PNG seeks to capitalise on LNG stage

Transcript

The Asian Development Bank says the jury is still out on whether Papua New Guinea's government is managing the windfall from the landmark LNG gas project for the long-term benefit of the country.

In its assessment of the regional economic outlook, the ADB has forecast strong economic growth for PNG and most Pacific Island countries this year.

The Bank's Pacific economist Christopher Edmonds spoke to Johnny Blades.

CHRISTOPHER EDMONDS: Resource extraction, resource export sectors tend to be de-linked from the (local) economies in general basically. There's not that many people employed in the industry, so there's not a lot of jobs created. It's basically taking precious resources out of the earth and putting them on a boat. So it's basically de-linked from the local economy. So the first principle question and challenge for PNG is how to bring the benefits of this growth, which is creating wealth, but how do you diffuse that wealth to the broader population. And for that, it's reallly an issue of improving government capacity to deliver basic services, improving infrastructure in the country, that kind of thing. And that's been a long-term challenge, before you even start to talk about what benefit it's been to the rest of the Pacific region.

JOHNNY BLADES: The government of PNG says it's trying to capitalise on this important stage, and there's a spending frenzy really isn't there, is that under control?

CE: So the ADB has been working with the PNG government for a number of years to work on its financial management and we do see progress. At the same time, it's a very big country and especially getting the benefits of reforms out to remote areas is definitely a challenge. but we do see positive process, so the infrastructure is being developed, albeit slowly; services are working towards improvement in the country, but definitely I think the pace at which the government has tried to take this enterprise on has been maybe a bit quick and has led to certain financial management issues, in terms of the orderliness of the budgeting process and the ability of the government really efficiently execute and use the resources that it has available, both from the LNG project and from development partners assistance.

JB: They've blown their deficit threshold, according to Don Polye.

CE: I don't have the numbers in front of me but in general the issue has been that the government's been passing very heroic expansions in expenditure and typically they're under-spending that drastically. And you often see certain inefficiencies in the way that money is spent, with the rise in constituency funds, in other words funds channelled directly to parliamentarians rather than going through the formal budget process. This has been a challenge. Early on there was a lot of hope that they would establish a sovereign wealth fund in the country, and this has sort of been transformed into something that looks much more like a government investment fund rather than a sovereign wealth fund in the country. The sovereign wealth fund is recommended because we know these resource booms tend to be short-lived and what you want to do is create a pool of resources that you can then invest on overseas markets to create interest income or returns on investment. They haven't done that the way that some of the other countries like Timor Leste has done with their petroleum fund. And that also means that the macro-economic effects of the resource boom tend to be more stronger in the economy. So you tend to have more inflation, currency appreciation, all things that we have seen in PNG.