Papua New Guinea: Recovering but still Off-Track

“It should be said here that the task was uniquely difficult because of the complete lack of a foundation on which to build.” (Ten thousand years in a lifetime, by Prime Minister Albert Maori Kiki, 1968)

In the most recent economic update for Papua New Guinea by the World Bank, the country’s GDP growth is forecasted to increase after experiencing a slump in 2018. Taking these new numbers into consideration, we analyze what this will mean for the country to achieve UN Sustainable Development Goal #1: No extreme poverty. Extreme poverty in Papua New Guinea has persisted for decades. Sadly, even though major progress has been achieved since the beginning of the millennium when almost half of the country’s population (47.1%) was living on less than $1.90 (in 2011 PPP) a day, the country is still one of some 30 countries worldwide considered to be off-track in achieving SDG 1.

According to our latest projections, 2.4 out of 8.1 million people in Papua New Guinea are living in extreme poverty. Taking new positive numbers into account after the country’s economy hit a hard ground after a devastating earthquake in February 2018, this number is expected to slightly decrease over the next decade. Nevertheless, by 2030, around one fifth (20.9%) of the citizens of Papua New Guinea will most likely still be living in extreme poverty. This is much better then previously forecasted half a year ago, but the country is still too far away from the needed 3% poverty threshold as defined by the World Bank as the international poverty threshold.

The challenges in detail

Since gaining independence in 1972, Papua New Guinea has had a turbulent history. Most of the country’s population continues to live in rural regions where local governance remains weak and lack of essential services and resources are prevalent. According to World Bank, around 87% of Papua New Guineans live in rural areas and are engaged in a variety of subsistence and cash income agriculture activities. In 2018, renewable agriculture, forestry, and fishery accounted for 18.4% of the country's GDP. Taking non-renewable mining, quarrying, and oil and gas extraction (28% of GDP) into account, the country’s primary sector accounts for over 46% of its GDP (34% in 2013). The increase has come almost entirely from the extraction and mining industry. Currently, crude oil and liquified natural gas production (LNG) account for two-thirds of the extractive sector. LNG accounts for about 13% of GDP alone.

In the spring of 2018, a devastating earthquake hit the country’s extractive industry and caused a downturn in production quantities resulting in an economic contraction for 2018. The extracting industry is very dependent on international demand and prices. Even though growth prospects are now considered to be much better, global economic growth remains fragile with downside risks dominating the short-term outlook. Somewhat more worrisome is that according to World Bank, global investment growth continues to fall, especially in commodity exporting economies. Also, the short-term economic growth prospects of Papua New Guinea’s major trading partners—Australia, China, and Japan—are slowing down too. China’s annual GDP growth rate is falling under 6%. Nevertheless, rising demand for Papua New Guinea’s main commodity export, LNG, gives cause for optimism. Moves to improve air quality in Chinese cities, coupled with China’s continued economic expansion, are driving steadily increasing Chinese demand for LNG.

Given the fact that a majority of Papua New Guineans live in rural areas, support of subsistence and cash income agriculture activities is important. It provides not only alternative sources of income but also food security when cash income activities are limited. Both a consequence and driver of PNG’s poverty rate is the malnutrition of its children. Frontier Economics estimates that the cost of child malnutrition could be as high as 8.45% of the nation’s GDP and the number continues to rise despite continuous aid from overseas. The lack of education and clean water has led to only 4% of PNG’s arable land being farmed.

Thus, institutional cooperation and capacity building—involving both the public and private sectors as well as civil society and non-governmental organizations—will not only be effective (by impacting rural livelihoods) and efficient (by reducing delivery costs of agricultural commodities), it will also improve the lives of rural villagers. And by improving the productivity of the agricultural sector, labor supply might be freed to support a sustainable development process of shifting income sources to growing industry and service sectors, which is the foundation on which to build development.

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