The National, Thursday 04th April, 2013
FOR most of the first decade of this century, lady luck, and the Christian among us would say God, has been smiling upon Papua New Guinea.
Between 2003 and 2012, the economy has been growing in leaps and bounds.
For the first time too, a global economic crisis failed to put a damper on PNG’s economic fortunes.
In that time the budget has grown in size from a mere K1 billion to K10 billion and it is growing.
For most of those years of plenty, the government has had to bring down two or three supplementary budgets to factor in revenue in excess of budget forecasts.
The global economy is expected to remain weak in 2013 reflecting the ongoing debt crisis in the Euro zone and slow recovery in the rest of the advanced economies such as Japan and the United States.
Despite that, PNG’s economic fortunes continue untrammelled.
Although the economic growth is forecasted to shrink from 9% to 4% this year, this is far bigger growth than PNG has experienced since 1975 when annual growth, whenever they happened, were always below 3% – below the population growth.
We agree with Central Bank Governor Loi Bakani that 9% or 4%, it is “still a very healthy growth”.
The slowing down is not influenced so much by external factors as by domestic factors, principle among the being the phasing out of the construction phase of the liquefied natural gas project and some fluctuations in commodity prices.
“The economy is going very well at the moment,” Bakani said.
He said government was doing the right thing to focus on the rural districts of the country.
Bakani is unfazed and so must we all.
But he did strike a couple of sombre notes which the government ought to take on board as warnings.
He said there was potential for the economy to pick up even more strongly if the government’s fiscal stimulus was implemented fully rather than having them be parked in trust accounts.
This is advice the government would do well to heed.
It really comes down to government at national, provincial and local level government level.
Can all the money that the government has planned to spend in the rural areas be spent this year?
More especially, can all the money be spent in the right areas to further empower our people and stimulate the economy in areas where economic activity has been stagnant for generations?
While the 2013 budget is very ambitious in aiming to drive economic growth by rehabilitating major transport infrastructures and investing significantly in priority areas such as education and health, the critical factor is capacity to spend efficiently.
Bakani has warned in the Central Bank’s quarterly economic bulletin that lack of capacity to spend efficiently and effectively, particularly at the lower level governments, can result in mismanagement of scarce resources.
Mismanagement would, therefore, not assist with stimulating the economy.
This is something the government needs to be vigilant against and somehow we do not seem to sense that urgency in the government at present and the first quarter of 2013 is gone.
The next heads up that Bakani gave was on PNG’s liquidity situation and the way forward, if you like, on how to fund the K2.5 billion deficit.
With the high liquidity in the local capital markets, there really was no need to look to overseas markets to fund the deficit, he said.
“Given the high level of liquidity in Papua New Guinea, the government can rely on the domestic system to fund the deficit,” he said.
“It does not need to go overseas to international capital markets.
“If it needs to go to international capital markets, it’s forgetting some benchmark interest rates that the government can use.”