PNG's non-mining industries see slower growth | Pacific Beat

PNG's non-mining industries see slower growth

PNG's non-mining industries see slower growth

Updated 7 July 2014, 11:21 AEST

Papua New Guinea's economic growth is expected to be record 20 per cent next year when the full impact of production at the PNG LNG project is felt, but for industries other than gas it is a dramatically different story.

The Asian Development Bank's Pacific Economic Monitor has the latest figures.

And it highlights the role the government can play in making sure the people of Papua New Guinea see some of the benefits of the gas boom.

PNG economist Aaron Batten says this year's economic growth across all sectors is expected to be 6 per cent.

BATTEN: Economic activity outside of mining and petroleum is expected to continue to slow. We forecast overall growth in the non-mining sectors of just 1.6 percent this year. And this represents a significant easing from the highs recorded over the last three or four years and will create challenges for further expanding formal sector job opportunities, in particular.
GARRETT: Beyond 2015, Papua New Guinea is expecting below average growth, even including the PNG-LNG Project. Why is that?
BATTEN: Well, that's right. Over the last three or four years, there's been a large surge of foreign investment into the PNG economy, in large part as a result of the PNG-LNG Project and as some of those construction spill overs now start to dissipate, the underlying drivers of growth within the PNG economy are also slowing. So there's a very much a needed emphasis on renewing opportunities for the levels of investment within the economy.
GARRETT: You say that in this context, the Papua New Guinea government has a key role to play in jobs growth in the formal sector. Why?
BATTEN: Well, there's some background to that. Papua New Guinea has certainly made some very significant progress in creating more formal sector job opportunities over the last decade. The estimates that we've undertaken show that the number of formal sector jobs in the economy has effectively doubled between 2002-2013, on the back of what was very solid growth in non-mining sectors of the economy. In particular, a defining feature of this job growth has been the diversity of employment-generating sectors, so we've seen agriculture account at a larger share of  formal job creation, followed by manufacturing, building, construction, transport and trade. But at the same time, we also need to be mindful of the fact that less than 10 percent of the PNG population are able to access formal sector job opportunities. So the point that we highlight within the Pacific Economic Monitor is that a much larger focus needs to be placed on helping those in the informal sector of the PNG economy, translate into formal sector jobs.
GARRETT: How can Papua New Guinea do that?
BATTEN: Well, there are a number of challenges faced by PNG in creating more formal sector job opportunities. From the very initial point, it's going to take decades of sustained job growth to transfer a significant portion of the population out of their informal sector.
As a result, it would be very important policymakers targeting reduced inequality and improving the inclusiveness of their economic growth to place a much bigger focus on developing new ways for these informal sector workers to access things like social insurance and micro-social protection measures that can help them access the same social services that their formal sector colleagues also have access to.
GARRETT: You also say creating jobs requires fiscal discipline and macro-economic stability. The PNG government is having difficulty with both its revenue and its spending and the sacking of the Anti-Corruption Taskforce and events around that have created political turmoil. How far off that fiscal discipline and macro-economic stability are we at the moment?
BATTEN: Well, the last two years has seen a certain marked increase in the level of government expenditure and borrowing to fund that expenditure in PNG. However, by both regional and historical standard, PNG's debt levels do remain at relatively moderate levels and so long as a cautious fiscal stance is adopted over the coming years, it won't pose a major risk to macro-economic stability. 
The key challenge that we continue to highlight for the budget remains on the implementation front, where the bureaucracy continue to face challenges in delivering a much larger pipeline of government projects.
Recent Treasury data released  shows that in 2013, about 20 percent of the capital budget was unspent, with roughly 45 percent of the spending which did occur coming in the final two months of the year. This really highlights the challenges that the bureaucracy is facing in delivering a much larger budget.
GARRETT: How can that be addressed?
BATTEN: Well, in order to address that you need to get to the heart of some of the public sector reform issues within PNG and some of the recommendations that Asian Development Bank has been making also focused on expanding the role of the private sector in their economy and allowing them to play a bigger role in the delivery of key services in the economy.

Presenter: Jemima Garrett

Speaker: Aaron Batten, PNG economist, Asian Development Bank

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