Interview: Robin Fleming
To what extent is the country’s first liquefied natural gas (LNG) project contributing to 2015 economic growth in Papua New Guinea?
ROBIN FLEMING: The completion of the PNG LNG project has been a major factor in terms of GDP growth and improving overall business confidence in the country, given all the doubts that persisted around the project, especially at its inception. To get such a world-class project finalised ahead of time and nearly on budget was a fantastic achievement. The GDP forecast for the next couple of years reflects the early start to the project and the associated revenues that are starting to trickle down into the national economy.
At the same time, there is a certain amount of variability in the domestic market. While sectors such as manufacturing may be able to provide products that are readily accepted in terms of price differentiation and competitiveness, others are experiencing a deceleration, perhaps due to fewer customers or less foreign investment now that the PNG LNG project has entered the full production phase. Within this transitional period, those businesses that recognised that the growth driven by the LNG PNG project could not continue forever will now be best positioned to deal with an economy that – while not slowing compared to other markets – is certainly slower than in prior years.
Does PNG face a hyperinflation risk as the result of another record deficit budget?
FLEMING: We have actually seen growth of fuel and real estate prices slow. Generally speaking, there will be sufficient market liquidity to meet any further government borrowing needs, so I do not think that hyperinflation is likely to occur in the near future. Also the fact that the central bank is buying government bonds suggests that the government anticipates revenues to start rising in the next couple of years. As the yield curve of the inscribed stock was 14-15%, it minimised the real risk associated with government borrowings. The ability to quarantine some of the debt from the Treasury via the central bank is improving stability. Once the real revenue associated with the PNG LNG is available in the domestic market, it would be wise to go back to a more traditional approach of debt raising.
Banking is a highly profitable business in PNG. Which segments are pushing the industry forward?
FLEMING: Lending predominantly leads, even though the composition of the balance sheet is unbalanced in PNG, with 80% in infrastructure and business, and the remaining 20% in retail. The reason for this uneven distribution is that as much as 90% of land continues to be held under customary title, while only 10% is available as a state lease. Therefore, the formal economy remains very small, at 15%, affecting lending to the retail sector. Recently though, the government has introduced a homeownership scheme that should allow more workers to purchase their first homes and hopefully stimulate that segment as well. Foreign exchange has also increased considerably in the last two years, but it has normalised since margins were introduced to foreign exchange transactions in June 2014.
To what extent is financial literacy sustaining the growth of the banking industry in PNG?
FLEMING: Out of every 10 transactions, nine are completed using some form of electronic medium. This shows the potential for electronic banking in the main urban areas and in the provinces as well. Phone banking for example is an area where we continue to see exponential growth in activity levels just about everywhere. This suggests that that technology has been embraced very quickly, regardless of education level. Nearly every business has an employee or a supplier that needs banking facilities, and people living in rural areas also have the capacity to be involved in the banking system, provided they have access to more facilities and are aware of the financial products available. The success of third-party agencies in trade stores across provincial areas is a classic example of this.
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