LNG plan may spawn ‘Dutch Disease’

Business, Normal

The National, Wednesday October 30th, 2013

 THE PNG LNG project will generate benefits in terms of revenue as well as problems, Bank of Papua New Guinea’s (BPNG) assistant governor Joe Teria says.

He stressed that one major challenge was the “Dutch disease”.

Teria said that “Dutch Disease”, or the pricing out of traditional export sectors, was one of the best examples of the relationship between monetary and fiscal policies.

“Dutch Disease” is the negative impact on an economy of anything that gives rise to a sharp inflow of foreign currency. 

He said in Papua New Guinea’s case, it was the large gas reserves.

“The inflow of currency would lead to currency appreciation, making other domestic products less price competitive on the export market.

“It would also lead to higher levels of cheap imports with negative consequences, thus triggering inflation.”

Teria said recently that although BPNG is the guardian of price stability, it could not counteract fully the effects of the “disease”. 

He praised the Government for taking the right steps in reducing the disease’s impact through the implementation of the sovereign wealth fund (SWF).

“The SWF tries to mitigate the exchange rate appreciation; in so doing it protects the traditional export sector as well as lessen the impact on domestic money supply, stemming possible inflationary pressures.

Teria said PNG, with its abundant fertile land and water resource, should develop a competitive, agricultural sector. 

He said PNG should  invest more in agriculture as a food supplier country, not only for local consumption but for export.