“From capital to develop and export goods like coffee, to training and support with digital platforms, Pacific businesses – especially female-led business – are in urgent need of tangible support,” says the Pacific Trade Investment (PTI) Australia Trade & Investment Commissioner, Caleb Jarvis.
The economic impacts of COVID-19 on female-led businesses in the Pacific continues to rise, according to the latest Pacific Business Monitor survey conducted by PTI.
The fifth survey in PTI’s ongoing series has found that 92% of female-led businesses have reported a fall in revenue. In comparison to the previous survey, the number of fully operational female-led businesses has declined from 29% to 23%, while partially operational businesses have increased from 19% to 41%.
Jarvis states that despite the COVID-19 free status of most Pacific Island Countries (PICs) “the economic impact of closed borders has been debilitating, especially for nations that are reliant on tourism – a sector with a high proportion of female employees.”
“Many women are performing a juggling act – balancing work with being the primary care givers,’ explains Jarvis- a trend correlating to findings published in a recent report by the United Nations titled, ‘Policy Brief: The Impact of COVID-19 on Women’.
The UN report notes that girls and women are ‘suffering more’ due to many factors: home schooling, disproportionate lack of access to digital tools, work capital, skills and higher care responsibilities.
The latest PTI survey finds that COVID-19 has had a ‘negative impact’ on the mental health of 31% of female-led business in contrast to 14% of male-led businesses. Levels of happiness and optimism continue to decline as 45% report felling worried ‘most of the time’ or ‘all of the time’.
Despite the negative impacts, more female-led businesses are implementing adaptive measures such as pivoting to online business, and seeking rent reductions or relief.
Jarvis states that “it’s a long road ahead, and its vital that we continue to champion the voice of businesses in the Pacific by continuing to provide quantitative results to governments, donors and regional organisations so they can see the realities facing Pacific businesses.”
The Fiji government has welcomed the World Bank’s decision to pause publication of its 2021 Doing Business Report.
In a statement released last week, The World Bank said a number of irregularities had been reported regarding changes to the data in the Doing Business 2018 and Doing Business 2020 reports.
“We are conducting a systematic review and assessment of data changes that occurred subsequent to the institutional data review process for the last five Doing Business reports,” the Bank says in its August 27th statement.
“We have asked the World Bank Group’s independent Internal Audit function to perform an audit of the processes for data collection and review for Doing Business and the controls to safeguard data integrity.”
While the Bank does not specify what data changes occurred, international media have reported it relates to four countries-none of them in the South Pacific.
However Fiji has long been critical of the report.
"Fiji has been raising concerns for a number of years on the authenticity and the manner in which the survey for the Doing Business Report is being conducted", said Shaheen Ali, Chair of the Doing Business Taskforce. "The Fijian Government at various levels had indicated to the World Bank Group that there were data errors in the Fijian Reports. Through these consultations, the World Bank Group worked closely with the Ministry and the Taskforce to identify errors."
The Government believes impovements to business processes, including digitalisation, construction permits and taxes, have not been adequately recognised.
Fiji’s Ease of Doing Business ranking dropped one place, to 102 (of 190 countries ranked) in the 2019/2020 report. Papua New Guinea’s ranking declined further to 120th position (from 108 the previous year). Marshall Island ranked 153, Kiribati 164, the Federated States of Micronesia 158, Palau 145, Samoa 98, Tonga 103 and Vanuatu 107th.
It is a season of surveys across the Pacific. Governments, international organisations, industry bodies and chambers of commerce are surveying the private sector to assess the impact of the COVID-19 pandemic.
While the sample size of most of those already published has been small, the hope is that the results will inform the type of support provided by governments and multilateral agencies in the middle to longer term.
The Pacific Trade and Invest (PTI) Business Monitor is surveying a small number of businesses every two weeks over a six-month period.
In its most recent report (the second in the series) released in early June, PTI says the impact COVID-19 is having on businesses is starting to decline; 88% reported this impact compared to 91% in survey one. The second survey had 143 respondents, all online and all decision makers or owners in small and medium sized enterprises (SMEs).
Almost three-quarters of businesses in Fiji reported a “very negative” impact from COVID-19. Across the board, 90% of businesses reported a decline in revenue of some magnitude.
70% of businesses were confident they will survive COVID-19 but half do not expect revenue to return to pre-COVID levels until next year or later. A quarter of businesses expect to return to business as usual this year.
The three main challenges identified by respondents were not knowing how long the crisis will last, the impact of closed international borders and poor cash flow. A lesser challenge was a lack of knowledge and skilled staff.
40% of the respondents said they needed support to access new markets, either locally or overseas, slightly more than in the first survey.
The PTI survey also asked respondents about their mental health. Nearly a quarter of them said that COVID-19 is having a very negative impact on their mental health, and almost two-thirds said it is having a negative impact.
The Fiji National Provident Fund continues to be concerned by low levels of savings by its members on retirement and the need to extend its coverage to the informal sector.
The FNPF says that in 2019, 66 per cent of its members due to retire at some point over the next ten years have balances below F$10,000 (US$4561).
It says 88 per cent of its members earn below F$30k (US$13,864) per annum and 49 per cent withdraw funds for housing and other related family assistance within the social benefits scheme of the fund.
However on a more positive note, 32 per cent of members continue to consistently contribute to savings within the fund. FNPF highlighted 3,200 members have not fully complied with payments.
In terms of extending its coverage to the informal sector, the FNPF hopes to better assist its 125,000 members who fall into this category.
A detailed breakdown of this figure showed that 8,000 are farmers, 2,500 seasonal workers, 9,000 taxi drivers and 25,000 are domestic workers.
The reality of the discovery is that 128,000 members are retiring with low balances and 125,000 of these work in the informal sector.
FNPF CEO Jaoji Koroi stated: “the reality is now a problem and talking about it with the stakeholders should give us ideas of what can we can do to address these issues.”
The FNPF says these groups are susceptible to social problems, are unable to afford social protection and continued cycle of old age poverty.
Meanwhile the International Social Security Association (ISSA) has opened a branch in Fiji, hosted at FNPF, which aims to foster better social security and protection for the Pacific region.
Currently only Samoa and Fiji are members of ISSA, although the Association hopes other regional countries will join.
“ISSA is an organisation recognised for looking after social security and protection for countries all over the world and FNPF has a lot to learn from them,” Jaoji Koroi said at the branch launch.
It has been three months since the Bank of Papua New Guinea (BPNG) adjusted the Kina Facility Rate (KFR) for the first time in more than six years. The KFR is intended to serve as the interest rate at which funds can be lent or borrowed overnight between banking institutions. In July, BPNG lowered the KFR by 25 basis points (bps) from 6.25 per cent to 6 per cent and then in August cut the KFR again by 50 bps to 5.5 per cent.
There are two main price indices used to measure inflation in PNG: the quarterly consumer price index (CPI), released by the National Statistical Office (NSO); and BPNG’s own monthly Retail Price Index (RPI). According to BPNG, the first KFR cut in July was motivated by the RPI in the first three months of 2019 indicating an average deflation of 2.3 per cent. However, as shown in Figure 1, prices in the economy measured by CPI during this period registered 4.5 per cent inflation, showing an entirely opposite price trend when compared to the RPI.
Figure 1: Inflation measures (CPI vs RPI) in PNG (%)
The official explanation provided by BPNG on the second rate cut in August was also puzzling. Governor Loi Bakani’s press release in August stated: “In view of the on-going improvement in economic activity in the second quarter of 2019, with non-mineral private sector activities remaining robust and stability in other macroeconomic indicators, including inflation and exchange rate, [BPNG] decided to further ease its stance of monetary policy.” The statement goes against the standard practice of counter cyclical monetary policy. If economic activity was robust, the central bank should have considered lifting not reducing the KFR (with the aim of making borrowing more costly and thus slowing down economic activity and pushing down prices).
But does any of this matter? Three months after the first easing, only one commercial bank in PNG, Bank of South Pacific (BSP) has revised its ‘indicator lending rate’ (ILR) downward while other banks have kept their respective ILR and deposit rates unchanged. Moreover, the BSP’s ILR was only revised downward by 10 bps, compared to the 75 basis point reduction in the KFR.
Why is KFR pass-through so limited? The simple fact is that due to excess liquidity, banks hardly need to access the overnight money market, rendering the KFR impotent as a policy lever. Figure 2 shows the increasingly abundant excess liquidity in the PNG banking system (that is, short-term assets that are in excess of the banks’ liquidity needs).
Figure 2: Excess liquidity and the loan-to-deposit ratio
The question then becomes, why is there excess liquidity?
Figure 2 also shows that on average, for every 1 kina received by commercial banks as a deposit from 2002 to 2019, only about 0.5 kina is loaned out to the market. The lack of lending in the economy is due to PNG’s structurally low lending environment, underpinned by a large unbanked population and less favourable business environment, although in recent years it has started to show some improvement. Furthermore, there is a massive spread between the very high rates at which funds are lent out by the banks, and the very low rates depositors receive on their accounts. Limited competition in the banking sector in PNG contributes to the persistently high interest spread (Figure 3). Competition in the banking industry has been further curtailed by the acquisition of ANZ Retail by Kina Bank in mid-2018, which has reduced the number of retail bankers to just three. The spread shown in Figure 3 (that is, the difference between the lending and deposit rate) is in fact one of the highest in the East Asia and Pacific region, which explains why PNG’s banks are the most profitable in the region.
Figure 3: Deposit and lending rates and interest spread (%)
To get the KFR to work and, more importantly, to deliver economic growth, the government and central bank must reduce the interest rate spread and increase the demand for credit by creating a more favourable investment environment and allowing more competition to take place in the banking industry. Until then, any adjustments to the KFR, whatever the reasons, will achieve little.
This article appeared first on Devpolicy Blog from the Development Policy Centre.
Dek Sum is an Associate Lecturer at the Development Policy Centre, based at the University of Papua New Guinea, where he is a Visiting Lecturer and Project Coordinator for the ANU-UPNG partnership.