PAUL FLANAGAN | PNG Economics | Edited extracts
CANBERRA – Yesterday the Papua New Guinea Post-Courier published an article indicating that prime minister Peter O’Neill considers the PNG economy could reach K100 billion this year.
Hopefully, this was misreporting because, as an accountant, one would hope the prime minister would understand numbers well enough to know that there is no prospect of GDP reaching this figure in 2018, or even in 2020.
To state that it will is to be deceptive and massively contrary to all previous official estimates from his government and the International Monetary Fund.
Reading this article, I was reminded of the problems created for Greece by its use of fake statistics.
So how does this claim of K100 billion GDP this year compare to other official forecasts?
The PNG Treasury in its budget estimates estimated the size of the economy this year would be K80 billion.
Unfortunately, this figure was produced before the National Statistical Office downgraded the size of PNG’s economy by K5.1 billion in 2015 - a reduction likely to flow into future year figures.
So the PNG Treasury number is more likely to be around K75 billion this year.
This matches the IMF estimate for 2018 of a slightly lower K73 billion.
And neither figure includes the latest worrying projections from the Bank of PNG of a fall in employment and retail sales together with negative growth in private sector investment .
These all suggest the distinct possibility that PNG returned to recession last year.
The Post-Courier article suggested that the prime minister’s high GDP figure indicated the economy is doing very well.
Unfortunately, apart from the reality being at least 20% lower than stated, economists consider more than GDP when thinking about how an economy is going.
Nominal GDP is a poor indicator of economic welfare, especially in a country such as PNG where the resource sector is largely foreign owned. There is also a need to take into account changes in prices.
PNG prices are expected to increase by 56% over the decade, meaning every kina will buy less goods. Economists call this a decrease in spending power.
Every year, there are also more people to feed – an additional 250,000 each year according to the National Statistical Office.
It was positive that the prime minister has attended the launch of a strategy for the development of statistics in PNG, which has suffered from a lack of good statistics.
For instance, in the latest APEC regional economic report, PNG is mentioned nine times. Unfortunately on seven of those times it was to note that PNG did not have relevant statistics available.
But one must not only collect numbers, one must understand them.
Looking at PNG’s limited economic statistics over recent years it can be concluded that they are not at all encouraging.
PNG’s two international credit ratings agencies have examined the statistics and their response was an unprecedented rating downgrade by both.
The reported claims by the prime minister that the economy is doing well and could reach K100 billion in 2018 simply undermines PNG’s economic credibility.