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ADB wrapping seems sweet but the lolly may have a bitter taste

Cover-ado2017KEITH JACKSON

AT the risk of seeming unfair, I have to observe up front that, in its public commentaries, the Asian Development Bank does seem to err on the side of being very kind to member states.

Hence, in its just released Asian Development Outlook for 2017, it is able to present as a summary statement on the Papua New Guinea economy that “while the short-term outlook skews to the downside, the medium-term outlook remains positive thanks to foreign investments in the pipeline.”

The forecast is that the PNG economy is expected to grow by 2.5% this year and by 2.8% in 2018.

But, as ANU economist Matt Morris has observed, given that PNG’s population growth is 3% even 2.8% growth in reality represents a declining per capita GDP. “People getting poorer is not a 'recovery',” he crisply notes.

And as I read further into the ADB report, the narrative that the “economy is in the process of a mild recovery” on the back of increased mining and agriculture outputs became increasingly qualified.

It is stated that “uncertainties about global and domestic policy pose large risks to the forecast” and that “the foreign exchange shortage is likely to persist in 2017 without substantial improvement in commodity prices”.

Further, in the absence of a free floating kina, the report says the economy may not be able to absorb an external shock which “could force a disorderly switch to a free float”.

It also identifies “important political risks to the forecast” in that “delays in royalty payments to landowners at LNG production sites could destabilise outputs.

“Reports suggest growing discontent among landowners…. How this issue is handled could affect other projects in the pipeline and substantially compromise growth.”

Even worse in the immediate term for the average Papua New Guinean, in a country where wages are already under great downward pressure, inflation is projected to accelerate to 7.5% this year, driving up prices and ensuring people will be able to buy much less with their kina.

And how did this get so bad? Well the report has the answer but it’s buried pretty deep. “An expansionary fiscal stance starting 2012 and the rapid depletion of fiscal and monetary reserves forced a sharp, unplanned adjustment during the commodities downturn.”

In other words, soon after the election of the O’Neill government it began to throw money around like a man with eight arms, leaving the country exposed to an external shock, which duly arrived in the form of the global commodities downturn in 2014–15.

Thoroughgoing economic negligence.

And the prescription?

The report says the government will need to develop “a credible and sound strategy … to reinforce the ability of PNG to respond to external shocks, rebuild fiscal buffers and make public expenditure more effective.

“Institutions necessary to mitigate exogenous shocks, in particular a well-functioning sovereign wealth fund, are urgently needed.”

And that’s going to be a very tall order for the new government, which will be formed in about four months from now.

Read the full ADB report here -


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William Dunlop

Dispersing money to cohorts like a McCormack threshing machine. Sounds about right.

Patricia Kepui

Love the way the O'Neill government is described here:

"Soon after the election of the O’Neill government it began to throw money around like a man with eight arms, leaving the country exposed to an external shock, which duly arrived in the form of the global commodities downturn in 2014–15."

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