It’s time to devalue the kina, says Business Council

The Business Council of Papua New Guinea has presented its latest macroeconomic outlook, which outlines the risks faced by PNG’s economy and what business needs to recover from the COVID-19 downturn. A major recommendation is a devaluation of the country’s currency, the kina.

The latest Macro Economic Outlook, 2020-2023 makes for tough reading. Using modelling provided by PricewaterhouseCoopers, it says ‘PNG is expected to experience a further decline in economic activity, with GDP [growth] dropping to around 1 percent in 2020’, in the most likely of three scenarios canvassed.

‘The key message is a stimulus needs to happen, but the stimulus needs to be very targeted’

However, this still compares favourably with recent forecasts by the World Bank (-1.5 per cent) and Asian Development Bank (-1.3 per cent).

Risks

The Business Council of PNG’s Douveri Henao

The report, designed to communicate the concerns of PNG’s business community to government, outlines some of the major risks to the economy.

Apart from the COVID-19 pandemic, these concerns include: lower commodity prices and the closure of the Porgera gold mine, which could result in a K2.1 billion reduction in household consumption, according to the PwC modelling.

‘The big issue in these numbers and graphs is we are falling … We are in free fall on consumption, and there isn’t a correction in the market, or even a government strategy to plug that free fall,’ says Douveri Henao, Executive Director of the Business Council of PNG.

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Stimulus needed

The report also makes several recommendations: that the government pay its bills, and that economic stimulus focus on job protection. PwC’s projections suggested net job losses in a worst-case scenario of 25,000.

‘If it comes in the form of paying bills, if it comes in the form of construction projects … the key message is a stimulus needs to happen, but the stimulus needs to be very targeted,’ Henao tells Business Advantage PNG.

‘[It needs to be] unlike the stimulus in April, which was a black hole. It went into the market, but it didn’t connect and regenerate. That sort of fiscal strategy can’t be repeated.’

‘The one sector that’s remained resilient is import substitution in the agribusiness and industrial manufacturing sectors.’

The report also recommends the kina be devalued, to make PNG’s exports more price-competitive internationally, and increase the impact of the international aid and concessional loans currently being provided to the country.

‘The current global environment that we’re in right now, one day it’ll pick up again. But because we’re all in this lull, we should make those adjustments to make use of the opportunity,’ says Henao.

Not all gloom

Illimo’s dairy herd. Credit: IAI

Henao tells Business Advantage PNG the Council has also learned from PNG’s state of emergency period earlier this year.

‘Those that adjusted their ICT platforms were much more productive and functional this year, compared to other years, even when the lockdowns and the pandemic restrictions occurred.

‘The one sector that’s remained resilient is import substitution in the agribusiness and industrial manufacturing sectors.

‘Ilimo Dairy milk is a standout because the team there were revising the numbers on the exodus of expats, who were their main consumers. But, to their astonishment, demand actually picked up 30 per cent and they had to produce more. So, that’s a telling story; that the import substitution sectors performed strongly during this period.’

Regarding future management of the COVID-19 pandemic, the Council is arguing that the government should encourage business to self-regulate its mitigation measures, rather than go for more lockdowns, which have a negative impact on the economy.

‘When movement between provinces became more accessible, numbers dramatically improved,’ he says of the strict state of emergency travel restrictions. ‘Towards April, the entire financial banking sector had 25 per cent drops on merchant transactions, and it started picking up again when the state of emergency ended.’