LNG funds for backup

 By GYNNIE KERO

REVENUE from LNG exports can lower the cost of doing business for local entrepreneurs if invested in a productive way, Asian Development Bank (ADB) country economist Aaron Batten said.

He said the government has to ensure funds brought into the country were invested to help compensate industries for any losses incurred from competition in international trade as a result of higher exchange rates.

Batten said the government could help shield the economy from some of these effects by holding unused funds in foreign currency-denominated assets such as the transparently-managed Sovereign Wealth Fund. 

“As LNG production begins and exports grow, it is likely that the kina exchange rate will again strengthen against the currencies of key trading partners. 

“This will assist in lowering the prices of imported goods, but it also makes it more difficult for PNG’s agricultural and other export products to be competitive in international markets,” Batten said.  

ADB said: “PNG’s economy will continue to remain buoyant by regional standards in 2014. 

“Headline figures do however mask an important shift in the composition and drivers of economic growth, with growth outcomes in 2014 dominated by exports from mining and petroleum sectors. 

“In contrast, activity in sectors of the economy such as construction, telecommunications, finance, transport, wholesale and retail trade, is expected to be more subdued, with non-mineral growth falling from a high of 9.1% in 2012 down to a forecast 1.6% this year. 

“This trend is important because it is these non-mineral sectors of the economy where the majority of employment and cash income is earned for Papua New Guineans. 

“Looking for opportunities to improve the business investment climate and reinvigorate growth in service, manufacturing and agriculture industries must be a priority for ensuring employment and income earning opportunities continue to grow. 

ADB currently projects GDP growth to reach around 6% this year.

“The construction phase of the PNG-LNG project has provided an enormous boost to the economy over the last few years. 

 “As construction winds down and exports begin, demand in sectors such as wholesale and retail trade, logistics, and transport, will also ease. 

 “While detrimental to job growth, this will help to reduce some of the price growth pressures that we have seen emerge in the economy over the last few years. 

“Once export sales commence, the direct effects of the project on the broader economy will be much smaller, with fewer services being required.”

ADB stressed in previous editions of its Pacific Economic Monitor that this would require improvements in the implementation capacity of agencies tasked to carry out the government’s ambitious investment plans.