The Annual Papua New Guinea Independence Day Oration
Parliament House Canberra Australia
26th November 2014
The Hon. Julie Bishop M.P, Minister for Foreign Affairs, Senior representative
from the Australian politics, business sector, academies and media. Thank
you very much for inviting me to deliver the Papua New Guinea
Independence Day Oration, to such a distinguished audience. I am deeply
honoured and pleased to be here and follow in the footsteps of previous
speakers like Dame Carol Kidu and the Right Honourable Rabbie Namaliu.
I wish to commence my talk on the topic “Opportunities & Challenges for the
PNG Economy,” by outling some historical background. The thirty nine
years of Papua New Guinea’s independence and economic history, can be
divided into three distinct periods, of almost equal length.
Period 1 - From 1975 to 1989: PNG had fourteen years of stable low growth,
with two minor shocks as a result of the oil crisis, but no major damage.
Period 2 - 1989 to 2002: The shock of the Bougainville crisis that wiped out
25% of Gross Domestic Product (GDP) and 35% of exports. The shock to the
economy was huge. It lasted for relatively a very short time. The Misima and
Porgera gold mines and the Kutubu oil field commenced production, and the
Ok Tedi copper and gold mine moved out of its infancy. The losses due to the
Bougainville crisis were more than covered by those new developments.
However, one thing stood out during these 2 periods. The strong
performance of the economy did not translate to an improvement in the
standard of living of the majority of the population. The economy was mis-
managed. In March 1994 the level of foreign exchange reserves could not
serve the Governments foreign currency needs. The RBA Governor at the
time, Bernie Fraser, arranged a very short term loan of US$ 80 million, until a
commercial bank loan was raised in June 1994 to repay it. In October 1994, we
decided to float the Kina, to overcome major difficulties to serve the Nation’s
foreign currency needs.
I define this period as the first lost opportunity. The income generated from
the mineral and petroleum projects, did not translate into sustainable
development of the country.
Period 3 - 2002-2014; is a period of economic growth. At the later part of this
period, the economy grew at a higher pace than in the countries defined as
the economic tigers. Being a commodity based country like Australia, the
commodity prices, both mineral and agricultural were the driving force
behind the very high growth. From 2010, it was enhanced by the construction
of the Liquefied Natural Gas (LNG) Project.
At the peak of the commodity prices boom the Government had K7 (A$3)
billion in Trust Accounts, as a result of budget surpluses. For Australia that
has a budget of above A$400 billion, it sounds small change. For us, with a
national budget of K15 billion, it is a fortune.
While we can see a lot of new buildings in Port Moresby, and some other
main centres, the wealth created did not filter down to where it is needed
most, the rural majority.
The infrastructure, education, health, law and order continued to deteriorate.
There was widespread lack of proper project management involving;
planning, procument, implementation and monitoring across Government
agencies which contributed to this deterioration.
This is the second lost opportunity, to turn the tide and embark on a long
term sustainable development path.
This changed in 2012, when the Government of the Hon. Peter O’Neill took
office.
I am very encouraged by the priorities the present Government has set and
the allocation of the very limited resources it has had. In a short period in the
office, this Government introduced the Free Education and Free Basic Health
Care and funded them. The allocation to the Eighty Nine Districts was
introduced and funded, funding of Local Level Governments and investment
in infrastructure was increased, while law and order although there is still a
lot to be desired, is improving.
Such bold moves to provide free education and health care taken by the
current Government has helped it now to be able to assess the extent of the
constraints in implementing these policies. For education, this relates to the
number of teachers and classrooms, and associated training colleges for
teachers. For health care, they relate to hospitals/clinics, doctors and nurses,
and associated training colleges. The Government is addressing these related
capacity issues and constraints through further sectoral and institutional
reforms and budgetary allocations.
Effective use of the increased funding to the provinces continues to be a
challenge, given the capacity issues at that level of government. It is
interesting to note that whilst the Government wants most of these funds to
be targetted to priority areas of health, education and infrastructure, the
reality has been that they dont or remain intrust accounts.
Most importantly, it is only recently that the agriculture sector is getting the
attention it deserves from Government. For the last few years I am
advocating the development of the agriculture sector. It is the source of
income for eighty five precent of our population. We are farmers for
thousands of years and this is what we know how to do.
We have the land mass, the climatic conditions, wealth of experience as
farmers. What we need is technological innovation and training to absorb
and implement it so production can be sustained to withstand adverse
climate changes, crop diseases and other natural adversities. We can become
self-sufficient in food production in relatively a very short time. The aim
should be to become a major exporter of food products, which is in short
supply around the world, as well as in the region.
Given our per capita income at the present of around US$2,000, agriculture
can provide a steady increase in the standard of living for the great majority
of the population, for many years.
Papua New Guinea is rich in natural resources. We are warned about the
Dutch Disease Phenomena, that we might encounter as a result of the fast
development of our non-renewable resources. The most efficient and
productive way to counteract it is by developing the traditional production
sectors. The only one that I can think about, in our case, is agriculture.
Education will improve the skills of future generations and enable
industrialisation. We will have to go through the process that all the nations
went through. To get there, we will have to ensure that we are setting the
right priorities. In this regard the Government of the day is right by
emphasising health, education in this order, as its two main priorities. The
rebuilding and developing basic infrastructure is a must, for the agricultural
development and the output to be delivered to the markets.
There is no doubt that Australia has all the skills and technologies Papua
New Guinea needs to achieve its development objectives. The two
Governments should join forces and decide on the way Australia can assist
in, Papua New Guinea achieving its development objectives and goals. I have
highlighted above some important challenges that PNG has and continues to
face in its development agenda. No doubt, these challeges once overcomed,
will create more development opportunities for PNG.
It is time to revisit all the existing bi-lateral relationships, define clearly how
you can assist us, in getting from where we are today, to where we think that
we can be in the future. It should be a dialog in which, Papua New Guinea
should set its priorities and Australia should propose how it can assist in
achieving them.
In 2014, we were just given a very big third opportunity, to change the
fortunes of the great majority of our population by the commencement of
production of the LNG project. I hope we can ensure that this time we have
hit, and not a miss.
The Government was running relatively large deficits in the last three years
inclusive of the planned one for 2015, an average of 6% of Nominal GDP. This
deficit was a must, if the Government wanted to meet its development
priorities and targets of, free education, free health, infrastructure
development, law and order, improvement on the trickling down funds to
the 89 districts and the many local level governments, to ensure that some of
the resources are spent where they are needed most, in the rural areas, where
the great majority of the population lives. The big change that this
government introduced was, to get the money out of Waigani (where the
government bureaucracy operates in Port Moresby), to where it is really
needed. Many of us had our doubts about the success of such a move. The
experience in the last two years is that, it did what was intended,
successfully. I expect the Government to follow the Medium Term Fiscal
Strategy of a low deficit in 2016 and a balance budget in 2017.
The negative effects of the relatively large deficits, are not reflected in the
main monetary indicators. Inflation for the three years including the
projected for 2015, and the last quarter of 2014 is estimated at an average of
5.5%. Given the high rate of estimated growth in Gross Domestic Product
(GDP) of 7.6 % for the three years, the level of inflation is moderate. Money
Supply increased by 6.6% and Credit to the Private Sector grew by 10.1%, at
the same pace as in the years, prior to the period of the large deficits. The
only real change was a reduction in the level of foreign exchange reserves,
which was influenced by the sharp decline in the commodity prices, both
mineral and agricultural and not by the budget deficit. This is expected to
reverse itself, once the inflows from the LNG Project will start in the second
quarter of 2015.
After satisfying the need of a Central Banker, to use some numbers in any
presentation he makes, I will move to the last subject today, the Sovereign
Wealth Fund. The Sovereign Wealth Fund is the tool that should balance
between the Real Economy, Fiscal and Monetary developments, in the future.
I am very encouraged that the Government decided to establish the
Sovereign Wealth Fund. The Organic Law was approved by Parliament in
2012, and the amendments have been prepared for Parliament first reading
this week. The Sovereign Wealth Fund will have a Stabilisation Fund and a
Future Fund. It will be managed by an independent board. The rules in
respect to the depositing of Mineral and Hydrocarbon revenues, both tax and
dividends, into the two funds is set by the Organic Law. The drawdowns
from the two funds are also embodied in the Constitutional Legislation. The
Sovereign Wealth Fund is a very good mechanism to control that. Whatever
can’t be efficiently and productively used, will be saved for the future
generations. Such a mechanism was missing in the two missed opportunities,
we have had. Let us hope that we learned the lesson and don’t repeat our
mistakes. Being a strategic partner, Australia can refocus its engagement
with PNG to ensure its development aspirations as contained in various long
term policies and vision, are achieved.
I will be pleased to answer any questions you might have on the Papua New
Guinea economy.
Minister Julie Bishop, thank you for inviting me to address the distinguished
audience present here today. God Bless Australia, Papua New Guinea and
our people.