Economist supports PNG opposition call for loans

Transcript

An Australian economist who specialises in Papua New Guinea is supporting opposition calls for the government to borrow internationally to alleviate its cash flow problem.

The leader of the opposition, Don Polye, says PNG should seek assistance from the International Monetary Fund following revenue shortfalls caused by the global collapse of oil and mineral prices.

Public servants in PNG have complained this month about not being paid wages and funds for basic services in the provinces appear to have dried up.

Ben Robinson spoke with the economist Paul Flanagan.

PAUL FLANAGAN: I wouldn't say its broke. The total assets of Papua New Guinea are greater then its total liabilities, but there clearly are significant cash flow problems, largely because the government didn't handle the decline in mineral revenues in the way it should have. It didn't respond quickly enough to the fall in oil prices at the end of 2014. The budget looks good on paper, but in reality the policy implications of what they've set out over the next two years: 45 percent cuts in education, health and infrastructure, they're just not realistic. So it does mean they probably do need to look for some type of foreign loans to help them go through the transition of this drop in revenues. The opposition is talking about maybe going to the IMF. The IMF is actually reasonably cheap finance to assist with these types of transitions. It's certainly what PNG did in the mid-nineties and also late-nineties to deal with similar economic challenges that they faced then. So that's probably a good initiative to go and look for some of these cheap sources of finance and advice.

BEN ROBINSON: So given that the price of oil has fallen world wide, are there other areas of the PNG economy that they can concentrate?

PF: So they need to change their great strategies, and it needs to be a more inclusive growth strategy. Doing things that focus more on the agricultural sector - 85 percent of people in PNG still depend on that sector, as well as small and medium sized enterprises. Unfortunately in the last few months the government and policies there have said they are going to do things to refocus on agriculture. But what they are suggesting are the wrong kind of policies. Experience both in PNG's history and that of Asian countries that doing things such as massive import barriers and restrictions in the agriculture side, a form of almost forced nationalisation of a large number of medium sized enterprises. Those sort of activities are more likely to harm growth than be good for growth for PNG in the long term.

BR: So is the economy in a crisis or is it too early to say that?

PF: I would probably not say it is in a crisis but I would be saying the policy prescriptions that the government is imposing are worse than what would be required for a crisis. So specifically, the expenditure cuts in the budget, were more severe than the expenditure cuts imposed on Greece during its crisis. So if you look at some of the numbers - growth, exchange, I probably wouldn't say crisis levels, but I look at policy response, and I would say these are crisis response policies. And unfortunately those policies aren't being terribly well implemented.

BR: Finally, do you care to predict at what level you think the PNG economy may grow through 2016?

PF: That will depend in part on the pattern of recovery of the agriculture sector given the drought. There are a number of sales figures from business that indicate sales are below the levels they were last year. So this is a fine thing but I suspect the figure will be very close to zero percent.