Papua New Guinea Annual Program Performance Report, 2011
THE MOST PRESSING DEVELOPMENT CHALLENGE for Papua New Guinea continues to be its ability to translate the economy’s narrowly based growth into improved living standards for all Papua New Guineans.
While the country has experienced high levels of economic growth over the last decade, this has not translated into equitable allocation of resources, nor commensurate service delivery and development outcomes for communities across the country.
Papua New Guinea is off track against all of the Millennium Development Goals (MDGs), and its health and education indicators are the worst in the Pacific. Life expectancy at birth has increased from 56 years in 1992 to 62 years in 2010.
However, in 2011 Papua New Guinea was ranked 153 out of 187 countries on the Human Development Index; placing it well below the East Asia and Pacific regional average.
Of particular concern is the slowing of Papua New Guinea’s Human Development Index growth over the past 15 years, with the country now trending on the same path as low human development.
Income poverty in Papua New Guinea is difficult to measure, and there are conflicting sources of information. A recent MDG tracking report placed the proportion of Papua New Guineans living below the Basic Needs Poverty Line at an estimated 28% in 2009, down from 30% in 1996.
This compares with the World Bank’s National Household Survey of 1996, which estimated that overall 37.5% of Papua New Guineans lived in poverty. Rural poverty was estimated to be almost double that of urban areas (41.3% compared to 16.1%, with extreme poverty in rural areas estimated at 18%.
A National Household Income and Expenditure Survey was undertaken in 2011 and will shortly provide an up-to-date estimate of poverty levels throughout Papua New Guinea.
While poverty is not solely a rural-urban issue—there is a pronounced variation of poverty throughout the country—isolation, low levels of cash incomes and poor access to services and markets continue to be characteristics of poor areas.
The same critical development constraints that Papua New Guinea has been facing for many years persist: weaknesses in governance and institutions, poor infrastructure and infrastructure services, shortages of skilled human capital, poor and unequal access to affordable and quality education, and lack of and unequal access to affordable and quality health services.
Papua New Guinea also continues to face significant law and order problems.
Some international indicators measuring governance have improved between 2005 and 2011. For example, the country’s percentile ranking according to the World Bank’s Voice and Accountability indicator has increased from 46 to 51, however the corruption perceptions index, produced by Transparency International, places Papua New Guinea at 154 out of 183 countries.
In addition, Papua New Guinea remains a high cost environment to do business in, with both political and social risks such as crime adding to these costs.
Papua New Guinea continues to perform poorly in terms of gender indicators, and there are signs gender equality is going backwards relative to other countries. The country currently ranks 153 out of 187 on the United Nations Gender Inequality Index, down from its ranking of 145 in 2010.
The United Nations Special Rapporteur on violence against women notes that the status of women remains low and attributes this as the major cause of violence against women. Papua New Guinea is off track in its progress against all gender-related MDG indicators.
Its maternal mortality rates and family and sexual violence rates are amongst the worst in the world, and are likely to be worsening rather than improving.
A proposed Bill to enable reserved seats in parliament for women did not garner enough votes to pass in February 2012, despite expectations stated in Papua New Guinea’s Vision 2050. In 2011 Papua New Guinea was ranked 136 out of 144 countries for women’s representation in parliament.
During 2011 Papua New Guinea’s economy continued on its near decade long path of growth. Gross Domestic Product (GDP) was estimated to reach 9% in 2011.
Four main factors underlie the strength of the economy: investment in future mining and petroleum projects, driven by historically high commodity prices, record prices for agricultural exports, supportive agricultural conditions and strong government spending.
However the economy remains dualistic with much of this growth limited to the formal sectors and those benefiting from strong government expenditure.
On a positive note, real per capita incomes are increasing and employment in the formal sector across all industries was at record levels in 2011. Industries linked to the construction boom (road, air and sea transport, storage and communications) have grown on average by 20%.
Papua New Guinea’s economy is experiencing a significant structural shift with indications that even after the current liquefied natural gas (LNG) project construction phase, growth could continue.
The current expansion is driving growth in consumer demand for goods and services. There are also promising signs that local construction firms are starting to bid for business outside of Papua New Guinea, which is good for foreign reserves, employment and skills acquisition.
On a less positive note, a number of factors that detract from Papua New Guinea’s economic success story were evident in 2011:
Commodity prices for many of the country’s export goods have increased, including some key agriculture products such as coffee and palm oil. However, the appreciation of the Papua New Guinea Kina against the US dollar has meant that growth in real incomes in the agricultural (cash crop) sector has been limited.
This appreciation of the Kina also had a negative impact on government revenue from mining and petroleum projects, partly offset by the rise in commodity prices.
Production in the mining and petroleum sector continued to decline, with existing projects reaching maturity prior to the commissioning of new or expanded projects. This is most evident with the decline in oil production through 2011 and disruptions at the Ok Tedi mine (which makes up 15% of total government revenues).
Also of concern is the 10% rise in the urban consumer price index which signals that much of the per capita income growth is being absorbed by higher prices. Employees are now expecting prices to continue to increase which will in turn lead to demands for higher wages, putting further pressure on inflation.
A reversal in commodity prices could see a number of the planned resource projects not reaching final approval. Many projects are only viable at current prices.
After 10 years of average annual revenue growth of over 14%, Papua New Guinea is faced with a period of lower revenue growth before an LNG-led expansion to revenues and GDP and budget deficits forecast for the next 2 to 3 years.
In this context, large increases in Papua New Guinea government funding for the priority areas under the Australia–PNG Partnership for Development are not anticipated. The focus will be on improving allocations within priority sectors and the quality of implementation of those allocations.
2011 was the time for the government to set the path for improving governance that would enable the country to achieve the ambitious goals laid out in its development plans. However, political instability throughout 2011 highlighted the fragility of gains made in this area.
The political instability had an impact on key government business, such as legislation to support increased parliamentary participation by women, which failed to pass in 2011. The 2012 national budget was delayed by one month, passing on 21 December 2011.
The fluidity of the political and bureaucratic environment affected the ability of many of sectors to improve performance and deliver expected results. A number of leadership changes derailed some gains made by Australia’s aid program, but also opened up new opportunities.
The government launched a set of well-resourced investigations into allegations of public sector corruption under ‘Task Force Sweep’, including investigations at the National Health and Planning Departments, which resulted in over 20 charges laid.
In 2011 Papua New Guinea asked Australia to procure and distribute medical supply kits, to individual health facilities. In early 2012 agreement was reached, in principle, with the Health and HIV Minister to establish an independent health procurement authority.
Expectations around the windfall revenues related to increased growth have been growing across Papua New Guinea. The incoming government following the 2012 national elections will have the longstanding challenge of translating growth in government revenues into benefits for all Papua New Guineans in an environment where expectations of those benefits has increased.
The perception that the LNG project will result in a financial boom has raised the level of competition among would-be political candidates (3435 candidates, of which 135 are women, are competing for 111 seats in parliament. A number of senior bureaucrats vacated their positions to contest the election, including two high-performing provincial administrators, which saw some disruption to reform momentum.
Following the constitutional and legal turmoil of 2011 and 2012, the country’s key institutions are perceived to have weakened, and the rule of law undermined. International donors and the incoming government will need to be mindful of the need to restore these.
With a geographically diverse terrain, poor transport and communication infrastructure limiting access to many, though not all, of the country’s 21 provinces, one autonomous region, 89 districts, 313 local level governments and 6131 wards, the challenges to policy makers and service delivery agencies to address people’s needs, particularly those of vulnerable groups, are substantial.
Limited public sector capacity to deliver services and poorly functioning systems of government at all levels has meant service delivery in Papua New Guinea depends heavily on donors, volunteers and the churches.
However, the country lacks a critical mass of organised non-state actors from grassroots to national levels, that are able to influence political incentives and the institutional framework or rules determining who can participate in public decision-making and how. In the short to medium-term, greater citizen participation in decision-making will make resource allocation and service delivery more efficient and equitable.
While there are scattered success stories, many provincial service delivery systems are weakened by a lack of coordination between national bureaucracies and lower levels of government, in particular in relation to local spending decisions.
There is a lack of critical mass at the political and senior bureaucratic levels to commit to making systems work. It is easier for politicians to go around the government systems to hand out funds directly.
It is notable that the bulk of revenue increases since 2002 have been controlled through national agencies, with provinces receiving little increases in the money they control, despite having responsibilities for managing and implementing basic services and infrastructure.
Faced with their own challenges, Treasury and Finance again delayed the release of essential funds to the provinces in 2011 affecting the ability of those provinces to effectively deliver basic services.
The O’Neill-Namah government made well-publicised efforts to pursue high profile individuals alleged to have been corrupt. However, with the exception of corruption investigations under Task Force Sweep, a commitment to tackle widespread corruption and misuse of government systems and processes has yet to eventuate.