Economics, Politics and Public Policy in East Asia and the Pacific
Author: Aaron Batten, Ministry of Finance, Malawi
Optimism continues to run high about PNG’s development prospects.
The last eight years have seen sustained growth across the PNG economy – the first time since independence. It is also the first time that real per capita incomes have begun to increase after a 30 year period of stagnation. Formal sector employment across all industries is now at record levels. Read more…
Author: Aaron Batten, Ministry of Finance, Malawi
The PNG economy continued to perform well in 2009. Despite declines in the oil and gas sector, lower commodity prices, and reduced international demand because of the global financial crisis, real GDP grew by a solid 4.5 per cent. This growth was also relatively diversified with a 4 per cent increase in formal non-mining sector jobs adding further to the large employment gains made since 2005.
The government’s management of the economic expansion has been mixed, however. The fiscal surpluses of previous years have eroded, with this year’s budget recording a 0.4 per cent of GDP deficit after a 2.2 per cent of GDP deficit in 2008. Read more…
Author: Aaron Batten
There are many reasons to be optimistic about the PNG economy over the coming years. Its relative insulation from the global financial crisis combined with substantial savings still remaining in trust from the commodity boom period leave it well placed to sustain moderate rates of economic growth. This growth will build on the considerable macroeconomic improvements made in recent years particularly in terms of employment creation and business confidence. Optimism is further buoyed by the prospect of new investment in a range of extractive industries – especially the upcoming LNG project.
[/caption]Certainly, dangers to the relative sense of macroeconomic stability exist. The government is having difficulty reigning in expenditures in light of reduced domestic revenues. This has raised concerns about a return to sustained budget deficits between when the trust accounts run out and the LNG revenues start to flow. The final few years of the commodity boom period also saw a considerable growth in the types of wasteful expenditure patterns that have plagued past governments – in particular large increases in salaries and wages and the emergence of increasing numbers of special interest projects. This, in turn, has limited the growth in funding to core development priorities like health and education.
Author: Aaron Batten
PNG had another interesting year in 2008. The first half of the year saw economic growth remain strong as the country continued to benefit from yet another boom in the price of its commodity exports. High resource prices underpinned a significant expansion in the manufacturing, construction and agriculture sectors. Towards the middle of the year, however, poor monetary responses to a prolonged growth in domestic liquidity, coupled with a continued strong external sector, meant that inflationary pressures began to increase, with inflation rising to 13.5 per cent in September 2008.
September, of course, also marked the onset of global financial crisis. Barring a couple of jitters on the PoMEX, PNG’s economy weathered the direct impacts of the crisis relatively unscathed. In large part this was because of the healthy supply of foreign exchange reserves and domestic bank liquidity built up over previous years which gave the financial sector sufficient flexibility to cope with any adjustment costs.
The flow on effects of the crisis have led to a large downturn in the price of many of PNG’s key commodity items which had been driving revenue and output growth. This has had an immediate impact on the Government’s fiscal position with the 2009 Budget predicting a 25 per cent overall decline in domestic tax revenue.
Read more…
Author: Aaron Batten
The 2009 Budget sets several records for PNG’s fiscal management under the theme, ‘Empowering and Transforming the Rural Economy’. Foreshadowed is the PNG Government’s contribution to the Development Budget which is a massive K1385 million ― an increase from K526 million in 2008.
This unprecedented increase in the Development Budget means that, for the first time since independence, PNG’s development expenditure appropriation will be larger than total donor funding of K974 million.
With the unfolding financial crisis, the 2009 Budget may also herald the official end to the commodity price boom which has been driving PNG’s growth and revenue since 2002. As a result, total tax revenue is expected to fall by almost 25 percent. Despite this fall in revenue, and increase in development expenditure, the Government still plans to maintain a relatively balanced budget ― a deficit of K10 million ― in the coming financial year. So where did all the Kina come from? and perhaps more importantly, where is it all going?
Authors: Aaron Batten and Satish Chand
Much has been said about the financial crisis and its potential impact on PNG. Both the Minister for Finance and Treasury and the head of one of the country’s major superannuation funds say that the economy will be relatively immune.
Yet, the Secretary of the Treasury and now the Bank of PNG have voiced concerns about the negative impact of falling GDP growth, reduced export and Government revenue, and a reduction in foreign investment. What should we make of the situation in PNG, and how is this crisis likely to affect the country over coming months and even years?
Author: Aaron Batten
Just like the 1990’s trust accounts are shaping up to be a defining component of how PNG manages its resource revenues in this decade. Unlike the 1990’s however current revenues are being channeled into numerous smaller trust accounts instead of the single consolidated Mineral Resource Stabilization Fund (MRSF). Has PNG learnt from its mistakes or is it heading towards a repeat of the past? To answer these questions it is necessary to understand why these trust accounts have increased so much in prevalence over the last few years and what implications this has for fiscal management.
Author: Aaron Batten
PNG is often seen by Australia as a fragile state dependent on foreign assistance with limited economic prospects. It was even described some years back as being on ‘the brink of collapse’. Since 2002 however our 6 million northern neighbours have been experiencing somewhat of an economic revival. While this has been driven by surging commodity prices it has also been underwritten by considerable improvements in macroeconomic and fiscal management. GDP growth rates have been high and the budget has been in surplus for 5 consecutive years – a record for PNG. The question on everyone’s lips however is; is this trend sustainable?
Author: Aaron Batten
The recommendations of the recently completed Growth Commission funded by the World Bank and led by Nobel laureate Michael Spence have been the subject of considerable debate – and by some authors ridicule. But for all its limitations, the Commission did make some important commentary in particular on the development challenges facing small States such as those in the Pacific and how progress might be made.
Author: Aaron Batten
The Brenthurst Foundation published an interesting Discussion Paper last week drawn from the 2008 Tswalu Dialogue on ‘Towards Conflict Resolution Best Practice’. The dialogue consisted of key leaders who have been involved in institutional development and conflict resolution across the African region.
Amongst the groups more interesting findings was the importance placed on seeing the resolution of conflict and progress in institutional development as a long-term process rather than an event in itself. The report also highlighted the ability of donor interventions to ‘freeze’ rather than resolve ‘conflict’ situations.
Author: Aaron Batten
One of the biggest questions facing the Australian Government which hasn’t received much discussion in the blog world is how technical assistance is being delivered in PNG and the Solomon Islands and perhaps more importantly who delivers it.
Take the PNG example. The technical assistance program is based around two sorts of staff. Those transplanted from Australian Government agencies in Canberra (originally under the Enhanced Cooperation Program (ECP) but now renamed) and a more general Advisory Support Facility (ASF), which sources contractors from across the country and internationally.
Author: Aaron Batten
The Blogoshpere has made a number of insightful comments about AusAIDs first Annual Review of Development Effectiveness Report (ARDE) report. On the whole commentators appear to be happy with the frankness of the report providing quite an honest assessment of the constraints facing the aid program. (See Andrew Leigh (ANU) and Jenny Hayward-Jones (Lowy)).
Amongst some of the more interesting findings of the report was that at approximately 50 per cent of its expenditure Australia gives more aid in the form of technical assistance than any other donor – the majority of which goes to the Pacific. This is hardly ground breaking news but it does raise some interesting questions.