Economic traps PNG needs to avoid

ECONOMIST Matthew Morris offered some interesting tips yesterday to prevent Papua New Guinea falling into the economic cesspool that has enveloped resource-rich countries like Nigeria and Angola.
Economic traps PNG needs to avoid Economic traps PNG needs to avoid Economic traps PNG needs to avoid Economic traps PNG needs to avoid Economic traps PNG needs to avoid

Speaking at the 28th Australia Papua New Guinea Business Council forum and expo in Brisbane, Morris said research showed the average Papua New Guinean was barely any better off now than in 1975.

Identifying four traps countries could fall into, he outlined economic success as dependent on ongoing conflict; a resources boom; being landlocked with unsavoury neighbours; and bad governance.

A research fellow specialising in aid and development policy, Morris has provided economic advice to the Australian, Papua New Guinea, United Kingdom and governments in Africa, Asia and the Pacific.

"It must be acutely obvious to everyone in this room that Papua New Guinea is on the brink of a massive economic boom," he said.

"I guess the question that a lot of us have in our mind is whether that boom will be a blessing or a curse."

Morris said an international study in 2006 had identified some of the key ingredients needed for countries to achieve very rapid growth.

"Basically their conclusions were that rapid economic growth isn't a miracle, it's the result of having the right mix of ingredients and uppermost in this is having leaders who are committed to achieving economic growth and can take advantage of the various opportunities in the global economy," he told the forum.

"They also need to know how to put the right incentives in place and how to have the right mix of public investments to support the private sector and enable the long-term diversification of the economy and its integration into the global economy."

Morris said the danger of a resource boom was the threat of "Dutch disease", where commodity prices forced exchange rates to rise, affecting the export and manufacturing sectors.

However, he believed the PNG government's sovereign wealth fund could help manage the macro economic effects of the boom.

"The purpose of the sovereign wealth fund has been to ameliorate the effects of Dutch disease by stopping the exchange rate from appreciating too fast, as well as to marry the revenue volatility associated with fluctuating commodity prices and a resource boom," he explained.

"My view in looking at discussions that have been held in Papua New Guinea in recent years is that there needs to be more discussion around fine-tuning the macro-economic policies and the development plans but the big challenge we always seem to get back to is the implementation of these policies and plans.

"There needs to be more discussion and debate on how to improve accountability, the transparency and government capability to deliver basic services."

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