Heed Asian Development Bank advice

IT pays often to look up from our busy schedules and programmes to scour the horizon and see what the others are seeing when they cast a glance in our direction.
This is the enlightenment we got when we glance through the Asian Development Bank (ADB) economic forecasts of PNG.
The ADB has been and is deeply involved in some of the country’s major infrastructure programmes, the airports upgrade being one of the most recent in memory and so its opinions when it chooses to offer them should be valued and acted upon.
We were quite happy at the bank’s most recent commentary with regards to risks growth in PNG which its postulates are “considerable but tilt to the upside”.
Early reopening of Porgera mine alone would “add up to 2 percentage points to growth”, it states but then offers the rejoinder that “even in the most optimistic scenario this is unlikely before the end of 2023, given that negotiations continue and start-up operations would take time to be completed”.
Another upside risk ADB points out is the multibillion kina Papua LNG and whether it is going ahead.
It states: “The final investment decision is planned for the end of 2023 or early 2024, possibly followed by 4 years of construction and the first gas production thereafter. A downside risk would be an unexpected tightening of forex restrictions stifling recovery, especially if fuel rationing.”
Not a new commentary but from that source, refreshing.And that the ADB posts a policy challenge with regards to operationalising the Sovereign Wealth Fund.
Sovereign wealth funds (SWFs) are important vehicles for managing volatile revenue from exhaustible resources.
PNG legislated its SWF through the Organic Law on the Sovereign Wealth Fund in 2015.
The law gives SWF objectives as:

•  MACROECONOMIC stabilisation,
•  INTER-GENERATIONAL equity, and,
•  ASSET management through the establishment of a stabilisation fund and a savings fund.

We know these funds have never been operationalised and ADB offers the opinion that this might have been “because commodity prices and resource revenue were low in the years after the law was passed”. Be that as it may, the ADB points to a revenue windfall last year that could have made its way into the SWF. Last year’s revenue totalled K4.2 billion, or K2.7 billion more than budgeted and this highlighted the need to operationalise the SWF. In its argument in support of operating the SWF, the ADB offers the following comment: “Despite arrears, and perhaps because of high spending pressure on the newly elected government, the 2022 supplementary budget allocated this windfall to additional expenditure.
According to the Organic Law, 50 per cent of mining and petroleum tax revenue and 75 per cent of dividends returned to the government must be deposited into the stabilisation fund.
Withdrawals are governed by a legislated formula that aims to smooth expenditure countercyclically.
K2.1 billion should thus have been deposited into the stabilisation fund last year and only about K800 million withdrawn, for net accumulation of K1.3 billion.
Now is an opportune time to operationalise the SWF before the next resource revenue bonanza.
Tax revenue from the resource sector is anticipated to rise in the coming years from the PNG LNG project when tax exemptions expire in 2026, early royalties and production levies from Papua LNG when production commences as envisaged in 2027, and Porgera’s reopening when it materialises.
An SWF that is up and running would help manage the next boom–bust cycle and bring better macroeconomic outcomes.
“When the boom dissipates and revenue declines, withdrawals from the stabilisation fund support recurrent spending on health and education and avoid any need for sharp kina depreciation, thereby protecting real incomes.”
No sounder advise have we ever heard.
We recommend it be taken.