PNG economic record cheerless but future looks promising

Two or three years ago there were regular reports about a lack of economic opportunities from local village leaders in various parts of Papua New Guinea. It is a positive sign that we are hearing less of these complaints. The reason will be clear to most observers.

There have been many positive developments since the present government came into office, one of the most crucial being the political stability generated by the first government likely to complete a full term in office. This has partly contributed to the macro-economic stability created by high revenue flows from record mineral and oil prices and prudent controls on expenditure - the kina has been stable and foreign exchange reserves are rising.

At the recent “PNG Update” seminars, ANU economist Dr Satish Chand noted that budget expenditures this year are up sharply and, if the mineral boom is factored out, the government is faced with a budget deficit. Anyhow, Prime Minister Sir Michael Somare has signalled that a supplementary budget is on the cards, so spending can be further lifted to take account of an increased surplus.

The short-term outlook certainly looks quite good. But the reality nevertheless is that no progress is being made on reduction of poverty within the country - this cannot happen as long as economic growth is generally only in line with population growth.

So everything is relative. Compared to most of the 1990s, the situation is greatly improved. But we are not doing anywhere as well as other developing countries in the neighbourhood, where even Indonesia, with all its political and social troubles, is managing to grow its economy by 5.5 per cent. Many people were upset recently with comments made by the head of political science at the University of Papua New Guinea, Professor Allan Patience. Yet much of this controversy is really just what could be termed “hot air”.

At present, commentators and analysts can still draw a very negative picture about PNG’s economic performance or, depending on their inclinations, a somewhat more rosy, forward-looking picture. This may sound contradictory but it is not. If one takes a longer perspective of the country looking at the period since independence, one would need blinkered vision to be cheery. Why? I don’t know of any other country where per capita incomes have fallen by 50 per cent over a 30-year period. And, at current growth rates of about 3 per cent, we will never (yes, I mean, never) again attain that level of income. With population growing at close to 3 per cent annually, per capita incomes will experience marginal increases at best in the future.

Contrast that with the situation in Indonesia - never mind even better performing countries like China, South Korea, Malaysia or Thailand. Last year, Indonesia’s economy grew by 5.5 per cent while the population only increased by 1.2 per cent, creating a per capita income gain of around 4.3 per cent in 2005 alone.

So the picture in PNG over the longer term has clearly not been a good one. The short-term outlook appears not much better, given current economic growth rates. How often do we hear ministers and others suggest that we are still better off than some other generally unnamed nations for all kinds of reasons and hence should count our blessings.

Often the insinuation is that Papua New Guinea is doing better than many countries in Africa. In recent times, this has been a myth. According to the International Monetary Fund’s World Economic Outlook (September 2005) per capita incomes grew by an average 2.2 per cent annually between 1987 and 1996 throughout the African continent. They have been making even faster gains in recent years, rising by an average of 5.3 per cent in 2004, 4.5 per cent in 2005 and a projected 5.9 per cent this year.

Africa’s only real basket case, Zimbabwe, saw per capita incomes fall by 10 per cent, 4 per cent and 7 per cent respectively in the last three years even though it too managed an average annual income growth of 3.6 per cent between 1987 and 1996. For Papua New Guinea to have matched the average African record, its economy would have to grow by about 8 to 9 per cent annually - a far cry from PNG’s below 3 per cent rates.

At this moment, there is not much point getting angry about such figures because the milk has been spilt and opportunities have been lost, so to speak. However, this is all the more reason to be more cautious and determined to ensure that history does not repeat itself. PNG has the wherewithal to do much better and the opportunities are shaping up nicely.

The boom in mineral revenues has so far been based on a dying industry that analysts had suggested would disappear before the middle of this decade. We now know they are totally wrong because new and more sensible resource policies are ensuring that the minerals sector is poised to grow even stronger.