PNG’S ECONOMIC BOOM COULD BECOME A CURSE

Commentary

PNG’S ECONOMIC BOOM COULD BECOME A CURSE

By Dr. Charles Yala

PORT MORESBY, Papua New Guinea (The National, Nov. 21) - The 2008 Papua New Guinea budget follows a series of supplementary budgets that were handed down recently. Given flamboyant commodity prices, the Government has been flooded with cash to spend.

This trend of releasing supplementary budgets is a far cry from the late 1980s and late 1990s when Papua New Guinea had to have supply bills to live within our means. In that respect, we need to learn from history.

During the mid-1990s, the abundant mining and petro dollars resulted in a spending spree that led to a financial crisis, and later a serious economic crisis. Hopefully, this past mistake is not repeated when implementing the 2008 budget.

This commentary focuses on several issues relating to the implementation of the 2008 Budget - trust accounts, district emphasis, competition policy, and land reform.

The bulk of the money from both the supplementary budgets and the 2008 national budget are to be parked away in trust accounts, awaiting the design and approval of plans. The rationale for this is fourfold.

First, this is in recognition of the lack of capacity in the government system for effective implementation.

However, the Government has not articulated a strategic policy to address the implementation bottleneck in the system of government.

Second, it should be noted that the opportunity cost of keeping this money in the trust accounts is high, especially, when the money may have to be in these trust accounts for years, which is highly possible.

Third, the Government has recognized that past trust accounts have been looted.

At the same time, they would not want to give the money directly to line departments and government agencies because they feel that the money will be diverted and misused.

This raises a fundamental issue, and that is trust. Modern transactions are facilitated on the basis of trust.

In Papua New Guinea, this fundamental institution has been eroded, over time.

There is general lack of trust between line departments, the people, politicians, and bureaucrats. This issue can only be addressed when a proper system of financial procurement and service delivery is developed.

We must begin the process of building that trust and accountability, which is a fundamental institution for nation building.

Fourth, in relation to the money that has been allocated to the districts, it is to be released after the District Priority Committees have prepared and received approval for their plans.

It is hoped that these plans are ‘real ones’ that would promote sustainable growth and development in the districts. In the past, we have witnessed the bulk of this money being spent on Four-Wheel Drive vehicles and Banana boats, in the name of service delivery. We hope this is not repeated.

Globally, there is a trend towards urbanization. The argument in PNG has been against this and is repeated in the 2008 Budget, which emphasizes district development.

This line of thinking contradicts the international trend. Furthermore, the increased allocations to districts will promote segmented economies, which make it a less sustainable process for promoting rural sector development.

The emphasis in Papua New Guinea should be on developing townships around major economic infrastructure and economic activities.

This has the potential to sustain rural economic development with job creation and income generation.

It is highly commendable that the Government has recognized the important contribution that competition in the mobile phone sector is making to the economy. This year , competition in this sector has contributed 0.7 percent to the GDP. The same is expected in 2008.

At the same time, some PGK20 million [US$7 million] was allocated to develop the ICT Policy. It is important that the ICT Policy does not curtail competition, but leads to further competition in the market. It is hoped that this money is not spent to promote State enterprises.

What are needed are sound policies on freeing up markets or a privatization policy, with the objective of introducing a framework for introducing competition in other key sectors such as internet, airline and electricity.

The Government’s allocation of PGK28 million [US$10 million] for the Land Reform Programme is encouraging. This is the fundamental reform which has the potential to impact positively on the lives of ordinary Papua New Guineans.

The previous government instituted a process to implement the Land Reform Programme, using Papua New Guinea’s own institutions and experts.

All the conceptual work has been done, and we are prepared to proceed with implementation, starting next year.

The Government has demonstrated its commitment to this fundamental land reform by allocating PGK28 million in the 2008 Budget.

This allocation is to improve land administration, land dispute resolution, and help customary landowners retain their land, while at the same time, benefiting from its use. It is safe to say that this budgetary allocation alone fits the theme of the current budget --empowering the people.

A PGK8 billion [US$2 billion] budget has been presented by this Government, which is said to be the highest ever. Making sure that this money translates into a change in people’s welfare remains the most important challenge.

The windfall gains, which were experienced in the early 1990s, were squandered, and that ended up in a serious financial crisis.

Resource booms may turn out to be a blessing, or a curse, in disguise. May this budget lay the foundation for prosperous nation-building.

Dr Charles Yala is a Senior Research Fellow in the Economic Studies Division at the National Research Institute.

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