may not be the panacea we want

Any increase in global commodity prices especially in the short run will not generate adequate foreign reserves to arrest the economy of the current ailments. The increase will have to be consistent for a much longer period like the previous golden period to ease the pressure that our economy is currently in. Yet this too will only be enough only when the government tightens its belt interms of expenditure.

The sad thing from all of these is that the more the foreign reserve debacle continues we could have few companies and thousands of Papua New Guineans out of jobs by the time the global economic condition improves.  

4)     Another LNG?

At where we are now getting the Papua LNG and other major impact projects into full productions will provide additional foreign currencies that we need to boost our foreign reserves. Right now the Papua LNG is set to commence construction in 2018. This means the production will commence a year later. This could explain the recent trip of the PM to meet with the French President.

All this means that the government will have to undertake a painful exercise to keep the economy afloat until such time that the prices of commodity picks up and new big impact projects like PAPUA LNG start production.

Adding on from the above it is also important to note that PNG is still recovering from one of its worst drought in history. This means that potentially most of our viable commodities such as coffee and cocoa are still recovering from the effects of the drought. So production maybe affected to a fairly large extent. Thus a rebound (pick-up) in global prices may not mean a quick exit from the current economic condition that we are in at the moment.

5)     The 2017 general election – Stop the spending spree

Past experience demonstrates that the period leading up a general election is one where the government goes on a massive spending spree to prop up its support among voters. However, this time around, given the critical state of our economy, the government will need to forego this pattern.

6)     Operating in vacuum

In a country where data collection is a chronic issue, economic data that gets spun around in the media no doubt generates skepticism. In addition, the government’s tight control on the release of key information about the economy (and its budget) raises question marks about the economic information that it issues publicly. Information produced by Treasury and Central Bank have always been important. But lately it seems these data have increasingly strayed from reality on the authenticity of this information.

The frightening thing is that we are not sure of the true extent of the mess we are in at the moment.

I suspect only the prime minister and his close aides know but they prefer to keep things tightly wrapped to prevent any negative fallout.

Yet they must also exercise caution and restraint. This is not the time to bank a nation’s future against an assumption that everything will turn out all right

7) PNG will need to undertake an urgent audit on its economic position.

It looks highly likely that this will not take place under the current regime. A change in government should do an urgent stock take on the status of the economy and then introduce reforms to put the nation’s economy back on the road to recovery.  There is far too much wastage in the economy that needs to be reduced or eliminated.  This means doing away or delaying meeting political commitments, right sizing the public service machinery, re-evaluating the government’s interest in key investments which includes SOEs and determine its viability. The government also will need to sit down with financial institutions both domestically and internationally to seek a new deal albeit at the cost of the nation.