PORT MORESBY - A pandemic has broad implications on the world economy and has differing impacts on the economies of countries around the world.
Evidence suggests that a pandemic or an epidemic may impact trade and affect international supply chains.
The impact of a pandemic on international trade can either be via a direct link in terms of reductions in the volume of goods and services traded, or indirectly through an impact felt in the sectors of an economy which support trade such as transport and logistics.
Although the most crucial impact of a pandemic is, and will always remain, human suffering and the loss of human lives, a pandemic also has profound economic impacts including disruptions to the agriculture sector, trade, tourism and travel.
The United Nations Conference on Trade and Development notes that supply chain disruptions in China due to Covid-19 can affect the productive capacity and exports of any given country depending on how reliant its industries are on Chinese suppliers.
A statement on an economic stimulus package responding to Covid-19, delivered to the national parliament by Minister for Treasury Ian Ling-Stuckey on 2 April, acknowledged that the spread of Covid-19 would have adverse impacts on the PNG economy.
Ling-Stuckey said that, despite economic modelling efforts, the true value and scale of the impact would be unknown due to many uncertainties.
The Covid-19 pandemic has affected the movement of goods, services and people domestically in PNG and across international borders due to the 14-day lockdown period which commenced on 24 March 2020.
Restrictions on the movement of non-essential goods, services and people in and out of PNG has been gradual in tandem with the appropriate coping response mechanisms related to the spread of the virus.
The restrictions in movement have been advocated and enforced by the team of international and local health experts and other professionals including national security forces leading the response against the virus.
Ling-Stuckey’s statement highlighted that from economic modelling by a team of local and international experts, the best estimate is that the value of PNG exports will fall by at least 13%, equivalent to over K5 billion.
This is a clear representation of the demand-side impacts on PNG’s exports of goods and services whereby demand for goods and services originating from PNG dwindle due to health concerns by consumers in destination countries (weaker external demand).
Restrictions on transport services, logistics and other sectors that support trade also translate into impacts on the export sector.
The fall in the value of exports in PNG could also be attributed to falling commodity prices. Suppliers of commodities such as agricultural products and services such as tourism could respond by producing less for the export market.
The fall in commodity prices can be considered as an indirect impact of the Covid-19 pandemic channeled through weaker global demand for goods and services.
Further, restrictions on the movement of goods and services out of PNG including to China, an increasingly important trade partner, affects the volume of exports and serves as a supply-side impact of the pandemic on the export sector.
Restrictions on sectors that support trade also translate into export sector impacts both on the demand and supply side.
Following the release of its first economic update of the PNG economy, the World Bank has suggested that the impact of Covid-19 on PNG’s import sector will be felt indirectly via a slowdown in China’s manufacturing industry, whereby businesses in the retail space in PNG experience delays in the delivery of their products.
The Minister for Treasury in his statement to parliament also highlighted that global supply chains were being affected including the supply of goods and services out of China. These are an indication of the supply-side impacts of Covid-19 on the import sector in PNG.
Restrictions imposed on the movement of non-essential goods and services into PNG as a measure under the PNG state of emergency to contain the spread of the virus could also be affecting retailers’ access to goods. Impact on the import of goods and services could also be caused by weakening domestic demand.
These are the demand-side impacts of the Covid-19 pandemic on the import sector in PNG. However, the true value of the overall impact of Covid-19 on the import sector in PNG is not clear at this stage.
To mitigate the impacts of Covid-19 on the PNG economy, particularly in the trade sector, the Government of PNG will directly support the rural sector as well as micro, small and medium enterprises through the domestic budget, and joint efforts with commercial banks and other financial institutions in providing support for loan repayment holidays for businesses and households.
However, there are lessons that can be drawn from elsewhere to counter the negative impact of the Covid-19 pandemic on trade.
Informed by measures in other countries and what could be viable given domestic conditions, the Government of PNG could consider:
- cooperation and coordination between the national government and provincial governments in terms of information sharing and targeted funding for local producers such as farmers;
- where appropriate, import-substitution should be encouraged with value-addition being the focus;
- developing a strategy in consultation with industries concerned to lift restrictions on the movement of goods and services, in phases and in a coordinated manner;
- targeted and precautionary expansionary fiscal policy to support the trade sector; and,
- expansionary monetary policy such as providing MSMEs access to credit with regulatory oversight and not introducing any new restrictive or protectionist trade measures.
The impact of a pandemic, and certainly Covid-19, is not distributed equally throughout an economy, including the PNG economy.
While sectors such as health, in particular, health supply and procurement subsectors have benefited, other sectors such as trade, tourism and domestic retail have suffered and may continue to do so for a while.
Although the value of the impact of Covid-19 on the trade sector in PNG has been estimated through economic modelling, the true value and scale of the impact is difficult to determine due to many uncertainties.
It is therefore important that further studies are conducted to determine the full and true impact of Covid-19 on the value of goods and services exported and imported as well as the impact on the overall PNG economy