PNG growth imbalance

 By GYNNIE KERO

THE low growth in the non-mining sector this year hints a very low growth rate in the other sectors of the economy, worsened by low commodity prices and the occurrence of farming diseases, economist Paul Barker (pictured) said. 

The projected 6.2% growth this year would mainly come from the expected gas export he said.

“The impact on agriculture and much of manufacturing and tourism will only be positive if the negative impacts (of Dutch disease) are restrained, through the stabilisation of the currency.

“PNG has a long backlog of development investment and restoration programmes to let the benefits of crude GDP growth to have a broad-based impact on the economy and its population.

“Many risks are faced in the process to avoid a skewed economic impact (benefiting a narrow portion of the population, at the expense of the rest).”

Barker predicted PNG will face a very challenging year, although partly of its own making. 

He said: “External factors, which may restrain growth, will include further disruption in the global economy, perhaps related to renewed debt problems in the euro zone, further slowdown in the East Asian economies, notably China and other countries, notably India which would stall before and perhaps after their election. 

For this year, the government has forecast a continued strong growth of 6.2%, but with only a small increase in the non-mining sector of 1.6%. 

However, Barker said: “The 6.2% is based substantially upon LNG production and exports starting in the second-half of the year and starting to boost the GDP growth, which could jump next year.

“The start of gas production and processing into liquefied gas for export will boost exports and start reducing the PNG’s negative balance of trade and current account deficit, which should go back into positive in 2015 as LNG exports increase, especially if other commodity prices have also risen again by then. 

 “Disruption and conflict in the Middle East, North Africa and even east Asia would all be disruptive, although conversely in some cases may push some commodity prices up, from which there are invariably winners and losers. 

“Domestic problems will relate to the capacity to target public expenditure and keep inflation in check, utilise the budget, including large deficit (borrowing) effectively to encourage economic activity and opportunity, including amongst rural farmers to produce exports crops and for the domestic market. 

“Creating investment uncertainty of divestment of overseas ownership of various businesses, or further restrictions on transfers or enforced ownership transfers, including nationalisation of businesses, would all undermine the readiness for foreign direct investment (FDI) and in some cases, domestic investors, to invest capital particularly in longer term or riskier business ventures in PNG, including business commitment to needed longer term human resource development. 

Separately, Barker stressed that failure to address law and order problems, major projects and disruptions to the country’s infrastructure would undermine the country’s economic growth.

Despite that, he said: “2014 should be a good year for PNG.

“There are some sound policy commitments such as the Independent Commission Against Corruption (ICAC) and the extractive industries’ transparency initiatives (EITI). 

Barker, however cautioned that there remained limited public sector capacity (which will be the major future beneficiaries from LNG revenue within PNG) and very poor public sector accountability (comprising transparency, governance, oversight and enforcement of rules or penalties in the case of abuse)”.