Report says PNG’s has been hit-hard by COVID-19 giving rise to new poor

A new World Bank report on the economic and employment impact of COVID-19 on Pacific Island Countries has shown that the harm to Papua New Guinea’s economy, labour market and education has been extensive.

The report, Pacific Island Countries in the era of Covid-19: Macroeconomic impacts and job prospects, notes that PNG has been ‘hit hard’ by the pandemic, with GDP growth dropping to minus 3.3 per cent in 2020.

It points to weaker aggregate demand and less favourable terms of trade, ‘coupled with disputes with international investors over ongoing and new resource projects.’ The report says, however, that the impact of low Liquefied Natural Gas (LNG) prices on export revenue was relatively muted ‘due to the prevalence of long-term supply contracts.’

It also notes PNG’s non-resource economy has been hit by lower domestic demand due to lockdown measures affecting the supply of domestic services.

‘A resilient recovery will require foreign investment in new resource projects – as well as strengthening macroeconomic management, protecting the vulnerable.’

Diversity

According to the report, PNG has escaped some of the impacts experienced by other Pacific countries, due to the comparative diversity in its economy, but will still require a major effort to achieve a recovery this year.

‘A resilient recovery will require foreign investment in new resource projects – as well as strengthening macroeconomic management, protecting the vulnerable, and supporting firms and jobs in the informal sector.’

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A comparison of the PNG government’s stimulus package with other countries in the region shows that it was comparatively modest. PNG’s fiscal stimulus package equated with 2.2 per cent of GDP, whereas in Fiji it was 8.7 per cent, Kiribati 7.5 per cent, Samoa 6.8 per cent, the Solomon Islands 2.6 per cent, Tonga 8.8 per cent and Vanuatu 5.5 per cent.

Job market

The report notes job advertisements contracted by 76 per cent during the first half of 2020.

‘A quarter of workers who had been working before the crisis, reported not working in June 2020,’ it says. ‘Results from the Employment Survey COVID-19 commissioned by the Employers’ Federation of PNG also highlight the impact: seven per cent of the total workforce were released due to the pandemic; 16 per cent of firms responded that they either terminated employment contracts or temporarily stood them down; nine and 11 per cent of the total workforce surveyed were on reduced working hour arrangements to adjust to COVID-19 impacts on production.’

Especially hard hit was the tourism sector, which saw 91 per cent of bookings for 2020 cancelled, resulting in at least 1200 job losses.

‘In PNG, female heads of households are more likely to have stopped working since the outbreak due to business closures.’

The chart shows how the pandemic affected job advertisements in ICT. Credit: World Bank

The report says that new hiring of high-skilled and semi-skilled workers contracted more than the hiring of low-skilled workers.

A new poor?

The report says that the pandemic is likely to have lasting adverse effects on job growth.

‘The loss of job skills and work experience due to the economic impacts of the outbreak could have lasting repercussions for the labour market. The impact of COVID-19 on youth employment also threatens to widen gender gaps.’

The report notes that many women work in the sectors most affected by the economic downturn, such as retail and hospitality. ‘In PNG, female heads of households are more likely to have stopped working since the outbreak due to business closures.’

Comparison between Samoa and PNG in the reduction in high-skilled, semi-skilled and low-skilled positions in PNG. Credit: World Bank

There may also be a widening of wealth gaps.

‘Job losses have been highest among the bottom 40 per cent of the wealth distribution, after adjusting for household education levels. Job losses have also been high among households in the middle quintile, with the risk being that this shock could push such households into poverty – creating a “new poor”.’

Also badly affected by the pandemic was education, which will have repercussions for the economy and labour market.

‘In PNG, where all levels of schooling have associated fees, a recent high frequency phone survey found that 52 per cent of households have reduced the number of children that attend school as a way to cope with COVID-19 related shocks,’ says the report.