Reforms vital for PNG's economy: WTO

PAPUA New Guinea’s economic flexibility and prospects for sustainable growth could be increased through further reform to liberalise trade and investment, a WTO report said.

Reliance on the tariff as the main trade instrument has made the trade regime in PNG more predictable and transparent, the report by the World Trade Organisation secretariat stated. But it said the economy remained relatively weak and vulnerable to external shocks.

“PNG’s recent economic performance has been erratic with years of modest growth alternating with declines in output.

The economy has been adversely affected by several unavoidable shocks, such as the Asian

financial crisis, depressed commodity

prices and severe droughts,” it said.

The report, released in Geneva along

with a policy statement by the PNG government, were discussed by the WTO trade policy review body late last year, which evaluates each WTO member’s trade

practices and policies regularly.

Problems of governance, a weak institutional structure and “a seeming lack of momentum for reform” have compounded the difficulties, the report said of PNG, where the present government took office in July last year, inheriting “an economy in crisis.”

However, the report notes that in June the PNG authorities announced an economic recovery package, with trade reform seen as an important way of

encouraging private sector-led growth and

enhancing productivity and

competitiveness.

Tax and tariff reform was introduced last year, including a Value Added Tax on goods and services to fund a tariff reduction programme.

The average tariff was halved to under 10 per cent and the government planned to reduce the average applied tariff to five per cent by 2006, the report said.

However, it said tariffs were increased on some goods, including some food and plastic products and PNG has retained pockets of high tariff protection until 2006.

Foreign direct investment (FDI) is confined mainly to the mining sector though the overall amount of FDI was relatively low and unstable, and has recently slumped due to investor uncertainty.

Significant segments of industry were still reserved for domestic investors, although since 1995 these restrictions no longer covered manufacturing and construction.

But the government was reviewing PNG’s investment procedures to increase transparency and allow a greater flow of FDI, the report noted. ■