OBG talks to James Marape, Minister of Finance

Interview: James Marape

What were the factors behind Papua New Guinea’s better than expected economic performance in 2013?

JAMES MARAPE: One of our greatest achievements has been to achieve macroeconomic stability over the last 10 years. It was no small task for a country like PNG, which is still over-reliant on imports and exposed to commodity price fluctuations on the international market.

Yet when you look at the numbers, there are reasons to be optimistic. Our foreign exchange reserves 10 years ago amounted to just $800m. In 2012 they stood at $5bn, while GDP grew at an average of 9-10% over the same period. These positive economic indicators were achieved by implementing a strict fiscal policy, like the Fiscal Responsibility Act, which set a ceiling on public debt at 30% of GDP. We also set a clear framework for medium-term expenditure and export-driven strategies. This wave of structural reforms was supported by a period of exceptionally high commodity prices on the global market, especially between 2006 and 2008, which brought in additional revenues.

Most importantly, in the midst of a world financial crisis, we were able to attract ExxonMobil into a joint venture to develop our gas reserves, which is testament to PNG’s potential as a major player in the region. Exxon was already engaged in a 120trn-cu-ft investment in Australia, through the Gorgon gas project, so we had to compete for investment with a very attractive and deregulated market, but still ExxonMobil banked on PNG. As the PNG liquefied natural gas (LNG) project enters the final stages, our credibility as a nation is making a big leap forward. As proof of that, Standard & Poor’s recently improved our rating to B+.

What challenges lie ahead, considering the structural weaknesses you have mentioned?

MARAPE: PNG’s economy is like a ship whose nose has been redirected into safer waters, but we will have to continue catching favourable winds to sustain our journey to port. I know enough about seafaring to predict that there will be turbulence along the way. That is why it is important to implement a budget that will address the right issues over the medium term.

While we have mapped out the path in terms of revenues and expenditure priorities, we still need to improve our key economic enablers, while overhauling the country’s infrastructure – ports, roads, airports and public utilities – to translate macroeconomic gains into real benefits for the population as a whole.

Are you satisfied with the government’s implementation at both the national and provincial levels?

MARAPE: We have to admit that there are structural weaknesses, and implementation has been one of our major concerns as an administration. Certainly our public sector service structure has not met expectations, and that is why in 2013 we put special emphasis on procurement at the district and provincial levels, a measure that will continue in 2014.

While this process of decentralisation will be sustained, we will run a budget deficit in an effort to stimulate the economy. We will pay special attention to the construction sector, which inevitably is experiencing a slowdown as the PNG LNG project reaches completion. There is still plenty of heavy equipment and human capital engaged in spin-offs from the project, and our task as the government is to ensure that it continues to be employed. So 2014 will be a bridging budget in the hope that we will achieve a surplus again by 2018. In the last quarter of 2014 we will see the first revenues from the LNG project flowing into the system, but the real effect will be felt from 2015 onward.

Where do you see PNG 10 years from now?

MARAPE: We are strengthening the nuts and bolts of our system, and if we manage to maintain political stability there is nothing to stop PNG becoming a regional leader in the foreseeable future. My contribution to this as the minister of finance is to ensure expenditure is on target, and I can assure you that we will continue implementing fiscal discipline for the next 15 years.