The Papua New Guinea government is being ‘prudent’ in its approach to the Budget, according to the Asian Development Bank’s PNG Country Director Marcelo Minc and Country Economist Yurendra Basnett. They tell Business Advantage International that investment in non-resource sectors is required for the economy to progress.

The Asian Development Bank’s Marcelo Minc

‘We can see that the Government is being prudent about the economy, and I think this is good,’ says Minc, who is the PNG Country Director for the ADB.

‘There was a proactive corrective measure taken, and that was timely,’ adds Basnett, Country Economist for the ADB.  ‘They are trying to address the revenue shortfall.

‘Talking about revenue measures is quite a bold step. The easy option would have been to not talk about it because it can be politically sensitive.

‘The second thing that we noted was that they reined in the deficit at 2.5 per cent, which is in line with the fiscal path that they have outlined. Again, the easier path would have been to let it ease off.’

Cycle

Basnett says PNG economy is subject to cyclical swings because growth is too dependent on the energy sector. ‘The business cycle of the oil and gas sector affects the entire business cycle of the economy.

‘So you had a big inflow of investment, the private sector was growing and so was public expenditure. The sector then goes into the post investment phase and into the production phase. That was then followed by the commodity downturn.

‘For us at the ADB, I think we would like to see the authorities follow on this fiscal path, a prudent fiscal path, towards a balanced budget.

‘Public expenditure is still a very important investment item. Cutting it very sharply could have an adverse effect on the economy. It has to be done in a calibrated manner.’

Infrastructure

For PNG to advance economically, Minc says it is necessary to have wider business investment. ‘The country cannot reach a higher level of economic development without the private sector investing in sectors of the economy other than mining and resources.

Minc says the ADB’s focus is on helping the Government improve the efficiency of its expenditure. ‘We are looking for economic development, and our focus is on infrastructure.’

Minc cites as an example of the infrastructure focus the Tidal Basin project, which increased the cargo handling capacity at Lae Port.

‘For us the project was the single largest investment in the whole Pacific region for ADB, and we would like to see the utmost potential in terms of operations.

‘Our idea was that this could become a regional hub between Asia, Australia and New Zealand and the rest of the Pacific. Geographically, it is an intermediate point between Auckland, Sydney, Fiji and the other islands, Hong Kong and Singapore. That is not happening so far.’

State-owned enterprises

The ADB’s Yurendra Basnett

Minc says PNG’s state-owned enterprises (SOEs) should be run as businesses but should also provide services the private sector cannot. Otherwise, they should be privatised, he says.

‘The justification for an SOE is service delivery because the market cannot deliver that, the private sector cannot,’ adds Basnett.

Basnett says the evaluation of PNG’s SOEs tends to only be on the financial returns.  ‘If an SOE is to have good financial returns, and if it has a healthy, performing balance sheet, it should be done by private sector. If it is commercially viable, you don’t need a state-owned enterprise.

‘The only reason you need it is because they are unlikely to have a strong balance sheet: that’s why the State intervenes, right?’