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Corruption of PNG’s political system infects economic statistics

Differences in economic measuresPAUL FLANAGAN | PNG Economics

CANBERRA - PNG’s economic statistics have been corrupted. Even the most basic economic statistic of “how big is the PNG economy” has been manipulated to tell stories convenient to the O’Neill/Abel government.

An extraordinary gap of 18% has opened between measurement of the size of the economy (‘gross domestic product’ or GDP) by the PNG government compared with measurements by independent outside observers, led by the International Monetary Fund.

Half of this gap (shown in the table at right) emerged in 2015 when PNG’s own National Statistics Office (NSO), with assistance from the Australian Bureau of Statistics (ABS), said the economy was actually 9% smaller than claims by the PNG treasurer.

The gap in this most basic economic measure will be 34% by 2023. Specifically, the PNG government claims the PNG economy will reach K125 billion while the IMF estimates it will more realistically reach 93 billion in that year.

The NSO 2015 GDP figure was released on 9 March 2018 - a date that marks the clearest point from which the government started manipulating statistics, although there have been questionable practices in the past.

The initial NSO release included only high level GDP information but indicated more details would be provided shortly. This never happened. Apparently, 2016 GDP data was also prepared with ABS assistance. This also has never been released.

The official attempt to explain the 9% difference in 2015 is lamentable and filled with basic errors.

The blame is put on a new ‘price index’. However, a price index is not used when determining nominal GDP and the 9% gap is nominal GDP. A price index is used for determining real GDP where differences in price methodology can have an impact.

Also, the government was happy to use the National Statistics Office price index for the eight years 2007-14 when it was politically convenient. But it didn’t want to use the same price index for the ninth and tenth years of 2015 and 2016 when the results were politically inconvenient.

The PNG government in the past has tried to use the involvement of the Australian Bureau of Statistics to boost its economic credibility – and it did so again in its 2019 budget. However the IMF notes “the ABS recently suspended its program due to increasingly uncertain NSO leadership and management, which threaten its current operations”.

In other words, the ABS felt there was a need to walk away to protect its own integrity.

So why would the O’Neill-Abel government want GDP figures higher than those provided by the NSO and ABS?

Higher GDP figures are extremely convenient for the government. Specifically:

  • They avoid the embarrassment of admitting PNG had a serious recession in the key parts of its economy in 2015 – and a mild recession in 2016
  • They hide the fact the government is breaking the law by having a debt to GDP ratio higher than 35%; and
  • A higher GDP growth figure in the out-years counters the PNG opposition’s call for an improvement in PNG’s economic growth rate.

The growing errors and half-truths in PNG’s economic statistics can no longer be explained away simply by technical errors.

The pattern is clearly one of manipulating figures to fit the government’s economic narrative. The credibility of PNG’s economic statistics – whether the size of the economy, economic growth rates, employment levels or budget outcomes – has plummeted.

Let’s call a spade a spade - the corruption of PNG’s political system has spread to its economic statistics.

I predict that future official PNG government figures will indicate, no matter what the actual truth, that the 2018 budget exceeded its targets and that growth is more positive.

This probably means that the government’s internal over-optimistic narrative based on false figures will limit action on underlying economic issues such as a mispriced exchange rate, poor micro-economic policies such as growing protectionism, dangerous approaches towards increasing foreign commercial debt to over 50% of public debt, and ignoring business concerns about recent anti-investment regulation.

Greece went down a similar path of manipulating its economic statistics to hide growing budgetary and other problems in Europe. It did not end well.

Given its current leadership, possibly it is not that surprising that PNG is heading down a similar slippery slope where statistics give way to political convenience.

I fear the outcomes will be worse than the Greek experience. PNG’s institutions will struggle to turn the economy around when it is so far off course and its economic compass of genuine statistics has been so seriously corrupted.

Comments

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Paul Oates

While Greece is a good example, they were aided and abetted by their membership of the EU that allowed them to obtain credit when there was no security offered.

PNG has no such back up unless it is subliminally depending on a bailout by her 'supporters' both local and elsewhere?

As is clear from the recent Zimbabwean experience, changing leaders doesn't mean there is any magic wand to fix an escalating problem of ongoing bad management and corruption.

In the case of Romania as in many other examples, the former hollow leader was followed and assassinated.

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