One of the biggest economic and social challenges facing the Papua New Guinea government is jobs growth, according to the Asian Development Bank’s latest report card.

Source: ADB

Income from liquefied natural gas exports will boost PNG’s resources income by 20% this year, but overall growth will reach 6 per cent, because growth in the non-resources sectors will gain only 1.6% this year, according to the ADB’s senior economist, Aaron Batten, writing in the PNG section of the latest triannual Pacific Economic Monitor.

This represents a significant easing from the highs recorded over the last three or four years and will create challenges for further expanding formal sector job opportunities, he says.

Asian Development Bank Country Economist, Aaron Batten

The surge of foreign investment into the PNG-LNG Project and some construction ‘spillovers’ into other areas are starting to end, so the underlying drivers of growth within the PNG economy are also slowing. Batten says there’s a need to increase investment levels.

Over the past decade, he says, the strong performance of PNG’s non-mineral economy has seen formal employment grow by an average of 6% per year.

This has almost doubled the size of the private sector workforce and created new opportunities for an emerging middle class.

‘Even with sustained growth in formal sector job creation, it will take decades to move a majority of the population out of the informal sector.’

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‘However, as the construction phase of the LNG project winds down, and growth drivers shift toward mining and petroleum exports, efforts must be renewed to encourage new opportunities for formal sector employment,’ he says.

Lessons

Batten says the 1990s highlighted some important lessons for policies aimed at stimulating jobs—primarily fiscal prudence and economic stability:

‘Political instability, fiscal indiscipline, and mounting public debt eroded private sector confidence, limiting investment outside of extractive industries. As a result, this period saw rapid economic growth but stagnation in formal job growth.

‘PNG’s formal labor market remains small by regional standards despite a decade of rapid growth—providing livelihoods to only 10%–15% of the working-age population. A much larger informal labor market, centred on semi-subsistence agriculture, forestry, and fisheries, generates livelihoods for most of the remaining working-age population.

‘Even with sustained growth in formal sector job creation, it will take decades to move a majority of the population out of the informal sector.’

Lack of spending

Another key issue facing the government is its inability to implement programmes. Last year, the capital budget was underspent by approximately 19%, and Treasury reports that in 2013, about 20% of the capital budget was unspent, with about 45% of what was spent occurring in the final two months of the year.

The Department of Works and Implementation was reported as recording zero expenditure against its K1.7 billion infrastructure programme, although this was likely to be partly due to the accounting delays.

Region

But the PNG government is not the only regional government facing an employment challenge.

ADB analysts say the Pacific region’s working-age population is projected to increase from its current 6.6 million to 9.6 million by 2030.

Regional growth is now projected at 5.2% for 2014—down from the ADB’s 5.4% forecast last April. Average growth in the Pacific economies other than PNG and Timor-Leste expected to run at 2.8% in 2015.

Only about a third of new workforce entrants in the region can expect to find wage employment if recent years’ job creation trends do not improve, concludes Xianbin Yao, Director General of ADB’s Pacific Department.

Job creation in Papua New Guiea by sector in the last 10 years

• Agriculture (30%)
• Manufacturing (21%)
• Building and construction (16%),
• Wholesale and retail trade (15%)
• Transport (8%)
• Finance and business (5%)