by
Brian Gomez
PNG being left behind in
the economic stakes
The Asian Development Bank has
acknowledged that the Papua New Guinea economy should grow by
5.2% this year with a slowdown to 4.5% predicted for 2008.
These are encouraging statistics but they remind me of a recent
statement by a prominent PNG trade union leader who was critical
of the constant harping on all kinds of look-good statistics.
He was referring, of course, not just to economic growth figures
but also to information about budget surpluses, high foreign
exchange reserves and improvements in average incomes.
Former Australian prime minister Paul Keating used to refer to
these kinds of data as “a beautiful set of numbers” which, in
the end, did not save him from defeat at the hands of John
Howard.
These views provide a reminder of the kind of disconnect
politicians often suffer from the general public, caught up in
the jargon of high finance that does not seem to relate to what
is happening on the ground.
From the union leaders’ perception, and quite correctly so, it
appears meaningless to have a billion dollars in foreign
exchange reserves and massive budget surpluses if most adults
cannot find jobs and a large proportion of people live in
poverty.
But, unfortunately, without sensible budget figures, a
comfortable level of foreign exchange holdings and low
inflation, no country can hope for the steady economic growth
that will underwrite increased employment and greater
prosperity.
The early 1990s were an example of a period where the
macroeconomic numbers went badly wrong, leaving in its wake
untold suffering.
Average incomes plummeted in the ensuing decade and possibly
millions ended in poverty.
I do not want to dwell on this aspect but it is worth recalling
that the worst government budget deficits in three decades of
independence were faced in 1991, 1992 and 1993.
The deficits were 4.6% of gross domestic product, 5.6% and 5.9%
respectively. This was a period that followed the closure of the
Bougainville copper mine, the start-up of Ok Tedi and
commencement of oil exports from Kutubu in 1992.
The deficits and bad economy policy resulted in the virtual
wiping out of foreign exchange reserves and was the start of a
rapid decline in the value of the kina.
In a way, it is a chicken and egg story.
Unless there is good economic management, which is reflected in
“a beautiful set of numbers” other things tend to go wrong.
Foreign investment diminishes, employment levels remaining
stagnant (while population is growing) and prices of goods in
supermarkets become unaffordable to many.
Unfortunately the good news flowing through the economy right
now is not much to boast about, given the likelihood of a
slowdown next year.
In terms of the nation’s forward planning, we are actually ahead
of target because the government had only been anticipating
growth rates of 5% annually towards the end of the decade.
Even growth at 5% annually will bring sustained benefits, as can
be seen from the jobs currently being generated throughout the
country.
This is a reflection of more robust activity on many fronts,
from construction through to finance and services.
But this is obviously not enough.
Experience in many Asian countries shows that unless growth
rates of more than 8% annually can be maintained for significant
periods, there will be little likelihood of a big dent being
made
in poverty levels.
China has been the biggest success story on this score.
Its economy is growing at more than 10% annually and, despite
all the talk of an economy that is overheating, it has managed
to maintain inflation below 3% annually.
In the past 20 years, China has come from almost nowhere to
become the fourth largest economy and the third largest trading
nation.
According to the International Monetary Fund, China has added
about US$2 trillion (K5.9 trillion) to world gross domestic
product in the past two decades, created 120 million new jobs
and pulled 400 million people out of poverty.
According to an article in the IMF’s latest quarterly Finance &
Development publication, this is equivalent to creating as many
jobs every year as the total number of people employed in
Australia or the eradication of poverty in Ethiopia, Nigeria,
Tanzania and Zambia combined.
According to the World Bank, if the South Asian countries of
India, Bangladesh, Pakistan, Sri Lanka and others could
accelerate their levels of economic growth and sustain it at 8%
annually, income poverty levels will drop to single digits in
two decades.
Unless PNG can follow a similar course, which on current trends
appear unlikely, there is a clear danger that the country will
lag badly behind most other countries.
Even some of the once so-called basket case African economies
have lifted their performances and have been attaining annual
growth rates in excess of 5%.
