Economy will remain flat: Barker

After a few years of almost zero economic and employment growth, the non-mining sector “slightly picked up”last year. Institute of National Affairs director Paul Barker discusses the issue

The overall economy remains rather flat, and if forecasts of a further global downturn driven partly by global trade wars proves true, will remain flat in 2019, says Institute of National Affairs executive director Paul Barker.
He said after a few years of almost zero economic and employment growth, there seemed to have been a slight pick-up in the non-mining sector last year.
“Mining and petroleum were subdued by the earthquake last February, affecting four major projects, despite the recovery in oil and good gold prices,” he said.
“For 2019, we’re likely to see continued modest economic growth, probably extending to the mining and hydrocarbon sector, assuming no further unforeseen events.”
Barker said if expected progress occurred over negotiation of the Papua LNG project by the end of this year, there should be some associated preparatory economic activity, and potentially also associated with mining developments.
“In the non-mining sector, particularly agriculture, there is likely to be some, though limited, additional activity in certain hubs like the Markham Valley,” he said.
“Some overdue reinvestment and restoration should occur, especially if the modest recovery in foreign exchange is sustained and some new projects materialise, funded internationally or domestically, including some supported by extractive industries.”
He further said with weak international commodity prices badly affecting agriculture, a sustained low exchange rate was essential to provide positive kina returns in most industries and some shield against competition or importers, although for many industries, especially estate production, viability was currently marginal if at all.
“Yet, it is these other industries which remain critical for providing broad–based economic opportunities for the majority of PNG households,” Barker said.
“In recent years, this has provided core revenue to the State, rather than extractive industries with their very small workforce, particularly in gas and high-tech mines.”
He said progress rolling out the new fibre optic cable to Australia and into the Pacific should also stimulate some information communication technology-associated innovation and activity by the end of the year, especially if there was positive resolution over connectivity.
“Improved resource sector revenue in 2018 should be sustained and recover modestly further in 2019,” he said.
“Growing borrowings and debt servicing costs impose a continued burden on the State’s capacity to deliver core goods, with the State-owned enterprises (SOEs) still financially weak.
“International support for improving power reliability and extending capacity will be valuable if proceeding sooner, providing some direct and indirect economic stimulus, particularly if supporting measures to reduce costs of power provision and distribution.
“PNG needs to keep its core focus on enabling a competitive economy to ensure viability in the non-mining industries.
“This is particularly its long established core businesses, but also diversifying economic activity, including services, and a growing skilled and productive workforce.
“This requires, in turn, that the State plays its part in effectively delivering reliable and affordable core public goods, including law and security, basic infrastructure, including reliable and affordable access, power and communications.
“With the extractive sector, it is critical that the new generation of resource projects are better negotiated than the last, providing earlier returns to the State and avoiding heavy up front financial commitments for State equity, and that
the State performs its duties effectively, including proper landowner identification and engagement,
and provision of subsequent stability.
“It is also important to restrain the inflationary effects from major projects, particularly from crowding, as opposed to staggering new projects, while ensuring the Sovereign Wealth Funds is in place, operational and accountable well in advance of any major additional revenue flows, perhaps resulting from any jump in commodity prices.”
Barker said this highlighted the State focusing upon it core public functions, avoiding undue extravagance and burgeoning debt and associated costs, both by departments and SOEs, with closer public scrutiny of expenditure, including by more-effective official and civil society watchdogs.
“Tackling law-and-order, including violence in all forms, remains critical, both to provide opportunities for Papua New Guineans to enjoy the peace and benefits of education, health and national development, but also to encourage local or international investment and employment creation, including in crime-sensitive industries such as tourism.”