Export income worries

Normal, Sports

The National, Thursday July 11th, 2013


INCREASED inflows into the local currency and economy can have a negative impact, Institute of National Affairs executive director Paul Barker says.

He said: “It’s been recognised that major increased inflows from exports or sometimes even from aid into the local currency and economy can have a major negative impact often termed Dutch disease, which can cause major local distortions undermining other industries and sectors. 

Barker said such impacts may not be all bad where it entailed positive economic restructure with one valuable new long term industry replacing another.

“But in PNG and many other countries, example in West Africa, it entails a shorter term extractive industry like oil or LNG, which provides relatively few jobs; replacing long term sustainable industries, like agriculture, manufacturing and tourism which create extensive employment and particularly at the lower capital and skills end. 

“This is particularly important for PNG for the shorter-medium term”, he added. 

Barker said the introduction of a planned sovereign wealth fund (SWF) was one mechanism used in many countries to reduce the impact of such major increased income inflows.

“By investing part of it offshore outside the local currency in international markets and bringing it back into the local currency when it can be better absorbed such as during periods of revenue shortfall and more.

“For a SWF to work, however, it has to be managed to the highest international standard of accountability and professionalism or otherwise the funds will be misused or poorly used and its effect will be useless or even counter-productive.

“It needs therefore to be managed at arm’s length from government in a totally transparent manner, managed properly with clear rules and no interference and reporting to the people of Papua New Guinea through the National Parliament via the Treasurer and supervised notably by the Treasury and the Auditor General.