Interview:Dairi Vele
How do you assess Papua New Guinea’s measures to reform fiscal policies and improve budget planning?
DAIRI VELE: Our current fiscal policy started in FY 2011/12. At that time, we benefitted from high commodity prices so we had some surpluses left and were able to focus on expenditure. A few years later, commodity prices dropped and production rates were hit hard by the El Niño weather phenomenon. The government had to pull back on its expenditure as laid out in the medium-term fiscal strategy. It was important that we did not cut back too much – making money is a key objective of our long-term strategy and it was important to guarantee our core commitments such as free education and primary health care. To finance the budgets we secured short-term loans at expensive rates from domestic markets, as we did not meet the necessary standard for international loans.
The second phase of our fiscal programme was focused on moving the country into a position to borrow internationally. We have succeeded in raising more than $900m. Although this money cannot be used to fund our budget, the Treasury and the Bank of PNG (BPNG) can use it to implement important structural changes and rebalance our debt. While we were borrowing with short terms previously, with increased liquidity we can demand better conditions. We have learned from the past and now have the tools to correctly deal with new challenges ahead.
To what extent does the sovereign bond mitigate the effects of the foreign currency shortage?
VELE: Access to foreign currency is important for maintaining a lifeline for the economy. Our ability to access dollars was limited in the past – multilateral institutions and banks would rather give us projects than currency – and there was a lot of frustration that money was not reaching the local economy. Even if we borrowed $100m for large-scale road infrastructure projects, we may have only seen $20m spent on local products and raw materials. Today the situation is different: we receive money from the World Bank and the Asian Development Bank in cash and, together with our international partners, we are able to spend as much as possible within the domestic market. Where possible, we want to use local resources and the workforce. The sovereign bond was a key factor in improving our economic position. We were looking to secure bonds for five to six years, which was achieved largely thanks to the Treasury and BPNG. Ultimately, investors want to see the people and projects to which they are offering funding. We showed them PNG’s past achievements – our fiscal track record for the last five years speaks for itself. Investor confidence is based on what we have already done, not what we are going to do.
In what ways do you expect global trade developments to impact wealth creation in PNG?
VELE: Countries today are looking more inwards than outwards. Whether this is right or wrong is not the issue, but PNG is in a strong position to benefit nonetheless. Countries and companies are more likely to invest within their own region than at a distance. This underlines the importance of APEC. PNG is a key part of the global energy market, boasting various liquefied natural gas and mining resources. Regardless, PNG has to understand that we cannot access all investments if we do not possess the characteristics of a developing country. Characteristics like a transparent legal system, uncensored media and a free society are just as important as competitive taxes and infrastructure. APEC upholds these principles and as a region we only invest in countries that do the same.
Furthermore, the policies we now implement in PNG focus on empowerment. We need to accelerate the development of our start-ups and boost the middle class. Admittedly, some sectors may never be able to compete with Australia or New Zealand, but that gives us even more reason to strive to be on equal footing.
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