The National, Thursday June 20th, 2013
EMTV’s Business PNG interviewed Minister for Treasury Don Polye and this is an edited version of the interview.
Business PNG: Can you give us a general economic update in a nutshell?
Treasurer: PNG economy is doing very well under very difficult circumstances. The latest projection of our GDP growth has been upgraded from 4% to 5.9% as projected by the Treasury Department over the last three months.
The Inflation rate in the country has been scaled down to 6% from 8% as projected earlier.
I am not only seeing this having positive impact on the economy in the next few months but also foreign investment confidence in our economy.
Employment rate is not dropping and is very conducive for our people.
There is a very good working relationship between the fiscal and monetary policies of the Government.
The latter is managed by the Central Bank and the former by the Treasury Department to ensure the price stabilityis maintained in our economy.
There is been a consistent dialogue between the two state entities for that matter. Thus, we see asustainable growth taking place. In a generic view, our economy is doing well.
Business PNG: What do think of the investor confidence in PNG?
Treasurer: There is investor confidence because of the macro-economic stability. We have experienced that PNG took a U-turn in the past seven to 10 years from economic challenges to create very strong fiscal strategies and macro-economic policies in the areas of debt management, fiscal regime as to spending government resources within affordability.
The country has done so well under then Somare regime and the O’Neill Government.
The fiscal strategies continue to remain and that macro-economic stability has created confidence in the economy.
So, we have seen huge foreign capital flows into PNG. Our foreign reserve is at K7 billion to K8 billion, a level unprecedented in the history. It is macro-economic stability driven by very strong fiscal and monetary policies. As such, the Government has been stable and I am seeing that is continuing in the medium term to the long term, with the prudent management of the economy. Such trend has attracted businesses to invest in the country. However, there is a need for the Government to perform more in terms of sustaining that macro-economic stability. Thatis paramount in the country as we move into the future.
PNG Business: Academics and analysts say while this budget may be affordable in the short term, an extended series of deficits pose risks for the nation returning to macro-economic instability. How do you plan to address this?
Treasurer: If you look at the 2013 budget, it is a record budget. It has shifted away from traditional approaches of the national budget. It captures completely a new focus.
We have laid down the budget for a five-year period instead of concentrating on one fiscal year as usual.
We’ve got a multi-year budget. The monetary plan for the country is giving that high level of guide and presenting an offer of medium term in line with our medium-term strategies,development and fiscal strategies.
We have also shifted a lot of attention from the top level of government expenditure and the implementation of projects down to the sub-national level of government in the provincial and local level governments and so much resource has been provided in those areas.
We have made a lot of predictions based on commodity prices. So the 2013 budget is quite different from the ones we’ve had in the past.
Another very important fact that needs to be understood is that we created a K2.5 billion deficit in the budget deliberately to stimulate growth at the time when we saw the activities induced by the LNG project construction pace.
When work there comes to a stop, we have to maintain that economic environment to create employment opportunities and expertise skills in infrastructure and other areas of development in the country.
So we have made sure that the deficit is financed and managed so that we don’t blow that up beyond the planned deficit.
These are the factors, if not properly managed in the implementation of the government programmes and projects,we can see the threat in the macro-economic stability in PNG.
Provided that these factors were well-managed, you’ll see a high level of predictability given to business investments and the government delivery of programmes on the ground.
If the risk can be managed by every player, we will find minimum risks and maximum benefits.
The ExxonMobil is also a very important project and the budget has taken that into serious consideration.
Any disturbance or delay in the works that take place to meeting the deadline when the first flow of gas must take place in 2014 will mean a threat to the country’s economy and the potential as business investment.
So it requires the discipline, determination and commitment of all parties with Prime Minister Peter O’Neill taking the lead and Deputy Prime Minister Dion’s support along with the government ministers and MPs.
But most importantly our people should cooperate and work together to make sure that we defuse any threats.
We must continue to capitalise on the opportunities to maximise the economic gains.
Business PNG: So do you think our current performance will challenge the critics?
Treasurer: The current performance of our economic outcomes and its indicators are very positive.
Critics are making comments on the state of the economy that are baseless.
Our economic growth, inflation rates, employment rate and GDP are measured by systems of the Treasury Department.
There is tangible evidence that there is economic growth at provincial and district levels. For instance,Enga and Chimbu have revised their budgets due to a projected growth in trade and businesses.
The GDP growth speaks a volume about PNG’seconomic growth.
Briefing me on the tax revenue for the public purse, Internal Revenue Commissioner Betty Palaso said K50 million over and above the projection of the budget for the first three months is a symptom of our economic growth.
It is a positive sign that PNG’s economy is not one that has been indicated by critics.
If we are getting K50 million above that, it indicates that the economy is growing under difficult circumstances due to down-turn in commodity prices. It is a positive sign.
That gives me the confidence to tell PNG that GDP is growing over and above projected GDP of 4-5.9 %.
This is the figure supported by the systems of the Bank of PNG and Treasury Department. It is looking positive and is growing in a positive manner.
Business PNG:So much of the 2013 budget, say about 44% of the total budget has been given to the development budget.
Of this, K1.492 billion is being allocated as direct funding for provincial, district and local level governments.
While this is welcoming, critics say the increase in devolved or decentralised funding will have an adverse impact on the recurrent budget for existing infrastructure. What have you to say about this?
Treasurer: We have systems, structure and institutions in place to ensure development takes place on the ground. For example, every district has a management team.
That is not to say it is perfect but the basic is already there. What lacks in some areas is we need to strengthen it efficiently-cut out some that are doing duplicated functions and strengthening only one system to deliver.
The bureaucracy is there to man the system to ensure service delivery. They are the custodians of the system to make sure the system does deliver or restores it when it does not deliver.
We are aware that there are not enough skilled and qualified bureaucrats to make sure delivery of government goods and services and implementation of government programmes get off the ground to achieve the tangible benefits as intended. I am confident that there is nothing wrong with the system.
The challenges are capacity issues, which must have overlooked, and an important function of government in human resource developmentwe have not done. That is where we find the challenge. Otherwise,the basic mechanism to deliver goods and services is already there.
Business PNG: You mentioned key enablers like education, health, law and order and infrastructure. How are they faring on their own right?
Treasurer: There are some good reports while others are bad. I have to be sincere about that. We have experienced in the last 10 years some sectors have performed well while others haven’t.
That has prompted the Government to correct the weak spots or where commitment lacked. Transportation, communication and storage we have recorded the biggest in the last 10 years.
For instance, that has given rise, firstly, to the transportation of goods and services and, secondly, the construction industry. Third is in the wholesale and retail in the country.
Another sector that is experiencing growth is the real estate businesses and spin-off businesses and spurred employment that havehad positive domino effects in the rest of the economy.
I am happy that we have done so well and our economy is continuing to grow.
That is good news. The bad news is that we have not seen growth in agriculture. It is declining. Not in the far past agriculture grew by 36%.
But, indeed this year, we are seeing it to grow at 28% and in 2017, if we allow this current trend to continue, we are seeing it to get reduced to 23%. The other area is electricity.
The growth has been very minimal. That has in a way derailed progress in other areas and, of course, the social sector including law and order.
Health and education have been performing poorly – education in terms of quality and in mass.
Law and order has also been affected. Law and order escalation, maternal mortality rate etc are our big challenges. The Government’s free-education and basic free health care are ways to improve them.
We must address water, sewage and electricity woes immediately, too. I have just signed two loans for electricity.
Mid-year finance outcome report (due later this month) will have detailed information on these. I am giving you an overall perspective on how much we have done and the country’s economy growth in the last 10 years. I am determined that we improve the indicators on social sector, agriculture, electricity and water.