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Three key economic questions I hope the PM answered

Paul Flanagan
Paul Flanagan - pertinent questions


CANBERRA – Papua New Guinea prime minister Peter O’Neill addressed a business lunch in Sydney yesterday and spoke about the policies of his government.

Before he did so, I wrote the following piece hoping that his speech would answer three questions.

First, what will the government do to help restore ongoing balance in the foreign exchange markets?

A small injection of $US100 million in treasurer Charles Abel’s 100-day plan will not address the underlying issue that PNG’s imports have been cut to an historic low and even basic trade financing has been cut off.

The emphasis appears to be on large scale import-substitution (especially through special deals and protectionist arrangements) rather than becoming a diverse exporting nation to Asia.

Foreign exchange restrictions are a major business issue and the current approaches of high budget deficits squeezing out the private sector, rationing foreign exchange, dramatically cutting imports, stopping trade financing, and stopping repatriation of capital all act to undermine confidence and prospects for new foreign investment.

Having PNG’s central bank even deny there is a foreign exchange shortage, or claim it is all the private banks fault, also undermines growth potential which is vital for fixing the budget.


Second, will the prime minister clarify whether he has agreed to the 2017 cuts in the local direct funding programs channelled to provinces and districts (DSIP and PSIP)?

Clear agreement between himself and his new treasurer is vital for giving credibility to the recent 2017 supplementary budget.  Without such an agreement, over 70% of the planned budget savings will not eventuate and another large budget deficit blowout will be inevitable.

Third, what is the government’s approach to encouraging a mixed economy where a diversified private sector can play a key role?

Recent consultations are welcome and the review of draft policies in areas such as small to medium sized enterprises and land are welcome inclusions in the 100-day plan.

However, government actions seem to give the primary role for new developments directly to government or a lucky few firms through protectionist arrangements.

PNG’s private sector credit growth is falling in real terms and as a share of the economy.

One question which is important for PNG, but was unlikely to be covered in the speech, is just how bad will things have to become before the prime minister is willing to really reach out to the international community for assistance.

A credible 2018 budget, set in a medium-term recovery plan that includes a confidence-building environment for the private sector, will be vital for PNG’s economic future.

Paul Flanagan is the director of Indo-Pacific Public Policy and Economics Pty Ltd


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