Papua New Guinea’s trade is likely to be sharply affected by the COVID-19 crisis and the closure of international borders, according to a report by the National Research Institute. It makes suggestions about how PNG’s traded sector can be supported.

Shipping containers. Credit: pexels

There is no doubt that the international shuttering of borders has affected global trade but a new report by the National Research Institute (NRI) has looked at the impact on PNG.

The report, Impact of the Covid-19 pandemic on Papua New Guinea’s International Trade, says restrictions on the movement of goods and services out of PNG, ‘including to China, an increasingly important trade partner’, affects the volume of exports: a supply-side impact of the pandemic.

‘Restrictions on sectors that support trade also translate into export sector impacts both on the demand and supply side.’

The NRI report says the impact 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 fall in commodity prices can be considered as an indirect impact of the COVID-19 pandemic channelled through weaker global demand for goods and services.’

Furthermore, it adds that there could be a  fall in the value of PNG’s exports due to falling commodity prices.

‘The fall in commodity prices can be considered as an indirect impact of the COVID-19 pandemic channelled through weaker global demand for goods and services. Suppliers of commodities such as agricultural products and services such as tourism could respond by producing less for the export market.’

The macroeconomic and country risk research house Fitch Solutions also expects a drop in the value of PNG’s exports:

‘The biggest short-term economic impact of the COVID-19 pandemic will be a slump in exports, triggered by a combination of supply chain disruptions, weakening external demand and plunging commodity prices.’

Fitch revised down its forecast for GDP growth in Papua New Guinea in 2020 to minus 1.1 per cent, from a previous minus 0.2 per cent, due to the ‘impact of weaker external demand and a slump in commodity prices on the country’s key extractive industries.’

Supply chains

Oil and gas prices have fallen because of the COVID-19 restrictions imposed worldwide. Credit: Santos

The National Research Institute report notes that global supply chains have been affected by the pandemic, including the supply of goods and services out of China.

The restrictions imposed on the movement of non-essential goods and services into PNG because of the State of Emergency (SoE) also ‘could be affecting retailers’ access to goods’.

There is also the possibility that there is a weakening of domestic demand, but the evidence is unclear at this stage.

The report points to lessons that might be drawn from other countries about how best to counter the negative impact of the pandemic on trade. It says the PNG government 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
• The encouragement of import-substitution, with value-adding being the focus
• Developing a strategy in consultation with the industries affected to lift restrictions on the movement of goods and services, in phases and in a coordinated manner
• A targeted and precautionary expansionary fiscal policy to support the trade sector
• Expansionary monetary policy such as providing small and medium enterprises access to credit and not introducing any new restrictive or protectionist trade measures

Impact

The National Research Institute report also notes that the impact of the pandemic is not distributed equally throughout the 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.’

According to the ratings agency Standard & Poor’s (S&P), PNG’s external position ‘remains weak’. It notes that volatility in the country’s terms of trade (the ratio between a country’s export prices and its import prices) ‘has subsided over the past few years’.

The kina has also depreciated against the US dollar by 13 per cent since 2015, notes S&P, making PNG’s exports more competitive. But the agency warns that collapsing energy prices could be a ‘drag on PNG’s future growth prospects.’