Interview : Prime Minister Peter O’Neill
How do you assess Papua New Guinea’s economic outlook for 2018 and 2019?
PETER O’NEILL: The economic outlook for 2018-19 and beyond stands to be very positive if the recent improvements in global economic conditions, especially the recovery of commodity prices, are maintained. PNG was particularly badly hit by low commodity prices in 2015 and 2016. Since 2017 we have also suffered from drought and devastating earthquakes, resulting in the loss of life, the destruction of infrastructure and declines in certain exports. However, the recovery of commodity prices should boost export earnings from oil, gas, gold and copper once again. In fact, we are already seeing confidence return to the business community.
Furthermore, we should not forget that despite all these challenges, PNG was able to maintain an annual GDP growth rate of 2-3% over the past few years. This is less than the 8-9% we experienced during the PNG LNG construction period, but still respectable when looking at how other countries performed over this same period. We are confident that global players in the commodity sectors are starting to scale up their operations after dealing with depressing figures for so long.
If commodity prices remain stable, we will see PNG’s economy perform much better. We should also not forget that commodity price estimates in our budget predictions are much lower than today’s prevailing prices. Given the upsides we are currently experiencing, our outlook for 2018-19 is even more positive.
What is being done to diversify PNG’s economy and make the country more self-sufficient?
O’NEILL: Our government has a deliberate strategy to broaden PNG’s economic base. This is especially important given the boom and bust cycles our economy has experienced for quite some time now. We cannot be entirely dependent on the resources sector. Recently, we have been investing more in agriculture, small and medium-sized enterprises (SMEs), and in tourism, which holds huge potential. We have also channelled more
investment into the petrochemicals industry, an avenue that we are pursuing very aggressively in negotiations with project developers. In order to encourage downstream development in fisheries, we are aiming to retain more of the fish caught in PNG waters onshore so that they can be processed locally. Similarly, in the forestry industry we have committed to a ban on log exports by 2020. The latter measure should encourage
the local development of downstream potential in forestry, helping to create opportunities for SMEs that can support this sector. To generate more industrial activity, the government is entering into partnerships with large-scale investors to minimise their risk, which should encourage them to expand into other activities over time. This is already taking place in agriculture, where greater food security will make the economy less dependent on imports.
How are public-private partnerships (PPPs) and other fiscal strategies reducing public debt?
O’NEILL: PPPs are the way forwards, but a delicate balance is needed. Infrastructure PPPs that are based on user-pay models are not yet viable, as much of the population lacks the disposable income necessary to pay toll fees. We welcome PPPs for infrastructure more actively when incomes improve and our citizens can afford the user-pay model. However, this is a longterm objective because we don’t want to saddle future generations with debt, and we must fund our social obligations. We are encouraged by the initial reaction of many financial institutions and investors to how we are
restructuring infrastructure investments and managing our debt levels. Indeed, we have been successful in maintaining our debt at around 30% of GDP. We are also managing public expenditure by restraining spending, monitoring the employment of public employees and government overheads, and reducing expenditure in non-priority areas. As such, we are delivering on the budget prediction to reach a deficit of 2.4% of GDP in 2018. Ultimately, we want to bring the budget back to surplus as the economy improves.
What is the government doing to mitigate the effects of foreign currency shortages?
O’NEILL: The root of this problem lies in the one-sided contracts former governments signed with companies in the extractive sector. Those contracts allowed resource developers to keep earnings in overseas accounts, leading to excessive foreign currency outflows. We are currently engaging with companies to make sure they understand their responsibility to the nation. We are looking to structure agreements so that all export revenues come back into the country. This will not result in a decline in value for the developers who invest significant amounts of money in PNG. We will allow them to open foreign currency accounts but the earnings must be held in the country. In this regard, we are getting some very positive traction in the discussions we are having. The second issue is that we must be less dependent on imports. To do this, PNG needs to produce more products in-country, especially food items. Our commitment to improving self-sufficiency is evidenced by our policies for improving food security and our full engagement with interested investors.
What impact do you think hosting APEC 2018 will have, and what opportunities might it create?
O’NEILL: The image of the country is being improved; PNG is not the bad and dangerous place to live, as seen in some foreign media. The people of PNG are very friendly, and expats live here happily for five to six years on average. APEC is a very good opportunity to enhance our image. Around 8000-9000 visitors will arrive in Port Moresby for the APEC Summit in November, and up to 20,000 visitors are expected throughout the year. The
APEC visitors we have already received have provided positive feedback and want to return. Second, APEC gives us an opportunity to showcase our economic potential. We have been generating some of the highest returns on investment worldwide in recent years.
The months ahead will include announcements about the new LNG project and the Wafi-Golpu gold mining project. We want to remind investors that during the height of the global financial crisis we were able to raise almost $20bn for the PNG LNG project. Those that invested then have not been disappointed, and are expected to have earned back all their money by 2022.
Furthermore, PNG has never defaulted on its debt. We are proud that we have always been able to uphold our commitments, and we will maintain this. It gives us and our partners the confidence that we can deliver.
In what ways could the APEC 2018 agenda benefit the broader Asia-Pacific region?
O’NEILL: APEC was set up for the benefit of the countries of the Asia-Pacific region. However, since its inception, much of the focus has been on Asia and not so much on the Pacific. Of all the members of the Pacific Islands Forum, only three are members of APEC: Australia, New Zealand and PNG.
In 2018, as the only developing Pacific Island nation at the table, we want to bring together all countries in this region and update them about what is going on regarding APEC, connectivity, trade and investment.
The Pacific is a large ocean that has many countries on its shores. We want to expose these nations to the APEC economies and show that they are important. One of the main themes will be the vulnerability of many Pacific Island nations to climate change.
Some of the island countries will cease to exist in our lifetime if we fail to uphold international commitments and forge new agreements. Furthermore, we have to make sure that there is a regional opportunity for trade and investment, especially in terms of connectivity and transport. The APEC 2018 summit is therefore a great opportunity for the Pacific region as a whole.
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