The State of the PNG EconomyCPA Annual Conference, August 2019, Lae

Paul BarkerInstitute of National Affairs

Why start with a photo from the 2019 TIPNG walk against corruption?Flown in from Malaysia where much focus on the infamous 1 MDB scandal; centre of attention there, around their former PM and the so-called Kleptocracy the world has ever known; it brought down a government, but much more seriously it’s badly damaged an economy and the role of the state in serving its people;

Don’t underestimate the impact of poor governance and corruption in undermining the prospects of a whole economy and society; many of those same players or their kin are active in PNG providing or pursing over-priced contracts and financing deals or seeking to access resources....

Challenging times for a new PM:• High public expectations and potential public support to make real reforms• Honeymoon period – need to deliver not just pormise• But – real challenges faced:

• Rather stagnant economy – partly determining by external factors• Capacity to manoeuvre limited as already heavily borrowed since 2012 and debts levels

rising and becoming unsustainable (including contingent liabilities)• Constraints of PNG politics and counter years of growing crony capitalism, and DSIP

political handouts, status projects, • Ensure real governance reform, not smoke and mirrors (ICAC, NPC, SOEs etc)• Need to boost revenue, and ensure fair share from resources, while attracting/retaining

the good investors, and diversifying, supporting local entrepresneurs, without frightening off needed FDI, skills etc

• Need to control growing expenditure – esp debt servicing, and unproductive, while boosting quality and capacity in priority education, health, law and order (thinking smarter, not just throwing money)

• Big resource projects: tempting to kick off..but ensure they follow the law and beneficial• SWF – avoiding Dutch disease and preparing for/managing resource wealth, including if it

comes or doesn’t

The Need for a Diversified but well Managed Economy....to meet all Needs

• Economic growth since 2002, but weak since 2014 and even negative in 2018, • especially weak in the non-mining sector• some strong growth in a few years, but inconsistent • in many years below population growth (maybe at 3.1%...next Census in 2011)• GDP is a poor measure of economic activity and local benefits and participation and GDP

growth not translating into economic activity in-country; GNI a better measure, but Non-mining GDP widely used a better measure, including for per capita growth;

• GDP should always taken together with other measures of national prosperity and welfare (e.g. UN Human Development Indicators, despite the weaknesses of all economic and social measurements)

-2

0

2

4

6

8

10

12

14

2002 2004 2006 2008 2010 2012 2014 2016 2018p 2020p

per

cen

t

Year

GDP Growth Rate 2002-2019 (data: NSO to 2014, Treasury since 2015 and projections to 2019

- MYEFO)

Total GDP

Total Non-Mining

-

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

2002 2004 2006 2008 2010 2012 2014 2016e 2018p

Percentage of GDP by Economic Activity (projections 2018, source: NSO and Treasury forecast)

Agric/forest/fish

Oil and Gas extraction

Mining/quarrying

Construction

Manufacturing

• Shifting composition of the Economy

• Relative relationships, doesn’t mean agriculture is declining overall

-

10,000.0

20,000.0

30,000.0

40,000.0

50,000.0

60,000.0

70,000.0

80,000.0

90,000.0

2007 2008 2009 2010 2011 2012 2013 2014 2015e 2016e 2017p 2018p

GDP at current and constant prices (mill kina) 2007 - 2018(NSO & Treasury forecast)

Total GDP nominal

Agric, forest, fish

Oil and gas

Mining and quarrying

Construction

Wholesale & Retail

Total GDP Real

Real estate andassociated

Non-mining GDPNominal

-40

-30

-20

-10

0

10

20

30

40

50

60

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018p

Growth Rates (GDP) by Sector (Treasury and forecasts 2007-2018 Budget projn)

Total GDP

oil/gas

Agric/forest/fish

Mining/Quarrying

Construction

Manufacturing

Transport-storage-commun

Wholesale/retail

Total Non-Mining

• Very inconsistent growth rates, slow growth of non-mining/oil gas sector, but mining also relatively stagnant

0

50

100

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1

200

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Jun

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8

Jun

Sep

Dec

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9

Mar

ch 2

00

2 =

10

0

Year

Formal Sector Employment Growth 2001-2019 Qtr 1 (BPNG Employment Survey)

Agric/for/fish

Total Non-Mineral

Mineral

NCD

Overall employment growth has been nil or negative since 2012

Some recent boost to mining employment, notably post earthquake and further exploration etc

0

50

100

150

200

250

300

350

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012 Q2

Q3 Q4

2013 Q2 Q3

Q4

2014 Ju

n

Sep

Dec

2015 Ju

n

Sep

Dec

2016

2017

2018

Mar

ch 2

002

= 1

00

Formal Sector Employment Growth 2001-2018 (qtr1) (BPNG Employment Survey) Agric/for/fish

Retail

Wholesale

Manufacture

Building/construction

Transport

Financial/business

Mineral

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

2002 2004 2006 2008 2010 2012 Q3 2013 Q3 2014 Q3 2015 Q3 2016 2017 2018 2019

per

cen

tage

ch

ange

Year

Employment Trends to 2nd Qtr 2019 Qtr1 (BPNG)

Total Non-Mineral

Mineral

Formal sector Employment only comprises about 1/6th of all eligible members of the adult workforce. The remainder are engaged in various productive or less productive activities in the informal and subsistence economy. Formal Sector Employment has been largely flat since 2014, failing to absorb new prospective members of the workforce, let alone others

• PNG’s a price taker and relatively dependent upon international commodity prices, although a more diversified economy than some developing countries

• The Government had undue expectations out of its largest resource investment, PNG LNG, which provided a major, if localised economic boost for its brief construction period, and a further boost to GDP when production commenced in May 2014, but this was followed shortly after by a severe fall in oil and gas prices (and most other commodity prices), and deferred the repayment of project debt and the receipt of substantial project revenue. Nevertheless, some 539 LNG shipments have occurred and oil prices have recovered from the low of USD 36/barrel to waver around $60/barrel. Revenue rising, notably dividends, but really post 2024

• But with also several mature mines, and gold prices remaining robust or good, the State could have expected resource sector revenue than it did since 2014; but the impact on the local economy also very dependent upon the investment conditions, including the project agreements negotiated for some very large projects

• Since mid-2012 Govt also embarked on major public expenditure, which with weak revenue, has been consistently part-funded from growing public debt; unfortunately, also, the utility and quality of that expenditure has been mixed, and expenditure control weak

• 2018 also hit with social and economic impact of major earthquake(s) in Hela/SHP impact 4 major resource projects: LNG, Kutubu oil, Porgera and Ok Tedi to different degrees

• Big drop in oil/gas prices shortly after PNG commenced LNG production in mid-2014

• Firm recovery during 2017 & 18; unrealistic to expect prices to return to pre-2014 levels

0

2

4

6

8

10

12

14

16

18

20

Oct

-98

Ap

r-99

Oct

-99

Ap

r-00

Oct

-00

Ap

r-01

Oct

-01

Ap

r-02

Oct

-02

Ap

r-03

Oct

-03

Ap

r-04

Oct

-04

Ap

r-05

Oct

-05

Ap

r-06

Oct

-06

Ap

r-07

Oct

-07

Ap

r-08

Oct

-08

Ap

r-09

Oct

-09

Ap

r-10

Oct

-10

Ap

r-11

Oct

-11

Ap

r-12

Oct

-12

Ap

r-13

Oct

-13

Ap

r-14

Oct

-14

Ap

r-15

Oct

-15

Ap

r-16

Oct

-16

Ap

r-17

Oct

-17

Ap

r-18

Oct

-18

Ap

r-19

LNG (Indon) Prices USD/mill metric BTUs1998-Jul 2019

0

20

40

60

80

100

120

140

160Fe

b-0

2

Jul-

02

Dec

-02

May

-03

Oct

-03

Mar

-04

Au

g-04

Jan

-05

Jun

-05

No

v-0

5

Ap

r-0

6

Sep

-06

Feb

-07

Jul-

07

Dec

-07

May

-08

Oct

-08

Mar

-09

Au

g-09

Jan

-10

Jun

-10

No

v-1

0

Ap

r-1

1

Sep

-11

Feb

-12

Jul-

12

Dec

-12

May

-13

Oct

-13

Mar

-14

Au

g-14

Jan

-15

Jun

-15

No

v-1

5

Ap

r-16

Sep

-16

Feb

-17

Jul-

17

Dec

-17

May

-18

Oct

-18

Mar

-19

Crude Oil Price (Brent) USD/Barrel 1992-Jul 2019

Similar picture, of low prices and then some recovery since 2017. Production has fallen away from early years, but closely linked with gas output, providing some recent boost in oil/condensates

• Despite some fall in global gold prices since 2013, they remain relatively strong in historic terms, partly owing to gold’s unusual role as a commodity (as a safeguard in times of uncertainty)

0

200

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600

800

1000

1200

1400

1600

1800

2000

Feb-02 Feb-03 Feb-04 Feb-05 Feb-06 Feb-07 Feb-08 Feb-09 Feb-10 Feb-11 Feb-12 Feb-13 Feb-14 Feb-15 Feb-16 Feb-17 Feb-18 Feb-19

Gold Price USD/troy ounce 2002-Jul 2019

0.00

2,000.00

4,000.00

6,000.00

8,000.00

10,000.00

12,000.00

Feb

-02

Jul-

02

Dec

-02

May

-03

Oct

-03

Mar

-04

Au

g-0

4

Jan

-05

Jun

-05

No

v-0

5

Ap

r-0

6

Sep

-06

Feb

-07

Jul-

07

Dec

-07

May

-08

Oct

-08

Mar

-09

Au

g-0

9

Jan

-10

Jun

-10

No

v-1

0

Ap

r-1

1

Sep

-11

Feb

-12

Jul-

12

Dec

-12

May

-13

Oct

-13

Mar

-14

Au

g-1

4

Jan

-15

Jun

-15

No

v-1

5

Ap

r-1

6

Sep

-16

Feb

-17

Jul-

17

Dec

-17

May

-18

Oct

-18

Mar

-19

Copper Gde A USD/tonne 2002- Jul 2019 Prices well below their peal, but reasonably steady and well above early 2000sUncertainty in commodity markets with weakening of Chinese growth and continuing trade tensions between US and China

0

500

1000

1500

2000

2500

Jun

-82

Jun

-83

Jun

-84

Jun

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Jun

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Jun

-87

Jun

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Jun

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Jun

-90

Jun

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Jun

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Jun

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Jun

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Jun

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Jun

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Jun

-00

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Jun

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Jun

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Jun

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Jun

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Jun

-19

palm oil and coconut oil prices (fob), Jun 1982-Nov 2018 USD/tonne

Copra

Coconutoil

Palm oilCPO

Palmkernel oil

Piece have fluctuated severely, but since 2017 prices of palm oil, kernel, copra and coconut oil have all failed severely. Some of the newer (non RSPO) producers have reportedly laid off most of their labour force lately.

The situation is worsened by natural disasters in some producing areas, notably Bialla

The weaker kina against the IS $ has provided the only relief in recent times, but even that has stabilised in 2018/early 2019 partly

• Weakening prices for PNG’s traditional largest agricultural export, grown by the largest number of farmers

• Need to focus on quality and productivity

0.00

50.00

100.00

150.00

200.00

250.00

300.00

350.001

998

199

9

200

0

200

1

200

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5

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8

US

cts/

lb

International Coffee Prices (US Cts/lb) 1998 - July 2019

Other Mild Arabicas -weighted ave

Robusta weighted ave

ICO Composite Price

Better returns from some fresh produce in vicinity of main highways, providing some alternative for farmers

• Need to focus on needs of PNG farmers as businessmen and women

• Reducing costs, risks and impediments

0.00

500.00

1,000.00

1,500.00

2,000.00

2,500.00

3,000.00

3,500.00

4,000.00

Sep-02 Sep-03 Sep-04 Sep-05 Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16 Sep-17 Sep-18

International Cocoa Price (ICCO) USD/tonneJan 2002 - Jul 2019

Some recovery in production since the devastation of cocoa pod borer, with major support, including plantings in new areas

• The alternative activity, especially in remoter areas (e.g. Western Prov) but needs ongoing assistance to ensure more diverse economic engagement, with ongoing low prices and high costs of access

0

1

2

3

4

5

6

7

Feb

-88

No

v-8

8

Au

g-89

May

-90

Feb

-91

No

v-9

1

Au

g-92

May

-93

Feb

-94

No

v-9

4

Au

g-95

May

-96

Feb

-97

No

v-9

7

Au

g-98

May

-99

Feb

-00

No

v-0

0

Au

g-01

May

-02

Feb

-03

No

v-0

3

Au

g-04

May

-05

Feb

-06

No

v-0

6

Au

g-07

May

-08

Feb

-09

No

v-0

9

Au

g-10

May

-11

Feb

-12

No

v-1

2

Au

g-13

May

-14

Feb

-15

No

v-1

5

Au

g-16

May

-17

Feb

-18

No

v-1

8

Rubber - Monthly Price - No 3 smoked sheet Sing. USD/kg (1988-Jul 2019)

As with other crops, major new plantings in S E Asia, but also in China has further impacted markets, at a time when demand is also relatively flat

0

100

200

300

400

500

600

Ap

r-9

2

Dec

-92

Au

g-93

Ap

r-9

4

Dec

-94

Au

g-95

Ap

r-9

6

Dec

-96

Au

g-97

Ap

r-9

8

Dec

-98

Au

g-99

Ap

r-0

0

Dec

-00

Au

g-01

Ap

r-0

2

Dec

-02

Au

g-03

Ap

r-0

4

Dec

-04

Au

g-05

Ap

r-0

6

Dec

-06

Au

g-07

Ap

r-0

8

Dec

-08

Au

g-09

Ap

r-1

0

Dec

-10

Au

g-11

Ap

r-1

2

Dec

-12

Au

g-13

Ap

r-1

4

Dec

-14

Au

g-15

Ap

r-1

6

Dec

-16

Au

g-17

Ap

r-1

8

Dec

-18

Hardwood (meranti) log prices (to Japan) USD/m31992-Mar 2019

Demand from China currently relatively weak

-

200.0

400.0

600.0

800.0

1,000.0

1,200.0

1,400.0

1,600.0

1,800.0

2,000.0

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Export Commodity Price Index 1994-1st Qtr 2018 (1994 base year- BPNG)

Coffee Cocoa Copra Coconut Oil

Palm Oil Logs Non-mineral Crude Oil

Gold Copper Mineral Total Index

-

2.00

4.00

6.00

8.00

10.00

12.00

14.00

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 q1

Agricultural Export Prices 2005-2018 qtr1 ('000 kina/tonne fob - ave) Coffee

Cocoa

Copra

Coconut Oil

Palm Oil

Rubber

Tea

-

2,000.0

4,000.0

6,000.0

8,000.0

10,000.0

12,000.0

14,000.0

19992000200120022003200420052006200720082009201020112012201320142015201620172018p

Exports -Value FOB (million kina) 1999-2018 (BPNG) Total Agriculture (excl.forestry/fisheries)

Total forest products

Marine Products

Crude Oil

Gold

Copper

Nickel

Cobalt

Condensate

Gas (LNG)

-

100.0

200.0

300.0

400.0

500.0

600.0

700.0

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018year

Commodity Exports - Quantity 1999-2018 ('000 tonnes or specified) (BPNG, Treasury and Commodity Boards) Coffee

Cocoa

Copra

Coconut Oil

Palm Oil

Rubber

Tea

Logs ('0,000 m3)

Marine Prods

Crude Oil ('mill Barrels)

Copper (000 tonnes)

Gold (tonnes)

Nickel (000tonnes)

Cobalt (000tonnes

Condensate (mbarrels)

LNG (Tbtu)

-

5.00

10.00

15.00

20.00

25.00

30.00

35.00

40.00

45.00

50.00

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

% of Total PNG Exports - by Value 2001-2018 (BPNG) - Condensate

Gas (LNG)

Crude Oil

Total Agriculture (excl.forestry/fisheries)

Total forest products

Marine Products

Gold

Copper

0.0

1000.0

2000.0

3000.0

4000.0

5000.0

6000.0

7000.0

8000.0

Balance of Trade to Main Destinations and Sources 2017 - Kina mill (source BPNG)

2017 Exports 2017 Imports

• Contrary to popular comments (including by Ministers), PNG has a very strong and positive trade balance (and current account surplus)

• 2017 total Exports: K31.7 Billion; (K33.5 bill 2018)• 2017 total Imports: K9.5 Billion• The composition of PNG’s trade destinations/sources

have changed substantially, particularly with the onset of LNG

0.0

1000.0

2000.0

3000.0

4000.0

5000.0

6000.0

7000.0

Export Destinations and Value 2011-2017 kina mill (source BPNG)

2011 2012

2013 2014

2015 2016

2017

With the higher price of gas in 2018, exports to:Japan K7,504.7 millionChina K7,455.9 millAustralia K7,107.7 millSingapore K4,302.8 millTaiwan K2,028.2Of the total exports of K33,507.9 mill

-5

0

5

10

15

20

25

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019MY

Inflation - CPI 1992-2019 forecast(NSO and BPNG forecast - 2013 revised CPI

using new basket)

Headline

Underlying

Following the severe instability of the 1990s, the 2000s has seen lower inflation levels and steadier levels of inflation during the 2010s

0

5

10

15

20

25

30

Interest Rates % 1992-2018 Qtr1 (source BPNG)

182 day T Bills

Commercial bank weighted ave(deposits)

Commercial bank weighted ave(loans)

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

Kina Exchange Rates 1992-Oct 2018 (against US$, AU$ and Trade Weighted Index)

A$ US$

TWI

-20000

-15000

-10000

-5000

0

5000

10000

15000

20000

25000

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Balance of Payments and Foreign Reserves 2005-2018 (source BPNG, Kina millions)

gross intl reserves capital & financial a/c current a/c Goods bal Services Bal

Continued strong trade surpluses, notably in goods, and strong current account surplusesStrengthening of foreign exchange reserves in 2018, partly on increased commodity exports, but also from international

-

5.0

10.0

15.0

20.0

25.0

30.0

personalincome tax

Companytax

Mining-oilTaxes

Other taxes GST Excise Trade Taxes OtherserviceTaxes

Mining/oilDividends

SOEdividends

DividendsStat Authts

Portion of Total Revenue from Different Sources (percent - 2014-2018 Budget Projection)

2014 2015 2016 2017 2018p

• PNG’s Paradox: resource wealth not translating into revenue, forex or broader based social and development opportunities

• Big fall in resource revenue over the pas decade, despite major increase in production/exports

Relative contribution of revenue streams from the extractive industries 2017 (EITI Report 2017, E & Y)

So: the largest sector revenue in 2017 was from Group Tax, followed by Dividends, Tax Credit and other sources, with corporate tax only 5%Source: PNG EITI Report for 2017

2017 RESOURCE GOVERNANCE INDEX

From the

Natural Resource Governance Institute (NRGI)

Papua New Guinea comes 46 out of 89 resource rich countries in the Index (based upon Mining)

Scoring: weak in the Overall Indexweak in the Realisation Scoreweak in the Revenue Managementpoor in the Enabling Environment

Why Resource Governance Matters?• Mismanaging promotes poverty• Strong governance helps mitigate

environmental harm• It will matter more in the future!

Extractives contribution to the Economy 2017 (from EITI report 2017 E & Y)

Export values reported for each mine, 2017 (EITI Report 2017– E & Y)

0

2

4

6

8

10

12

14

16

18

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Mo

nth

s Months of Import Cover (Treasury & BPNG) -actuals to June 2018

Total import cover(months)

Non-mineralimport cover(mths)

Some recovery in foreign exchange reserves in late 2018 (substantially on new international borrowing), rasingtotal import cover to 6.7 months, and non-mining to 14.9 months. But slipped back in the 2019 again

-

2,000

4,000

6,000

8,000

10,000

12,000

2012 2013 2014 2015 2016 2017 2018 2019 MYEFO

Kin

a M

illio

nTotal Tax Revenue 2012-2019 (actuals, 2019 MYEFO - Treasury, K

millions)

0

500

1000

1500

2000

2500

3000

3500

Revenue 2011-2019 (2019 MYEFO -Treasury - K million) Personal income Tax

Company Tax

Mining and Petr Taxes

Div Witholding Tax

Interest Witholding Tax

GST

Excise Duty

Import Excise

Import Duty

Export Tax

Gaming Tax

Mining Dividends

-

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

2012 2013 2014 2015 2016 2017 2018 2019 MYEFO

% of Tax Revenue from different sources 2012-2019 (2018 MYEFO -Treasury)

Mining/Pet taxes %

Personal income tax%

GST %

Company Tax %

• Running major fiscal deficits, and therefore seeing total debt and debt servicing costs rise (to nearly K2 billion for 2018), partly because relatively high expenditure, coinciding with a severe slide in revenue, despite increased production and exports in the extractive sector

-4000

-3500

-3000

-2500

-2000

-1500

-1000

-500

0

500

1000

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019MYEFO

Central Government Financing surplus-deficit 2006-2019 (2019 MYEFO forecast - Treasury -Kina mill)

In the end 2018 exceeded K2 billion, and the 2019 MYEFO forecasts K2.4 billion for 2019, highlighting the poor tax collection in the first 6 months, and weak expenditure control, despite improved dividends

• Immediate challenges: likely 2019 Supplementary Budget• Refinancing of debt, if possible - need caution (avoid options that may seem the easiest but may come with

costly conditions)• May be harder with Sovereign Bond if have not proceeded with the Papua LNG project under current or promptly

agreed new agreement conditions (as seen as a backstop)

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

2010 2011 2012 2013 2014 2015 2016 2017 2018MYEFO

Central Government Expenditure 2010-2018p (Treasury MYEFO)

National Depts Provincial Depts ABG Stat Bodies & SOES Interest Total

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

Provinces Admin & Misc Health Debtservicing

Education Law andJustice

Transport Economic Utilities Community &Culture

Total Expenditure by Sector 2016, 2017 and 2018 & 2019 (Budget projection) mill kina

2016 2017 2018 Budg 2019 Budget

Debt servicing has absorbed an increasing amount and portion of the government’s revenue and expenditure, displacing other priority expenditure

0

5

10

15

20

25

30

35

Provinces Admin & Misc Health Debtservicing

Education Law andJustice

Transport Economic Utilities Community &Culture

Total Expenditure by Sector % 2016 and 2017 (actual) 2018 & 2019 Budget

2016 2017 2018 Budg 2019 Budget

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

2010 2011 2012 2013 2014 2015 2016 2017 2018MYEFO

Central Governmenet Expenditure 2010-2018p (Treasury MYEFO)

National Depts Provincial Depts ABG Stat Bodies & SOES Interest Total

• As resource rich country, PNG should be in situation of building up its SWF (as per Timor Leste), rather than having to borrow heavily to fund recurrent and development, and heavily very low social indicators

• Issues: current and future Resource project conditions and quality of expenditure AND safeguarding conditions for non-mineral development

0.0

5000.0

10000.0

15000.0

20000.0

25000.0

30000.0

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Total, Domestic and Foreign Public Debt 1997-2019 (kina, mill) (Treasury forecast)

Public Debt total

domestic public debt

foreign public debt

• Although debt to GDP has been rising, it’s proportionally lower than levels in the early 2000s, next to GDP, but GDP a poor measure, as not translating into revenue

0.00

10.00

20.00

30.00

40.00

50.00

60.00

70.00

80.00

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

per

cen

tage

Debt to GDP % (Treasury and BPNG 2002 - 2019 proj)Public debt to GDP %

External public debt toGDP %

Domestic public debt toGDP

Foreign Debt as % of Total

IMF Debt/GDP%

External debt (including from sovereign bonds) is replacing domestic debt Debt to GDP remains a poor measure; more relevant is debt to revenue or capacity to

0 1 2 3 4 5 6

VAT/GST

Quality and access to finance/banking services

LLG/urban authority tax and rules

Acces to land and land compensation claims

Cost of unskilled labour

Company tax rate

Inadequate subsidy/tariff support

Cost of skilled labours

Interest rates

Cost of production

Inflation

Law and order

Availability of skilled labours

State of transport infrastructure

State of telecommunication infrastructure

State of electricity infrastructure

Exchange rate

Corruption

Political uncertaintity and stability of rules and regulations

Access to Foreign Exchange

Ranking of Hindrances to Business and Investment 2007, 2012 & 2017 (INA Business Surveys)

2017 2012 2007

Prospects for PNG economy:• 2019 will continue to be tough, as probably will 2020, with tight global econ/market conditions• Could take the wait and see approach, putting all hopes in major resources projects, providing exports and

revenue, while pre-committing the funds and ending more in debt, especially when they don’t materialisation, or don’t provide much revenue for various reasons

• Govt needs to be more proactive, in terms of applying the law and focusing on its core tasks well, and letting the private sector perform its functions in a well governed equitable/competitive environment • Encourage local entrepreneurs in various constructive but not costly forms, and encourage legitimate FDIs,

with good governance, stability etc but not with subsidies/inducements• Tackle corruption seriously: controlling crony capitalism, and ensuring genuine reforms of SOEs, fiscal

transparency, including procurement and contract/licensing transparency • Establish a transparent SWF to smooth fiscal flows, and counter currency appreciation etc• Base resource projects on the law...don’t demand too much that’s unrealistic, but build up knowledge of

global conditions, using a variety of credible sources• Be proactive in diversifying the economy, which requires addressing the issues of forex, keep the currency

competitive, establishing and maintaining core infrastructure, drive to push down domestic costs/prices including genuine competitive requirements, tackle the issue of SOE governance and lack of accountability

• Focus on education and skills for business, employment and informal economic opportunities• Focus on core public expenditure, and avoiding waste• Build up revenue, including on a level competitive basis, removing protective arrangements for some

THANKS