James Marape, Minister of Finance, Papua New Guinea: Interview

Interview: James Marape

How has the decline in energy and commodity prices affected the country’s financial situation? What can be done to absorb these shocks in the near future?

JAMES MARAPE: We are a price taker, in the sense that Papua New Guinea cannot influence the fluctuation of commodities prices and our exports, whether gold or minerals, have been subdued for some time now. We have to live with this reality and we are shaping our budgets accordingly. Even though the sudden drop in oil prices took us by surprise, PNG has performed better than other nations, considering this negative cycle. This is mainly because of our capacity to rally our strengths: a strong fiscal regime and strong monetary policy. During this period of austerity, our goal has been to control spending and manage the deficit, since tax revenues and equity participation will decline in 2015. We will deal with immediate revenue shortfalls and map out a way to continue key programmes in 2016/17.

Foreign currency reserves have halved in the past two years in PNG. Does it mean that some of the capital projects will have be put on hold?

MARAPE: As I have said, we have to remain cautious and inevitably we will have to defer some expenditures within the 2015 budget, but that does not mean that they will disappear from the government’s radar forever, it is only a case of spreading them out over the upcoming financial years. The minister of planning is currently producing a list that will function as a benchmark for public investment programmes. Even though earlier in 2015 there was talk of a budget review, or a supplementary budget, we think we have enough facility on board to pull through the rest of 2015.

The Pacific Games, which have been just completed, were 100% financed with our own resources. The government has in fact implemented continuous economic stimulus by pushing the construction sector, which has sustained economic growth. The government has also pumped PGK1.3bn ($492m) into various provinces and districts in 2015, capital that was handled by small contractors that helped the circulation of liquidity. Having said that, we always maintain a buffer of at least of nine months of foreign currency in the system to avoid hitting the bottom of the barrel, so to speak.

How might austerity measures affect the prospects for PNG as an investment destination?

MARAPE: PNG has always been a good investment destination in the Pacific and it continues to be, despite these challenging times. We have never defaulted on our debt commitments and we have been exporting oil since 1990, without ever missing a cargo delivery. That ExxonMobil decided to invest in this country, during one of the biggest financial crisis of our generation, and that France’s Total, the second-largest company in the gas sector, is ready to commit to an equally large project, says a lot about PNG’s credibility.

Having said that, diversification will be key if we want to remain on top for the long run, and agriculture will be essential in this respect. Minerals and hydrocarbons are not renewable and it does not matter how exciting all these projects are or how much revenue they generate for the state’s coffers, at the end of the day we are conscious that they are not renewable and will not last forever. Agriculture is, and I am very excited about the potential of this industry.

It is time to follow up our words with real actions on the ground, as PNG sits right in the middle of the Asia Pacific region and, while this region has great demand for energy, it will also need plenty of food. PNG could be instrumental in providing regional food security. While the government is improving infrastructure, we are looking to attract investments from multinational firms to jump start the industry by offering 10-year tax holidays. This may take five to six years to materialise, but agricultural investment is extremely important for the growth of the nation, as 80% of the population depends on the sector. Agriculture is also important because it is part of our traditional culture and maintains lifestyles that can reduce poverty and migration.