The conundrum of growth in Papua New Guinea

Author: Stephen Howes, ANU

National elections will be tenuous in Papua New Guinea (PNG) in mid-2022. Elections take place every five years and are very popular events. Although voting is voluntary, turnout is just lower than in Australia, where voting is compulsory. An extraordinary number of political candidates are vying for elections. The average number of candidates per seat has increased from 8 in 1977 to 30 in 2017.

In the 2017 elections, 111 men but no women were elected. He is possible but special measures are unlikely to be put in place before the 2022 election to ensure that this result is not repeated this year. If not, the only hope left is that at least some of the growing number of women running for office will succeed in the elections.

It is impossible to predict election results, as there are no opinion polls and party structures are very fluid. Corn James Marape, Prime Minister since 2019 when he ousted Peter O’Neill in a midterm vote of no confidence, is the favorite, simply because he is the incumbent.

In each of the last three elections, the incumbent Prime Minister has retained his post. Indeed, PNG law was amended at the turn of the century to require that the party with the most elected deputies has the first chance to form a government coalition. MPs are normally drawn to the Prime Minister’s party. Currently, Marape’s party, PANGU, has 34 MPs, almost three times the size of the next party. There is a high turnover of MPs, but even if there is a contrary move, PANGU will likely emerge from the elections as the largest party, giving Marape the top spot in the top job.

Whoever wins the election will face two key issues. One is COVID-19.

Vaccination rates increased in PNG in October and November 2021 with the takeoff of COVID-19, but there are still very high levels of vaccine hesitancy. According to the latest estimates, only 2.5% of the population are fully vaccinated. PNG will have to navigate 2022 without significant vaccination coverage. COVID-19 hit PNG hard in the second half of 2021 and it is likely that there will be another big wave associated with the introduction of the Omicron variant and possibly the election campaign.

The other problem facing PNG is the desperate need to increase economic growth and create more jobs. COVID-19 is an economic problem and the low level of vaccination in PNG is likely to hamper labor mobility, trade and investment. There could also be other internal interlocks.

Growth took a hit with COVID-19 but was already slow before the pandemic. In the absence of data on gross national income and given the landlocked nature of the extractive (resource) sector, non-resource gross domestic product is the best measure of national economic activity. From 2014 to 2019, this grew in real terms by only 0.9% per year on average. The budget projects this to accelerate to an annual average of 4.4% from 2021 to 2027. How is that unclear.

Perhaps one of the various resource projects currently being negotiated will be finalized during this time and its construction will give the economy a much-needed boost. But with all the uncertainty surrounding the projects currently under discussion, the government is wisely not counting on it.

Growth in government spending this year, including much-needed increases in health spending, will help economic growth, but PNG is running record deficits to support spending in the face of COVID-19. The rapid growth in spending cannot be sustained. Although the latest budget allows for a 3.5% increase in spending after inflation in 2022, it does not allow for any further spending growth through 2027.

The main brake on growth since 2014 has been the shortage of foreign exchange which remains a problem to this day. According to annual surveys, PNG business leaders ranked foreign exchange among their top four concerns every year between 2014 and 2021.

PNG’s central bank has been content to ration currency to protect the exchange rate and its foreign exchange reserves. The government has recently amended the Central Banks Act requiring the Bank of Papua New Guinea to consider growth as well as the inflationary consequences of its policies. Given the disastrous impact of currency rationing on growth in recent years, it is hoped that this will force the Bank of Papua New Guinea to change course and eliminate currency rationing.

Ultimately, whoever wins the 2022 election will find themselves in the odious position of having to exercise fiscal discipline while trying to accelerate economic growth. It won’t be easy.

Stephen Howes is Director of the Development Policy Center and Professor of Economics at the Crawford School of Public Policy at the Australian National University.

This article is part of a EAF Special Feature Series on 2021 in review and the year ahead.

Disclosure: Last year the author served on the PNG Independent Advisory Group (IAG) which made recommendations relating to the Central Banks Act mentioned above.

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