Jonathan Seeto, Managing Partner, PwC Papua New Guinea: Viewpoint

Jonathan Seeto, Managing Partner, PwC Papua New Guinea

Viewpoint: Jonathan Seeto

Although it is difficult to believe that anything good could come from a global pandemic, the current crisis and Papua New Guinea’s capacity to respond has acted as a wake-up call for the country to identify its priorities for the future. PNG has promising development prospects and an opportunity to dramatically improve social outcomes, but we may need to make fundamental changes in order to do so.

Covid-19 presents both health and economic challenges, which have the potential to result in broader socio-economic issues. It is well documented that the health system would not be able to cope with extensive community transmission of the virus, and so the response to date has largely focused on containing the movement of people. While this has been an appropriate response, businesses across all sectors have suffered, and this could have longer-term ramifications. Like most countries, PNG’s economy has been adversely affected by the crisis.

A survey conducted by the Business Council of PNG in May 2020 found that almost 80% of companies said their revenue fell, and 82% said their net profits dropped compared to the same period last year. Most alarming was the level of decline, with the majority experiencing a decrease of 10-50%. When asked about the future outlook, many businesses were pessimistic. More than 70% of the companies surveyed expect their profitability to continue to decline from the level seen in March 2020. This will negatively impact the already very low employment rate, as well as government revenue and socio-economic conditions. We should also be concerned about the spill-over effect on the social welfare of communities, many of which were already vulnerable before Covid-19, and the health, education and future of our young population.

Although PNG’s economy has faced challenges in recent years, 2020 was forecast to see an improvement, particularly with upcoming resource projects in the pipeline. However, these opportunities have not crystallised. Other adverse events include the global fall in oil prices, the recent closure of the Porgera mine and the growing strain on government finances, which led to a downgrade in PNG’s sovereign credit rating. The spread of threats such as African swine fever and the infestation of fall armyworm also weigh on our agriculture sector. These events have impacted business activity, exports, foreign currency reserves, employment and government revenue, as well as market and investor confidence.

The onset of Covid-19 has compounded this and, without careful management, has the potential to prolong and deepen the economic consequences. According to our recent macroeconomic modelling, these factors could lead to an average annual 0.5- to 2-percentage-point decline in GDP growth for 2020-23. Using pre-Covid-19 national budget forecasts as the starting point, subject to a number of key assumptions, this indicates GDP growth could be between 1.2% and 2.7% in 2023. This is, in some respects, more positive than forecasts from other commentators, but well below the average growth rate for the last decade. These statistics signal that PNG needs to take drastic action, and we have the opportunity to do so.

While the challenges are significant, we are far from helpless in this situation. We need a carefully measured response. When we speak to businesses, they are acutely aware that there is no capacity for the government support that we have seen in other countries, and they ask only for a better enabling environment, as well as policies that will give them certainty and confidence in their investments.

PNG aims to be an upper-middle-income country by 2030. To achieve this, the country would need to more than double its GDP in 10 years. This would require substantial investment in infrastructure to drive inclusive growth, boost the informal sector, promote local industries to achieve import substitution, accelerate resource projects and encourage diversification.

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