Page 19 - IB August 2020

Economy Economy

has taken a huge hit, there are also huge variations, deter- fall in April but that has not continued, that is maybe to do
mined predominantly by whether a country is tourism-depen- with stimulus packages in countries like Australia, it may be
dent or not. a sort of rallying effect among the diaspora, it may also be
Identifying some of the strengths he had observed in Pacific that because people can’t take cash with them travelling they
island responses, Howes highlighted the resilience of remit- have to use formal mechanisms but nevertheless it is a source
tances, the reliance (and availability) of aid (“normally a of strength,” Howes says.
mixed blessing”), and the fact that a number of countries While describing the Pacific response through COVID spend-
have gone into the crisis with a surplus. ing as “on average, pretty generous or ambitious, certainly
“Remittances are very important for a number of Pacific compared to the average developing country response”, there
countries and it was thought remittances would take a bit hit is again enormous variation across the Pacific, with Timor
as a result of the pandemic and border closures but actually Leste and Vanuatu at the more generous end as they run-self
the more recent data we have for Fiji and Samoa suggest
that remittances are staying strong. You can see there was a Continued on page 27

PNG ECONOMY, HEALTH HIT HARD

The impact of COVID-19 is accentuating trends that had tancing, hygiene protocols, staff rotation protocols are now
already developed over the last decade, says University of becoming the compliance mechanism that businesses are
Papua New Guinea lecturer in economics, Maholopa Laveil. undertaking,” allowing them to continue operating.
He lists amongst these trends: “falling employment, large He indicates that there have been signs of market resil-
fiscal deficits, very mild resource growth and the increasing ience, with fresh produce moving across the market, “There
debt burden.” have also been substitutions on services as well, more PNG
Lavell says the exchange rate “is the only policy lever management are rising up to executive positions. When
for government right now to use so it can allow a managed the March period kicked in, there were lots of expatriates
depreciation of the kina, but it refuses to do so. And the re- that left the country, called from their governments and in
forms going forward will be undermined by a looming vote particular Australia. All of those positions are being filled
of no confidence in November this year, a misperception of up by PNG middle to senior management.
stability held by many government employees, the durabil- “[There] has been a massive uptake on technology. All
ity of leading civil servants who are resistant to change, the the consumables have jumped up by 30-40% in purchases
gradual deterioration as opposed to a sudden deterioration, because everything’s online from school curriculums to busi-
this does not prompt them to adopt reforms and external fi- ness engagement and so forth.”
nancing available that is not conditional on policy reforms.” The ADB projects economic growth will decline to -1.5%
In an update published in April 2020 the International this year, likely leading to further cash flow problems for
Monetary Fund suggested “the kina is overvalued by around government. Development Policy Centre’s COVID Economic
11 to 18%. This overvaluation could be largely eliminated Database notes Government revenue is anticipated to fall
over the next three years without boosting inflation exces- by 15% and debt will rise to 43.7% of GDP.
sively.” “The latest international commodity price data published
Executive Director of the PNG Business Council, Douveri by the World Bank in April 2020 indicate a general fall in the
Henao, said “there is a very lively debate in the market prices of PNG’s main export commodities. Prices for Lique-
right now with policy makers whether the devaluation of fied Natural Gas (LNG), copper and nickel declined, while
the kina should kick in. that of gold picked up reflecting investors’ preference for a
“Those that are pro-devaluation, their main argument is safe haven investment. Non-mineral commodity prices for
that everything is slowing down so this is the time to actu- cocoa, coffee and palm oil also increased providing some
ally devalue. Whereas others, especially on the government relief to PNG exporters,” Bank of PNG Governor, Loi Bakani
side, are more reluctant because of the debt financing wrote for the Pacific Forum blog recently.
pegged into a stronger Kina.” “The significant drop in some of the commodity prices
Henao says the Council is working hard to ensure busi- has already affected PNG’s export tax revenue and foreign
nesses can survive, saying “we simply cannot go back to an exchange inflows, and will continue to put pressure on
April lockdown state of emergency scenario”. He says of the foreign exchange market. The Government’s support
the CEOS and managing directors the Council spoke to at to increase local production and ensure its food security
that time, 75% expected revenue to decline, 70% expected requirements are at a satisfactory level is critical to sustain
a profit decline and 66% indicated they won’t be operating domestic consumption, while reducing the country’s depen-
any business by the end of the year. Henao says businesses dency on imports.”
are negotiating a co-regulation model where “social dis-

Islands Business, August 2020 19