The National, Tuesday June 18th, 2013
FOR the first time ever, a developed market economy has been downgraded to an “emerging market” status.
Greece, which has lent the modern world the concept of city states and organised communities, no longer qualified for the title of “developed market”, Morgan Stanley Capital International (MSCI) said last week as it relegated the debt-ridden nation to “emerging
Greece joined other countries scampering their way up to reach developed world status such as Brazil, Mexico, Malaysia, India, China and South Korea.
Greece, whose GDP is less than US$300 billion (K652 billion) and shrinking, is one of those pit holes dug by the European debt crisis.
It might not be on its own for much too long. Not too far behind, we are told, are Spain, Italy and Portugal.
While this is happening on the other side of the world, in an economic zone far removed from our own developing market status, the slide by Greece has lessons for PNG.
Global international rating companies such as MSCI and Standard & Poor’s publish ratings that are the benchmark for mutual funds, import/export credit agencies and financial institutions worth trillions of dollars.
Greece no longer meets the standards and has suffered as a result.
Its economic future will be affected by this rating.
PNG was recently rated B+ by S&P. Its fortunes too, for good or worse, will also be decided by that credit rating.
When it goes out to the wide world to source funding for any project, this is the rating that will be put on the table. That , among other things of course, will decide whether or not PNG has the creditworthiness to repay its debts.
The important lesson in this is to never be in a position to receive a lower ratings but rather the opposite.
MSCI puts every nation’s financial market into three categories.
The first is Developed Markets. This is the throne room of the market economy where the US, Japan, Canada, England, Germany and most of western Europe are seated.
They have political stability, physical infrastructure, established government and private sector infrastructure such as banks, courts and so on.
This is where all nations of the world aspire to be. To fall from grace from this pedestal is any nation’s world economic nightmare.
The second category is of course the Emerging Markets which include many of the countries of South America, Southeast Asia, and Asia. This is where the excitement is.
A lot of investment moves to these places to take advantage of their rapidly expanding markets.
The third category is the Frontier or Developing Markets where PNG, much of the South Pacific outside of Australia and New Zealand, the Caribbean and Africa are clustered.
They are in the lowest investable market category.
There is a lot of effort being made to join the world economy but there are seemingly insurmountable hurdles to get over in terms of governance, lack of physical
infrastructure and lack of capacity.
An economic miracle is needed to attract business and investment from the
developed and emerging markets.
Papua New Guinea is a part of the global market and while it seems to have kept its economic wits about it to emerge as a growing, healthy economy, just having plenty of cash in the bank should not be seen as the answer.
Growth must translate to improvement across the entire socioeconomic spectrum of the country.
Only when PNG’s social human indicators are positive will it be poised to make the jump from frontier economy towards emerging economy.