Interview : Charles Abel
How would you assess the economic outlook for Papua New Guinea in 2018?
CHARLES ABEL: In two words, I would describe it as recovering and positive. Global factors are improving, and we are implementing reforms aimed at achieving greater fiscal discipline. This process began in 2017 with the 25-Point, 100-Day Economic Stimulus Plan, which kick-started the government strategy set out in the Alotau Accord II.
When the O’Neill-Namah and then the O’Neill-Dion coalition governments came into power, we implemented a programme to create a larger resource pool and invested heavily in infrastructure, health, education, and law and order. In the wake of the commodity price fallout, global downturn, droughts and the earthquake in 2018, the expected revenues of the PNG LNG project are moderate. However, the government has taken the appropriate steps to manage this, and in 2018 there have been signs of recovery on the back of our investments. In particular, we have seen significant and visible improvements in our productive capacity in the mineral and non-mineral sectors.
Following the difficult decision to cut provincial and district capital funding by 80% in the 2017 supplementary budget, the final budget outcome for 2017 met expectations, and the market responded with confidence in 2018. Measures taken to support the local industry has successfully improved import substitution and eased demand for foreign exchange (forex). We are seeing a recovery across varied sectors as a result of the measures being taken, and we expect to see continued improvement in 2018 leading to positive growth.
Other significant boosts to the economy are expected to come from a series of new major energy, mining, manufacturing and agricultural projects that are already under way, as well as from APEC meetings. The budget for 2018 is conservative, forecasting GDP to grow by 2.4% compared to 2.1% in 2017. Even with the devastating setback of the earthquake, I am confident we will come very close to delivering the 2018 budget.
What is being done to overcome the shortage of foreign currency reserves?
ABEL: Despite exporting more than we import, we have experienced a sustained period of foreign currency shortages since 2014. Today, we should be generating a surplus in foreign currency. However, contract agreements and weak enforcement have allowed exporters to keep the majority of their cash flows offshore. This is compounded in times of low commodity prices. The solution is to improve our monitoring and enforcement of flows, and to diversify our economy and become more self-sufficient. Our strategy aims to keep more natural resources in the country so that we can develop and integrate our domestic value chains. PNG is a very fertile country; there is no need for us to import products such as stock feed and dairy when we can efficiently produce them ourselves.
There are also shorter-term efforts under way, such as the central bank’s intervention in the market and the debt restructuring exercise to replace shorter-term domestic debt with cheaper, longer-term foreign debt, which will also bring in forex. Developing infrastructure is a vital part of achieving these objectives. As oil and gas prices improve, we will begin to see some relief.
How can the public debt be stabilised?
ABEL: Over the last five or six years debt has been used as a tool to spur investment and development, especially in the PNG LNG project. However, when production began, the oil price drop meant that revenues did not materialise. The debt-to-GDP ratio has always been maintained within the ambit of the Fiscal Responsibility Act at 30-35%. The 25-Point, 100-Day Economic Stimulus Plan has established the Medium-Term Revenue Strategy 2018-22, cost-cutting measures and debt restructuring to boost revenue to GDP and minimise the risk of debt. We intend to gradually return to a balanced budget and maintain the debt-to-GDP ratio below 35%, which is low by internatio nal standards.
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