ECONOMIST Paul Flanagan says Papua New Guinea has missed the opportunity to lock in potential gains to the wider economy from its successful liquefied natural gas project.
In a report released yesterday he said that the “mini-boom around the PNG LNG construction phase appears to have entirely dissipated” and the country has just experienced its second worst recession since independence in 1975.
There was “at least a 10% fall in the non-LNG and non-mining parts of the PNG economy between 2014 and 2016,” Mr Flanagan said, “and this is a conservative estimate.”
He also pointed out that these “non-resource sectors such as agriculture, retail, construction and public services are the real parts of the economy that most matter to the people of PNG.”
The LNG project had “acted as a smokescreen” for the real difficulties being experienced by local businesses, workers, farmers and consumers.
“The PNG LNG project was potentially a transformative project for PNG [and] the hope was that this historic opportunity to permanently lift domestic economic activity could be locked in through the right economic policies,” Mr Flanagan said.
But “recent economic data indicates that hope has been dashed. Rather, the PNG LNG boom has proven to be just a temporary bump for the wider economy.”
More recently, he said, there seem to be signs of a tentative recovery with some positive recent employment figures although he suggested that recent lay-offs of 10% of staff by plastics and chemicals manufacturer KK Kingston, indicate that difficulties remain.
Meanwhile, incomes of Papua New Guineans will remain depressed for many years and are not forecast to return to 2013 levels until around 2022
“Better economic policies are required to lift the long-term growth rate and ensure future resource projects are not just temporary ‘bumps’ in lifting PNG's sustainable standards of living,” Mr Flanagan said.
“The best chance to accelerate the recovery would be to rebuild business confidence.
“This would require action on the exchange rate and moving away from pre-election policies in agriculture, land and SMEs that damage confidence and growth prospects.
“Hopefully, the proposed severe cutbacks in the budget could be backed off and more done on raising revenue.
“Next week's budget will be a real test for the government in restoring some credibility around economic management,” he said.