Viewpoint: James Marape
The election of the current administration arose from a collective desire to “Take Back PNG”. Dreams are free, but the work of reconstruction must start now. Papua New Guinea is blessed with abundant natural resources and, by developing these resources under better term sheets, it is possible for us to achieve our main objectives by 2030. The first year of my tenure – following my assumption of office on May 30, 2019 – was focused on eight key areas to actualise the “Take Back PNG” slogan, in addition to addressing legacy issues and providing leadership on urgent and emerging priorities.
My manifesto emphasises that Papua New Guineans must become equal partners in the development of our natural resources through the expansion of opportunities for micro-, small and medium-sized enterprises (MSMEs). It also emphasises the need to provide citizens with access to quality education and health care, a safer environment and a growing economy. These policy priorities are all tailored towards PNG becoming economically independent. PNG Vision 2050 also seeks to ensure this independence and to deliver consistent and purposeful gains for ordinary Papua New Guineans. It also emphasises the importance of global trade and the need to combat international outbreaks of disease.
Supported by a sound approach to budgeting, the country’s GDP growth rose from -0.8% in 2018 to 5% in 2019. Increasing the growth rate of the non-natural resources sector is now a key focus, and these efforts are being endorsed by the IMF. We have also increased the share of the national budget allocated to capital expenditure and development projects from PGK4.7bn ($1.4bn) in 2019 to PGK6.3bn ($1.9bn) in 2020, and we intend for this shift in national budgeting to continue. These efforts are expected to deliver domestic growth of 2.9% in 2020 and 4.6% by 2024. As part of the 2020 budget, a five-year fiscal consolidation strategy was developed that aims to bring the debt-to-GDP ratio to below 40%, after breaches in the 2019 budget pushed the level above the 35% limit. This was due to high borrowing costs due to a low sovereign bond rating issued by Credit Suisse in 2018. As a result, we have had to amend the Fiscal Responsibility Act to accommodate this breach in the debt-to-GDP ratio.
We delivered the 2020 budget before the emergence of the Covid-19 pandemic. It was based on concessional loan borrowing and follows a policy-based reform matrix monitored by both the IMF and the Asian Development Bank. Covid-19 has shaken the world and presented our government with a major budgetary shock. Nevertheless, we took proactive steps to prevent the spread of the virus, resulting in PNG having recorded only nine cases of Covid-19 and zero deaths as of May 2020, compared with over 350,000 deaths worldwide. We shut down our international borders and suspended domestic flights. We tested over 4000 suspected cases and procured personal protective equipment and testing kits with the support of our international partners. Within the constraints of the 2020 budget, we introduced a carefully targeted Covid-19 economic stimulus package, valued at PGK5.7bn ($1.7bn). This was focused on supporting the private sector, MSME employment and rural economic livelihoods, with PGK50m ($14.7m) going to a price support programme for cocoa, copra and coffee; PGK113m ($33.3m) for a district and provincial agriculture development and food security support programme; and PGK41.5m ($12.2m) for subsidising the freight and logistics costs of business operations.
The current aims of the administration include repairing the budget; driving agricultural growth; accelerating job creation; providing a bedrock for MSMEs to grow; driving reforms in state-owned enterprises (SOEs) to increase their contribution to GDP; supporting the expansion of the private sector; and increasing exports. As such, the economic priorities of the current administration are not only focused on natural resources, but also on generating employment for our people. This emphasis on inclusive growth requires us to move away from a budget centred on operational costs – public service salaries, goods and services – and towards investment. It also requires us to attract international financing and balance out the urban bias of preceding periods of development. To support MSMEs, PGK200m ($59m) of the 2020 budget was designated for the Department of Commerce and Industry. We have also successfully negotiated lower loan repayment rates from our commercial banks: 5% for 15 years at Bank South Pacific; 4% for 25 years at National Development Bank; and 4% for 20 years at Kina Bank.
In order to boost investment in the agriculture sector, we have revamped the Kumul Agriculture SOE through state equity funding in partnership with the National Agriculture Research Institute. Furthermore, the EU has approved a loan of PGK340m ($100.2m) to support smallholder farmers in East and West Sepik to produce vanilla, coffee, palm oil, livestock, cocoa and spices, while also strengthening rural entrepreneurship. Another PGK41.5m ($12.2m) has been allocated to freight subsidies for locally produced food crops to be transported to high-demand markets in PNG. This began with the provision of PGK3m ($885,000) to domestic logistics company Bismarck to carry food crops from MSMEs in the Highlands to Lae and Port Moresby, without any cost to farmers. The recently established small and medium-sized enterprises (SMEs) technical advisory team has developed a holistic conceptual framework, targeted towards the creation of 500,000 SMEs. By 2030 we aim to have 50% of citizens owning some form of business, comprising 70% of the formal SME sector and generating 2m new jobs.
The Parliament passed the Special Economic Zones Authority Act in December 2019 to achieve broad economic development and cater to MSMEs. In line with this, linkages between MSMEs and special economic zone have begun to be developed, involving MSME partnerships, joint ventures (JVs) and co-ventures. The SME team has also assisted landowners in setting up incorporated land groups and investor JVs to allow for more local participation. This administration’s reforms to the legal framework governing natural resources are principally aimed at securing the best deals on negotiated term sheets for our population. In terms of hydrocarbons, we will replace the licence-based legal regime – governed by the Oil and Gas Act 1998 and the Mining Act of 1992 – with a production-sharing regime, to come into effect by 2025. A new mining bill based on this model is also in the final stages of development. The production-sharing model will bring an end to the current unfair licensing system wherein the state – which is the owner of the country’s mineral and hydrocarbons resources – continues to pay for the operational costs of mining and hydrocarbons companies in proportion to the state’s share of equity until the end of the project life. We are also drafting an Organic Law, which will anchor the production-sharing model within the constitution. However, the state has already agreed to enrol the Wafi-Golpu gold mine under the current legislation. While this may result in us giving away minerals for free, the government understands that the special mining lease had already been granted and progress had already been made. As such, the government is committed to respecting and following the law. This is different from the Porgera gold mine, where the 30-year development lease had expired, to the detriment of the environment and with little benefit to the nation of PNG.
Furthermore, in order to ensure the equitable sharing of the benefits of the country’s natural resources between regions, the government resurrected the National Gas Corporation (NGC). Each provincial government is a shareholder in the NGC. This means that not only the oil- and gas-producing provinces, but all provincial governments throughout the country, will become beneficiaries of gas resource development projects and related businesses in the downstream sector.
The above viewpoint is adapted from a statement published by Prime Minister James Marape in May 2020.
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