Diversification of the Papua New Guinea economy is critical to maintaining economic growth, according to Loi Bakani, the Governor of the Bank of Papua New Guinea. He told Business Advantage International’s Papua New Guinea Investment Conference in Sydney that a particular area of concern is the high level of food imports.

Bakani said the PNG LNG project, from 2010-2014, created a structural change in the PNG economy. But the resultant surplus in the current account did not translate into increased revenue for the Government, or sufficient foreign exchange inflows.

Bank of PNG Governor Loi Bakani addresses the 2017 Papua New Guinea Investment Conference

‘In particular, I am concerned about food imports, because it constitutes the highest demand for foreign exchange and it is not matched by any foreign exchange revenue from food exports.

‘This is an area of great potential for investment given the land mass and suitable land conditions we have, which can contribute to replacement of food imports and exports of the surpluses.’

Middle income

Bakani said the PNG LNG project changed the country from a low-income country to a middle-income country. This affected habits of consumption in PNG.

‘Given the narrow export base and reliance on mineral projects and exports, the country has not reached a point of being resilient.’

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‘We know it will take a long time to change the consumption behaviour of our population, but some change needs to happen to move away from high consumption of imported food to locally-produced food.

‘I guess, this is one consequence of the change in the economy structure from low-income to middle-income country.’

Narrow export base

Bakani told delegates the concentration of PNG’s exports in the resources sector makes the economy vulnerable.

‘Given the narrow export base and reliance on mineral projects and exports, the country has not reached a point of being resilient to various shocks, both internal and external.

‘The bank is looking to calculate the prospects for the non-resources PNG economy.’

‘The recent and past declines in oil and mineral prices have greatly affected both the Government budget and foreign exchange market.

‘If we had a broader non-mineral export sector in place to provide alternative sources of income it would sustain government revenue, the foreign exchange market and economic growth.’

PNG’s non-resources economy per capita. Source: ANU, UPNG

Accelerated depreciation

Bakani pointed to the impact of accelerated depreciation, which delays revenue payments to the government. He said taxes on the PNG LNG project will not start until 2021-22. He said that is why attention is turning to the non-resources part of the economy.

‘The question that we policy makers have been deliberating is: “What is the potential of the steady State growth of the Papua New Guinea economy, excluding the mining and petroleum sectors?”

‘The Government should add development of major agricultural projects to achieve self-sufficiency in food production, import replacement and export of agricultural products.’

‘This question is relevant to address the challenge of ensuring we reach a point of economic development where the economy can be able to sustain itself and be resilient to various shocks.

‘Following some detailed comparative analysis by the Bank of PNG, with other similar countries, we concluded that it [the potential growth] is around 6 to 7 per cent.’

Priorities

Bakani said the government is focusing on free education, free basic health services, improving law and order and infrastructure development.

PNG needs to develop its own rice production.

‘In 2017, the Government should add development of major agricultural projects to achieve self-sufficiency in food production, import replacement and export of agricultural products; and pursue the development of the tourist industry.’

‘The mineral and petroleum developments will be the icing on the cake that will top it up, during the periods of construction and initial years of production.

‘It will also result in an improvement in the standard of living of the 81 per cent of the population living in the rural areas.’

Targets

Bakani outlined which primary industries would be targeted.

‘The objectives should specify replacement of rice imports with domestic production; the replacement of soya bean imports with domestic production; the replacement of stock feed imports with domestic production; and the replacement with domestic production of all other grain imports: wheat, sorghum, maze.’