Posted By Staff Reporter
THE year 2016 saw the Papua New Guinea (PNG) government muddle down through a series of poor policy decisions.
This continued the negative trend set in 2015, when the country went from having the highest expected GDP growth rate in the world to crisis management mode.
In the political realm, PNG continued promoting its international profile by hosting the African Caribbean and Pacific Leaders Meeting, the FIFA Under 20 Women's World Cup and preparatory meetings for APEC in 2018.
But domestically there were increasing concerns about corruption and the growing arrogance of the current government, which is under the leadership of Prime Minister Peter O'Neill.
The first half of 2016 also saw escalating protests from students and civil society groups, which culminated in the police shooting and injuring over 20 university student protestors.
Among these protests and corruption allegations, in July the Supreme Court ruled that a long-delayed opposition motion of no-confidence in the government must be considered by parliament. Despite three former prime ministers siding with the opposition, the vote was comfortably defeated. Those members of parliament who appear to be disloyal to the government face losing their annual constituency funding of more than $US3 million ($F6m).
In terms of the economy, PNG's exact growth performance is unknown. In March, the National Statistical Office released new figures on PNG's GDP. But these have since been removed from the website. They showed an extraordinary upward revision of 40 per cent on PNG's 2013 GDP estimate. This was a suspiciously convenient estimate and would have unburdened PNG of breaching its debt-to-GDP limit.
Such dubious figures bring into question the trustworthiness of government statistics, especially given that the government is seeking to avoid any inconvenient accusations of a recession in the non-resource sector.
Regardless of government statistics, evidence of this recession is obvious, with a 16 per cent fall in retail sales in 2014-15 as well as a real decline in domestic tax collections of over 20 per cent. That's on top of falling agricultural exports, employment and imports. Business groups expect tough conditions to continue until at least 2018 when the possibility of another major LNG project and prospective copper and gold mines might start lifting growth performance again.
The proposed 2017 budget also looked slightly dodgy, being filled with unrealistically optimistic revenue assumptions and forward expenditure assumptions. This casts serious doubts on the credibility of fiscal policy and the government's plan to return to surplus by 2021.
On top of this, in May PNG moved to a fixed exchange rate against the US dollar, which is significantly overvalued relative to the market rate.
This move led to ongoing foreign exchange shortages and controls hurting growth and confidence as well as driving imports down to their lowest levels since 2006.
* Paul Flanagan is the Director of PNG Economics. This article is part of an EAF special feature series on 2016 in review and the year ahead. Fiji Times
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