Two new World Bank reports outline the challenges facing Papua New Guinea in the wake of the COVID-19 economic shutdowns in the Asia-Pacific region. There is a tentative forecast of an economic rebound next year, but there are significant human capital issues that could impact the economy for years to come.

Tubusereia Fishing Village. Credit: ADB/Flickr

The World Bank’s report From Containment to Recovery: World Bank October 2020 Economic Update for East Asia and the Pacific predicts that the ‘low case’ (negative scenario) for PNG’s economic growth this year could be -4.1 per cent.

For next year, the report forecasts a likely rebound in PNG’s GDP of 3.2 per cent, but provides a ‘low case’ of 0.6 per cent – a wide differential.

The report found that 66 per cent of PNG households had experienced earnings losses from either reduced wages or reduced income from non-farm family business sources.

‘The region as a whole is expected to grow by only 0.9 per cent in 2020, the lowest rate since 1967.’

It says that the main economic support measure in the country came in the form of higher liquidity and government funding, with only about a fifth provided by the banking sector. This differs from other Pacific economies: in Fiji, the banking sector created about half the support and in the Solomon Islands the bulk of the support.

PNG’s financial institutions are amongst the most well capitalised in the region, according to the World Bank report. It said that capital held in reserve by PNG’s financial institutions (regulatory capital) is running at 35 per cent of risk-weighted assets, which is the highest level in the Asia Pacific region.

Non-performing loans have slightly worsened and are about four per cent of gross loans. External debt is 70 per cent of GDP, which makes the risk of external debt distress high, according to the Bank.

COVID challenges

There are some significant human capital challenges, according to another of the World Bank’s reports, the Human Capital Index.

‘A child born in PNG will be 43 per cent as productive when she grows up as she could be if she enjoyed complete education and full health,’ the report says. ‘This is lower than the average for East Asia & Pacific region and lower middle-income countries.’

The Bank estimates that 95 per cent of children born in PNG survive to the age of five and those who survive face continuing educational challenges.

‘A child who starts school at age four can expect to complete 10.3 years of school by her 18th birthday. Students in PNG score 363 on a scale where 625 represents advanced attainment and 300 represents minimum attainment. Factoring in what children actually learn, expected years of school is only six years.’

Ironically, because of the pandemic, the number of vaccinations in PNG dropped by 34 percent from end of 2019 to the end of May 2020, posing health challenges that could also be detrimental for the economy.

Regional trends

The World Bank Economic Update says that, in the East Asia and Pacific region, domestic economic activity is ‘reviving in some countries that have so far contained the spread of the virus’. But it notes that the regional economy remains heavily dependent on the rest of the world, and global demand is likely to be subdued.

‘Prospects for the region are brighter in 2021, with growth expected to be 7.9 per cent in China and 5.1 percent in the rest of the region.’

‘The region as a whole is expected to grow by only 0.9 per cent in 2020, the lowest rate since 1967. While China is forecast to grow by 2.0 per cent in 2020 – boosted by government spending, strong exports, and a low rate of new COVID-19 infections since March, albeit checked by slow domestic consumption – the rest of the East Asia and Pacific region is projected to contract by 3.5 percent.

‘Prospects for the region are brighter in 2021, with growth expected to be 7.9 per cent in China and 5.1 percent in the rest of the region. However, output is projected to remain well below pre-pandemic projections for the next two years. The outlook is particularly dire for some highly exposed Pacific Island Countries where output is projected to remain about 10 percent below pre-crisis levels through 2021.’