PNG does not have capacity to absorb foreign investment: ADB

National, Normal

THE country’s growing foreign investment will not be well absorbed into the economy as it lacks capacity, the Asian Development Bank (ADB) said.
ADB director Charles Andrew yesterday said it was a growing concern from previous records that PNG did not have the capacity to absorb the fast growing investment.
During the launching of the ADB 2010 Outlook in Port Moresby, Mr Andrew said despite the unprecedented economic growth for the last eight years and the prospect of future growth given the economic boom boosted by the LNG project, it is uncertain as to how effectively the growth would be absorbed into the economy and finally translate into real developments.
ADB economist Dominic Patrick Mellor said if rules of the medium term fiscal strategy were followed strictly, monetary and fiscal policy were closely coordinated and the sovereign wealth fund established as proposed, then the Government would be able to manage the inflows of revenue from investments into the economy.
Mr Mellor said as the Government lacked the capacity to manage  the windfall from high commodities for the past years, thousands of trust accounts been created with billions in kina pumped into them.
However, these have been channelled outside of the national budget and not integrated into the macroeconomic framework.
He said significant amounts of trust funds had channelled through districts which have no capacity at all to implement Government policy and development project.
“It is unlikely that all the spending went on development priority projects, given the rapid pace of drawdown and lack of transparency in the spending.
“Given the LNG project, this time development objectives are more likely to be achieved and macroeconomic stability would be maintained if the medium term fiscal strategy is strictly followed,” he said.