Interview: Prime Minister James Marape
How do you assess Papua New Guinea’s economic outlook for 2019 and 2020?
JAMES MARAPE: The economy is not performing well. Delivering the budget is one of the biggest challenges we currently face, due to cash flow problems and the repayment of debts. The ability to deliver the 2019 budget is a key indicator of our performance. If we are doing well, and there is excessive revenue, we do not need a supplementary budget. At the moment, we are underperforming; do not have enough revenue and therefore need a supplementary budget.
By 2020 we should try to balance the budget and focus on key sectors for revenue collection. At the moment we are not collecting enough funds from the energy and mining sectors. Our revenue has not grown in recent years, but we plan on changing this in the future. Borrowing money – as we have done in the past – is easy, but domestic debts in particular have created significant fiscal problems. We want to focus on areas that have been neglected in terms of revenue collection to ensure that future budgets are more sustainable. In other words, the 2019 budget and the supplementary budget indicate not only the strength of the economy but also the new government’s ability to prioritise certain expenses, setting the pace for what is to come with the 2020 budget.
To what extent will the government ensure the country benefits more from its natural resources?
MARAPE: Many important sectors lack proper funding because our revenue base is simply not strong enough. Education and health care are two examples that are often mentioned. They receive substantial support, even under the current budget, but proportionally they need far more. By expanding the budget every year, we can start increasing interventions and expenditure in those sectors. Our aim is to increase our revenue base to PGK15bn ($4.5bn) by 2021-22. The extra money will ensure we can repay our debts and start spending on these key sectors. At the moment we need to generate an additional PGK5bn ($1.5bn) in revenue to meet this target while keeping the debt-to-GDP ratio below 35% as mandated by the Fiscal Responsibility Act. While the previous administration hiked expenditure despite a lack of revenue growth, the decision is understandable; children have to go to school, our citizens need proper health care and basic infrastructure is necessary to boost economic progress.
The natural resource sectors, such as energy and mining, are key to realising our PGK50bn ($15.2bn) revenue ambition. We will honour and endorse signed agreements. However, we want to inform investors that we will use new models going forward. We do not want to be involved in just the tax collection but also more in the production itself. This will ensure we leverage our resources and receive a bigger portion of the profit. Furthermore, we will look at economic policies and laws governing these resources, and these conversations are currently under way.
In which areas is the government looking to support small and medium-sized enterprises (SMEs)?
MARAPE: The previous government planned to increase the number of SMEs to 500,000 by 2050. Currently, SMEs account for 5% of PNG’s formal sector. In the next decade we want to achieve economic independence for our people. We want to make sure that every citizen is well educated and can support their own family. SMEs are an important indicator of business activity. Boosting SMEs also fits the government’s ambition to grow the country’s revenue base. We have therefore set up an incubation fund to assist citizens who are setting up their own business. We also want to support citizens who already have a business and are looking to expand activities. In order to receive benefits, we are asking local companies to keep their record clean and pay taxes. Increasing the tax base will boost revenue and make the economy more sustainable. Manufacturing, agriculture, livestock, fisheries and forestry are important sectors to focus on. Foreign investors are welcome, but we want to make sure their investments benefit local companies. Digital technology is another important key sector. The current administration is standing ready to support digital development and other innovations that might facilitate sustainable economic growth. We are supporting technological firms not only financially but also by establishing relationships with companies in Asia Pacific.
What role do you see for PNG in the Asia-Pacific region under the new government?
MARAPE: PNG will maximise its cultural affinity with the East. However, this does not mean that we will neglect our traditional relations with the West. Our Christian heritage, our system of government and our health care system are important to us. However, our close proximity to Asia gives us an advantage to have bilateral negotiations with the Eastern economies. Indeed, we have enjoyed strong ties with many of the countries in Asia, such as Japan and the Philippines, for a number of years. Meanwhile, China is growing and continues to offer new opportunities. The Asian market as a whole is large and purchases a wide array of products we could supply. We want to gain from our relations with both the East and the West. To put it another way, we want the best of both worlds. We must not forget why we are looking to strengthen ties with both sides and must ensure that we do not favour one over the other. We are only a small economy and do not have the luxury of targeting a single market. A small country like PNG needs a reliable export destination offshore and should aim to advance its position in order to make even better agreements. The West will appreciate that PNG has every right to be friends with the East.
Where do you identify opportunities in agriculture to diversify the economy?
MARAPE: Agriculture will be key in realising our goals as a government. Around 85% of the population depends on agriculture activities. Coffee, cocoa, copra and oil palm are our traditional crops, while organic food and livestock have a lot of growth potential. We strongly believe in a model whereby the government offers the right incentives and funds for the private sector. Currently, we are looking at a tax holiday for private businesses that want to do business in the agriculture sector. Foreign businesses have to be convinced to invest in sectors such as sustainable agriculture, tourism, forestry and fisheries. These foreign companies can help local citizens establish their own companies and acquire the right skills for the modern market.
While we welcome foreign investment, we also want to set boundaries so it is clear what investors can expect. PNG is known for the concessions it made in oil and mining. We now want to make concessions for other sectors, such as agriculture. PNG is far more than an energy and mining market. Our close proximity to Asia justifies our focus on agriculture, and our products will put PNG on the world map. They can easily be exported to the large Asian market with its growing needs. Becoming a food bowl for Asia is a major incentive to develop a commercial business structure in agriculture. We also want to benefit from our links to the APEC community. We have strong affiliations to many member countries for whom we can be a food producer.
Another important target of the current government is to protect our forests. PNG is home to 13% of the world’s rainforests. They produce a lot of the world’s oxygen, and this is something we want to preserve. Sustainable forestry is possible, but it requires a balanced and diversified economy with a larger proportion of the workforce in formal jobs.
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