Papua New Guinea is experiencing similar stresses to other economies in the Pacific region due to the impact of COVID-19. Two reports, by the Asian Development Bank and Pacific Trade Invest, highlight both the impacts and a way to recovery.

Port Moresby: A view from above. Credit: Gail Hampshire/Flickr

The Asian Development Bank’s Pacific Economic Monitor says the Pacific region has been reeling ‘as the pandemic devastates its economies, which rely mostly on the external sector’.

It says the region’s GDP forecast for 2020 has been downgraded from an expected contraction of 4.3 per cent to a drop of over five per cent. The report says, however, that the region’s GDP is expected to recover and grow by 1.3 per cent in 2021, ‘contingent on how quickly travel and trade restrictions are lifted’.

The Monitor says the Papua New Guinea government’s overall strategy of running a wider Budget (fiscal) deficit is consistent with the approach taken by other economies to help stimulate growth and support recovery from COVID-19. But it says the approach will create challenges with ‘debt sustainability’ (being able to service the higher debt).

‘To support a stronger and faster recovery, several other options can be considered, including greater attention toward attracting foreign investment.’

The ADB report says PNG’s economy is expected to contract by 2.9 per cent in 2020, but increase by 2.6 per cent in 2021:

‘Lockdowns, restrictions imposed on international travel, and weaker international demand for PNG’s exports have all impacted growth. Key sectors that are affected include construction, accommodation and food services, transport, and agriculture and forestry.’

It says in 2021 growth will remain lacklustre.

‘To support a stronger and faster recovery, several other options can be considered, including greater attention toward attracting foreign investment, working to advance large resource sector projects that are in the pipeline, and correcting the imbalance in foreign exchange with faster exchange rate depreciation,’ it suggests.

The report describes as ‘sensible’ the government’s overall expenditure strategy, ‘with its focus on increasing capital expenditure and reining in operational expenditure.’ It adds that it is ‘important to ensure sufficient spending is maintained for social sectors, especially for the service delivery of health and education, which remain of central importance given the extra burdens imposed from the COVID-19 pandemic.’

What businesses say

The Pacific Business Monitor, produced by Pacific Trade Invest (PTI) sought responses in February from 127 businesses across the Pacific. It found that 79 per cent of PNG respondents have experienced a negative impact on their businesses; an improvement on the previous month when the equivalent figure was 92 per cent.

Eighty one per cent of respondents reported a decline in revenues, with 57 per cent describing it as ‘significant’. This was an improvement on January, however, when 70 per cent described their revenue decline as ‘significant’.

Confidence in business survival after COVID-19. Credit: PTI

The PTI study found that the top three challenges facing businesses as a result of COVID-19 are: not knowing how long the crisis will last (82 per cent); poor cashflow (72 per cent) and the impact of closed international borders (77 per cent).

The top four initiatives businesses require assistance with are: financial support (65 per cent); a review of their financial position (45 per cent); a need to diversify their business (31 per cent) and access to new markets (20 per cent).

Companies have become less confident they will survive the COVID-19 crisis, with 68 per cent of respondents confident that they will not fail, down from 75 per cent in January. Enterprises are not expecting a return to business as usual in 2021, with only one in three expecting revenue to recover to pre-crisis levels.

The most common business response to the downturn was reducing operational costs, followed by reducing working hours, diversifying products or services and reducing staff numbers.

The six barriers for business COVID recovery. Credit: PTI