PNG development: ADB

Weak governance and decentralisation hamper PNG development: ADB

PAPUA New Guinea’s fun damental development problem is that social development has not kept pace with economic growth, according to the Asian Development Bank.

“Expansion of the formal economy has generated only about one sixth of the jobs required to keep up with the growth of the workforce,” the ADB’s Asian Development Outlook 1999 states.

“The bulk of the population lives in rural areas fragmented by rugged terrain and inadequate physical infrastructure, and relies heavily on subsistence and smallhold er agriculture.”

The ADB said that PNG’s 1999 budget addressed the problem but the issue was now one of effective implementation.

“Unfortunately, this is hampered by weak governance that has been complicated by government decentralisation under the Organic Law 1995,” it said.

The ADB report said that while increas ing participation in decision making and raising the accountability of provincial and local government was laudable, however there were other basic problems that had not been addressed. “Delays in fund trans fers; confusion about the respective roles of

departments at the district, provincial, and national levels; and severe human resource constraints continue to be basic problems,” it said.

The ADB said that the 1999 budget esti mated a slight reduction in the overall deficit and an increase in total revenue and grants. The budget was also committed to the stalled medium-term structural reform programme that was started in 1994 with the IMF and the World Bank.

“A value-added tax and tariff reform will become effective on 1 July, 1999, while a public sector restructuring and contraction will be the primary source of a 19 per cent drop in non-interest recurrent spending,” it said.

ADB says that this would permit a 50 per cent expansion in development expen diture. The Bank warned that any large increase in the budget deficit would exert pressure on the currency, and on monetary policy. It said that the 1998 budget had turned out to be overoptimistic because of an unanticipated shortfall in revenues from taxes from mining companies and log export duties.

The overall budget deficit was 1.6 per cent of GDP with most of the growth in expenditure attributed to transfer payments

to provinces, districts, and statutory institu tions, increased expenditure at the national level and debt servicing.

It said that the cost of relief efforts for the victims of the Aitape tidal wave were an added, unexpected burden.

The ADB said that the stock of public debt at the end of 1998 approached 70 per cent of GDP, and imposed a servicing bur den that was projected to absorb 17 per cent of total revenue and grants in 1999.

Amongst other areas that need to be addressed, the ADB warned that “a failure to bring interest rates down from their cur

rently high levels would have potentially

serious consequences for private sector investment”.

The Bank said that PNG’s GDP growth rate of 2.5 per cent last year was due entire ly to a 60 per cent increase in output from the mining sector and strong growth in the petroleum sector It said that non-mining GDP fell by 3.7 per cent.

Output in the agriculture, forestry and fisheries sector was highlighted because, while accounting for 30 per cent of GDP, it provides a living for 80 per cent of the pop ulation. GDP in this sector fell by 6.4 per cent last year because of severe drought and a fall in commodity prices. ■