During the slowdown, the economy has been relying on government investment to keep things ticking over. As Ian Tarutia, Chief Executive Officer of superannuation fund Nasfund, observes:
‘It has been funding all major economic activity in the past year, while the private sector has downsized.’
As well as increased expenditure on health and education, the PNG Government has set out a welcome program of investment in infrastructure development, including the relocation of the capital Port Moresby’s port and the extension of the busiest port in Lae, improved electricity generation and transmission, developing a national fibreoptic cable network, road construction, and urban improvements ahead of Port Moresby’s hosting of the 2018 APEC Economic Leaders Meeting. Meanwhile, stimulus measures to drive much-needed housing construction are already bearing fruit, particularly in Port Moresby.
While much of this investment is progressing, the sharp falls in government revenues during 2015 have inevitably led to a more constrained National Budget for 2016, as the O’neill government endeavours to return to surplus by 2020, while continuing to protect key development priorities.
The Government—which faces national elections in mid2017—has also taken other measures to stabilise its finances into the longer term.
It is cutting expenditure judiciously.
‘If the government doesn’t have money, that affects the whole economy,’ observes Tarutia.
Since June 2014, Papua New Guinea businesses have been struggling to gain access to foreign exchange, with an estimated K1.2 billion waiting to be converted as of the end of 2015.
But the CEO of Bank South Pacific, Robin Fleming, is optimistic that access will begin to flow during 2016.
‘With the Ok Tedi mine reopening in March—and that in itself will start providing another US$30 to US$40 million into the market per month—the pressure will start to ease,’ he told Business Advantage PNG.
‘And there is talk that the Wafi-golpu [gold] project will be getting close to agreement on financial terms, and that could introduce an additional US$200 to US$300 million during 2016. There is also possibly some early works for the [Total-led] Papua LNG towards the end of 2016.
‘And there are bigger sums coming in 2017 and 2018,’ he says.
Fleming says the Bank of Papua New Guinea has taken a ‘conservative’ approach to managing its reserves, still about US$1.9 billion or seven-to-eight months of import cover (or Fleming is positive about the PNG Government’s planned US$1 billion Sovereign Bond issue.
‘It should alleviate concerns in terms of businesses crowding out of investment opportunities, and also provide some relief on interest rates.
‘It would certainly be a cheaper way for the Government to raise debt, and be attractive to international investors.
BSP’S Robin Fleming ‘The feedback I get talking to potential overseas investors is that they feel that there is certainly an appetite for this type of debt.
‘And, in an emerging market, debt has been one of the performers in the bonds markets overseas, and therefore it continues to remain of interest, particularly when you do the analysis and see the future revenue streams that are available to PNG, with two world-class LNG projects with lives of 40-to-50 years.’