The impact of COVID-19 is accentuating trends that had already developed over the last decade, says University of Papua New Guinea lecturer in economics, Maholopa Laveil.
He lists amongst these trends: “falling employment, large fiscal deficits, very mild resource growth and the increasing debt burden.”
Laveil says the exchange rate “is the only policy lever for government right now to use so it can allow a managed depreciation of the kina, but it refuses to do so. And the reforms going forward will be undermined by a looming vote of no confidence in November this year, a misperception of stability held by many government employees, the durability of leading civil servants who are resistant to change, the gradual deterioration as opposed to a sudden deterioration, this does not prompt them to adopt reforms and external financing available that is not conditional on policy reforms.”
In an update published in April 2020 the International Monetary Fund suggested “the kina is overvalued by around 11 to 18%. This overvaluation could be largely eliminated over the next three years without boosting inflation excessively.”
Executive Director of the PNG Business Council, Douveri Henao, said “there is a very lively debate in the market right now with policy makers whether the devaluation of the kina should kick in.
“Those that are pro-devaluation, their main argument is that everything is slowing down so this is the time to actually devalue. Whereas others, especially on the government side, are more reluctant because of the debt financing pegged into a stronger Kina.”
Henao says the Council is working hard to ensure businesses can survive, saying “we simply cannot go back to an April lockdown state of emergency scenario”. He says CEOS and managing directors the Council spoke to at that time, 75% expected revenue to decline, 70% expected a profit decline and 66% indicated they won't be operating any business by the end of the year. Henao says businesses are negotiating a co-regulation model where “social distancing, hygiene protocols, staff rotation protocols are now becoming the compliance mechanism that businesses are undertaking,” allowing them to continue operating.
He indicates that there have been signs of market resilience, with fresh produce moving across the market, “There have also been substitutions on services as well, more PNG management are rising up to executive positions. When the March period kicked in, there were lots of expatriates that left the country, called from their governments and in particular Australia. All of those positions are being filled up by PNG middle to senior management.
“[There] has been a massive uptake on technology. All the consumables have jumped up by 30-40% in purchases because everything's online from school curriculums to business engagement and so forth.”
The ADB projects economic growth will decline to -1.5% this year, likely leading to further cash flow problems for government. Development Policy Centre’s COVID Economic Database notes projected economic growth of -1.5% for 2020, down from 2% pre-COVID. Government revenue is anticipated to fall by 15% and debt will rise to 43.7% of GDP.
“The latest international commodity price data published by the World Bank in April 2020 indicate a general fall in the prices of PNG’s main export commodities. Prices for Liquefied Natural Gas (LNG), copper and nickel declined, while that of gold picked up reflecting investors’ preference for a safe haven investment. Non-mineral commodity prices for cocoa, coffee and palm oil also increased providing some relief to PNG exporters,” Bank of PNG Governor, Loi Bakani wrote for the Pacific Forum blog recently.
“The significant drop in some of the commodity prices has already affected PNG’s export tax revenue and foreign exchange inflows, and will continue to put pressure on the foreign exchange market. The Government’s support to increase local production and ensure its food security requirements are at a satisfactory level is critical to sustain domestic consumption, while reducing the country’s dependency on imports.”
Pacific Islands Forum Economic Ministers are asking development partners to provide debt relief, and increase general budget support as island nations struggle with the economic impacts of coronavirus pandemic.
At the end of this week’s virtual Forum Economic Ministers Meeting (FEMM), Ministers and officials also asked for more flexibility in the financing and focus of existing and upcoming donor programs, increased support for social protection systems, and that International Financial Institutions reassess grant and loan eligibility so Pacific island states can fully benefit from their support.
The Ministers say considerable additional investment and resourcing of public health systems will be needed and have committed to diversifying their economies and improving competitiveness, with a focus on the digital economy and investments in digital literacy, trade and innovation in the private sector, including through public private partnerships.
The Ministers have backed the establishment of a regional COVID-19 economic recovery taskforce to look at the socio-economic impacts of the pandemic over a longer period of time, and oversee implementation of regional priorities, including including health, digital economy and connectivity, food security and agriculture, and building resilient and sustainable economies. The taskforce will also engage with development partners on ‘innovative’ financing options.
Pacific Islands Forum Secretary General Dame Meg Taylor says the FEMM also discussed the need for “very strong public financial management systems”, so that members can absorb resilience finance and “address the issues of health and climatic impacts and plan our economies.”
“I think one of the key issues here is that, to note that over the past several years about US$2 billion has come into the region for resilience finance. That's a lot of money .”
As Chair of the FEMM, Tuvalu’s Finance Minister Seve Paeniu said for him, “it all boils down to the resourcing of these response measures that we pursue and how we implement and resource these initiatives.
Paeniu would also like to see “a coordinated set of lessons learnt and experiences by similar countries” so that Tuvalu and other small island states can learn from and adapt to their own circumstances for future crisis response situations.
FEMM has directed that a development partners roundtable be convened to help coordinate donor support for COVID-19 responses.
The Ministers did not discuss travel ‘bubbles’ or labour mobility in depth. Minister Paeniu says this is because in the case of travel bubbles, only a few countries have flagged such arrangements as a possibility. Dame Meg said labour mobility and seasonal worker discussions have largely been handled on a bilateral basis.
The Pacific today faces three crises: a health crisis, an economic crisis and the ongoing climate crisis, and Pacific Islands Forum Economic Ministers will discuss all three when they meet (virtually) next week.
As the COVID-19 pandemic has unfolded the scale of the economic impact on Pacific people and communities has become clearer – and Pacific Islands Forum Secretary General, Dame Meg Taylor says for some it is ‘catastrophic’.
Increased hunger, malnutrition and poverty is being reported by civil society organisations. Job losses, business failures and plummeting remittances are telling and industries such as the tourism sector face the prospect of decades in recovery. Governments are scrambling to put in place safety nets and cope with staggeringly bad COVID-related economic forecasts.
Dame Meg says it is time to think out of the box and act regionally.
She understands the tendency by Pacific countries to turn inwards during the pandemic.
“It is only natural when something like this happens,” she told reporters ahead of the Forum Economic Ministers’ meeting.
“We …look at what is happening to myself, what is happening to my family, what is happening to my friends, what is happening in my community, what is happening in my country.
Dame Meg Taylor says the ministers will focus on economic priorities to contain the spread of COVID-19 and recover from the pandemic to build “a strong platform for economic stability and resilience in the long term.”
She stressed the need for new and innovative approaches to development challenges based on self-reliance, pointing to the Pacific Humanitarian Pathway as an example of effective Pacific collective action.
“It is the only region in the world that has done this. And why is this important? Because it is the political space, making sure that the technical assistance can get in, medical assistance can get in, we can ship cargo and customs can be adhered to, that we can repatriate citizens, we can land aircraft, immigration facilities are all in place, and trying to make this work is no mean feat, as you will understand.”
Dame Meg is encouraging Forum members to look beyond their national boundaries, and for development partners to think beyond bilateralism, in order to facilitate “better and deeper coordination and collaboration.”
“It is, I think it is honest for me to say, that the development partners have really approached COVID with a very much bi-lateral approach. And we have watched this, and we have watched the geo-strategic issues play out.”
Dame Meg says the Forum and other regional organisations are also looking at digitalisation as a priority; to survey what infrastructure is in place or coming online plus prices and accessibility, and then explore how it can support the digital economy, health, education and other development goals.
“ I think that it is an opportunity that we need to look at. I know that development banks like the Asian Infrastructure Investment Bank (AIIB) are looking at this through Southeast Asia and other countries. We have asked them to have a conversation with us in terms of what can be done in this region.
“But everything costs money and everything that we get from banks, unless it is coming from the International Development Assistance in the World Bank, everything will one day have to be paid back. This is the big issue for us in the region on how we are going to be able to service this debt over time.”
A paper on the Pacific’s own climate-infrastructure fund, the Pacific Resilience Facility, —with added content on the COVID pandemic—is also going to ministers. The Facility aims to raise US$1.5 billion and fund small projects through the interest generated.
“It is really important that we start thinking of how we can help ourselves, “ Dame Meg says.
“I think that there is a huge tendency in the International Development space every document that you pick up is about how much the Pacific relies on everybody else to do things for them.
“You know I am really sick of that! I'm sure that a lot of you who have worked around this are also tired of it too. It is not as if we are people who do not know how to look after ourselves but wherever they have been good ideas put forward, it is amazing how people think that ‘oh why did you think of that?’ And this is exactly the kind of resistance that we got on this from some of the development banks; we are doing that so why would you want to do it?
“We have got to start helping our countries get systems in place in countries where we can maximise funding that comes in so that countries can help themselves.”
Dame Meg acknowledges that thinking outside the box and building on the regional identity of the ‘Blue Pacific’ continent - launched by leaders in 2017 - is not always easy.
Sharing of experiences of individuals and of countries is important.
“I hope that this is what Forum Economic Ministers will do – to discuss and share their experiences and support each other,” she said.
Forum Economic officials meet this week, with the Ministerial due to open on Tuesday next week.
The outbreak of Covid-19 in Papua New Guinea represents an added threat to economic growth and stability, given the country's limited capacity to manage the health crisis, according to three global economic analysts.
On the plus side, government has raised more than K1 billion (US$286 million) ‘COVID Bonds’ from banks and super funds and Treasurer Ian Ling-Stuckey says he’ll be seeking another K1.5 billion for COVID bonds over the coming weeks.
Fitch Solutions’ Country Risk Research Unit, the latest ANZ Bank’s Pacific Insight Report and ratings agency Standard and Poor’s (S&P) have all revised down growth forecasts, with both Fitch and ANZ predicting a recession this year.
But the Bank of PNG, the central bank, thinks the impact of Covid-19 will be ‘contained’ during 2020 and will be minimal next year and 2022, according to its latest biannual Monetary Policy Statement.
The Reserve Bank of Fiji (RBF) has today confirmed Fiji's sure path to an economic recession, as all sectors of the economy brace for the harsh impact of the current coronavirus pandemic.
"Following almost a decade of positive economic growth, the domestic economy is now forecast to fall into a recession. The magnitude of the contraction depends on how long the pandemic lasts and the extent of local contagion," RBF stated in its March Economic Review, released today.
"The main transmission will be through the tourism industry and cessation of economic activity due to appropriate precautionary measures taken by the Government and the general population. The halt in tourism activity and the general decline in incomes and consumption appetite will also negatively affect Government revenue and have spillover effects to all other sectors in the economy."
A recession is generally defined as two successive quarters (6 months) of economic decline and weak GDP growth.
Fiji's predicament mirrors the trend in most countries around the world, with the pandemic sparing no one including the global economy, which itself is on life support in the form of financial response packages doled out by all affected governments as well as the world's bilateral and multilateral financial institutions.
This week, the International Monetary Fund (IMF), whose membership of189 countries includes Fiji, issued a bleak prognosis on the health of the world's economy after virtual meetings with leaders of the G-20.
"It is now clear that we have entered a recession as bad or worse than in 2009. We do project recovery in 2021," said IMF's managing director Kristalina Georgieva in a telecast press briefing.
"In fact, there may be a sizeable rebound, but only if we succeed with containing the virus everywhere and prevent liquidity problems from becoming a solvency issue."
The IMF, she said, had so far received 81 requests - an unprecedented number - from member countries for emergency funding.
Fiji's economy, initially forecast to grow by one percent this year, is now estimated to contract by 4.3 percent as a result of the coronavirus pandemic.