NATIONAL ALLIANCE BLAMES PNC FOR COUNTRY'S ECONOMIC FAILURE
Greetings and welcome….Sir Michael, Party President and executives, NA candidates, members and supporters..
Introduction: After serving as the Ruling Party for two consecutive terms in 2002 and 2007, the National Alliance Party was ousted in a parliamentary coup in 2011. Subsequently, a Government led by the Peoples’ National Congress took office in 2012.
Looking back it is clear that management of the PNG economy was at its best during NA’s two terms in office from 2002 to 2011. I intend today to help all NA members and candidates to cast away any doubts that this may not be the case. This is an important part of our claim that NA deserves to form the next Government.
NA and its candidates need to campaign in a confident and purposeful manner to ensure the return of an NA-led Government. I am confident that as head of the next Government, and with the right team behind me, National Alliance will once again be able to restore sound economic policies and rising levels of prosperity that the people of this country truly deserve.
These past five years have been good in some regards, but management of the PNG economy, as I will explain, has faced severe and serious shortcomings.
Economic management: Let me begin with the subject of PNG’s economic growth. You would all have heard the claims about the high rates of growth in the Gross Domestic Product. One has to look behind the numbers to recognise the real story that growth has been severe eroded in recent years, along with the quality of that growth.
Last year – in 2016 – PNG’s per capita income fell for the first time in 13 years. It is expected to fall again this year and to keep falling.. I repeat keep falling..at least for another four years.
For a macroeconomic record as bad as this we will have to go back to the days of the previous PNC-led Government. People had lost all hope for an economic recovery and the PNC legacy was that PNG was often described as “a failed state”.
After the economic boost induced by the LNG project that was negotiated and commissioned by a National Alliance Government, it seems like the economy has virtually fallen off a cliff under the present Government.
After the near record 13.3% growth in 2014 and 11.8% in 2015, GDP growth plunged to 2% last year – significantly lower than the population growth rate of over 3% annually. How bad is that?
NA is the only political party that makes the claim that its members and friends from all four regions in the country are like family and remains so even though these bonds were sorely tested in 2011.
My dear friends and colleagues, each and every NA candidate has a duty to convince the electorate that only through reinstatement of an NA-led Government can the current economic decline be reversed.
The National Alliance Party engineered that feat in 2002, when nearly all commentators were saying things could only get worse. Yes we can – and yes we will – engineer a turnaround again in 2017. I make that promise as your leader.
Many years of work in the private sector, and my role as the country’s longest serving Treasurer, gives me a clear insight into the dynamics of our economy and the best way to propel growth that benefits the majority of our people and not a select few.
Sound policies were the key ingredient of the Somare-led years from 2002 to 2011. The jobs growth we generated – the largest ever employment increase in our entire history – spread the growing wealth among the wider population of our country.
I also make the promise today that a future NA Government will overturn the dismal jobs record of the past three years. Many of you are not aware that jobs in the formal sector have dropped significantly since 2014 to their lowest level in about five years, according to Central Bank statistics. This has happened in spite of a significant increase in employment in the mining and petroleum sectors.
In just two years – 2014 and 2015 – the economy has grown by a spectacular 25%. But where did that growth come from? Had it anything to do with any initiative undertaken by the current Government? Clearly, the answer is a big N-O – No!
The Government has acknowledged that this growth was due to the start of the PNG LNG Project, which had everything to do with the National Alliance-led Government under Sir Michael and nothing to do with his successor, the O’Neill Government. This is not opinion; this is fact.
Mismanagement of our overall economy is one reason why the originally anticipated growth rates of 18.9% and 25.5% in 2014 and 2015 never eventuated. That was based not on a long-term forecast, but an expectation of what was happening at the time.
The current Government’s policy mix, and its insatiable appetite for debt, meant these forecast rates would not be achieved even though PNG LNG performed well beyond all expectations. Admittedly, the projected 2015 growth was also adversely impacted by the unexpected fall in oil and gas prices in December 2014.
Our current Government had been proudly boasting in its speeches that PNG was going to have the highest growth rate in the world. It failed to correct itself when this did not eventuate.
All Papua New Guineans would be better off today if the current Government had given more consideration to the quality of its spending than in promoting extravagant projects built at highly inflated costs!
The debt story: My fellow NA family, 2014 was a year of near record economic growth. Revenue flows into the Government’s Waigani account was the highest ever recorded.
Let me turn to our story of public sector borrowing. The O’Neill Government borrowing in 2014, which I tried hard as Treasurer to minimise, was equivalent to more than one third of total Government expenditure in 2011. In 2010, the last full year of the NA Government, total Government revenue stood at K6.87 billion as against K11.84 billion in 2014. Nevertheless the Government had to borrow an additional K3.5 billion in 2014 to fund the budget deficit.
Our Prime Minister told Parliament this week there would be no more borrowing. That is because he can say something today and tomorrow the exact opposite. Because of his economic strategy, PNG will have budget deficits for another five years. The money needed won’t fall from the sky; we will have to borrow it. These days traditional sources have dried up and debt is being taken up directly by the Bank of Papua New Guinea.
Lots of PNC people, and many others, would point their finger at me and say….well you are Treasurer under this Government.
Let me tell you that one day before the 2014 budget was presented, most members of the Ruling Party put in demands for an additional K4 billion in spending. Sensible economic management was the last thing on their minds!
Ladies and gentlemen, let me summarise the picture of how our Government debt has been managed.
When Sir Michael Somare, our founding father, took office in August 2002 public sector debt stood at K8.4 billion and was equivalent to 72% of Gross Domestic Product. About one out of every four kina was used to service debt and not to deliver public services. GDP had been contracting for seven years.
By the time it ended its first term in 2007 public debt had been slashed by K1.1 billion to K6.3 billion and the debt to G-D-P ratio had fallen from 72% to 39.5%.
To put that in perspective when NA took office in 2002 for every kina of Government expenditure the O’Neill Government is able to spend the equivalent of K3.60, or double the level of NA Government spending in 2007.
Even though prudent NA economic policies slashed total public borrowing by K1.1 billion to K7.4 billion between 2002 and 2011, Papua New Guinea enjoyed its best years of economic growth in that very period under the National Alliance Government.
These days it seems most positives are attributed to the PNG LNG Project. In NA’s first five-year term LNG had not even been contemplated. Nevertheless, the country enjoyed solid economic growth. Formal sector employment rose by a highly significant 31% by 2007 and by about the same margin again by 2011 when it was ousted from office.
The Government has borrowed K13 billion to take total debt this year to K21.6 billion. Despite its spending spree, formal sector jobs have been falling since 2014. By June last year these jobs had fallen by 5.7 percentage points below the peak in 2014.
Everyone knows it is a myth that Debt to GDP ratios have been maintained below the 30% figure set by the previous NA Government’s Fiscal Responsibility Act.
Some K3 billion of current Government borrowing to purchase Oil Search shares are hidden away in the books of Kumul Petroleum. In its Article IV assessment, the International Monetary Fund estimated Debt to GDP at 56% in 2015. If anything it has only grown since then.
Putting a human face to the numbers: Many people listening to me today may still be sceptical that these are just numbers and figures that can be manipulated. Let me also tell you today a little about the human aspect of poor macroeconomic management.
One reads regular assertions in the national media about whether or not the National Government is broke. Broke? Sounds like a sick joke! For every Kina our Government spends today, the Somare Government in 2007 only had 50 toea to spend. How can PNG be broke when there is so much more money?
This is the ultimate irony caused by high levels of public debt and miserable performance and accountability.
How can our people expect State Owned Enterprises like PNG Power and Eda Ranu to prosper and implement plans for the future when tens of millions of kina are owned to them by Government entities, forcing them to struggle for their day-to-day existence?
PNG Power recorded a significant after tax profit in 2011. Months later under the illegal regime that was in place this important state owned utility faced difficulties in paying staff wages. This problem went on after the 2012 national elections.
Failure of SOEs and other providers of public and private services to receive payments from Government is part of the overall malaise that has contributed to falling employment numbers over the last three years.
Every month this Government spends more than one billion kina – in just over three months it spends more than what the entire NA Government spent in the 2002 calendar year. Yet outstanding Government payments have become such a disgrace that even the New Zealand Government has recorded its dismay on behalf of New Zealand companies waiting to be paid by the PNG Government.
One of the saddest plights is faced by highly respected Papua New Guineans who serve our country in PNG Embassies in Singapore, Beijing, Brussels and Washington.
Most have not received their salaries and wages for up to ten fortnights. Some face possible eviction from diplomatic offices and their homes. Children of diplomats in the US capital last year were forced to withdraw from educational institutions because for their parents’ tuition fee free education was some kind of foreign dream!
Such abysmal treatment of PNG diplomats – our people, our representatives – in overseas jurisdictions has not happened before. It is happening now because the people who should care remain deaf to the constant cries for help and understanding.
As Treasurer I was forced to step in to rectify this situation. I ensured that the 2017 budget allowed for direct funds to be sent from Treasury to these Embassies to avoid a situation where funds continue to be diverted to other purposes. Unfortunately the backlog is great and it may take some time to catch up, and it is possibly too late to stop some potentially dire consequences.
Ladies and gentlemen, when Governments get too wrapped up in grandiose schemes and strategies it is the little people that are forgotten and who end up paying a price!
A perfect example are our long suffering PNG LNG Project landowners. In two months it will be exactly three years since LNG exports commenced from our shores and seven years since project construction began.
Nevertheless not a toea of royalty payments has gone their way and little effort is being made to complete the clan vetting process. The process of selling down equity in the PNG LNG Project to the landowners also remains stalled.
Lives of almost one percent of our population, represented by the LNG landowners, have been adversely impacted by these delays while the Human Development Indices place them among the least fortunate people in the world.
Conclusion and issues for National Alliance: My friends and colleagues, and especially every one of you who will stand as an NA candidate in the coming national election; I wish to assure all of you that if the people of this country through your efforts and success in this election give us the mandate, and as your leader, to be the next Prime Minister I will be guided by one over-riding principle.
As a Government we will adopt a PEOPLE FIRST policy.
Every policy we implement will need to show some measurable positive impacts on the wider population in our cities, towns and small villages right across the nation.
One of the top overarching policy platforms will be the Promotion of Agriculture and multi-faceted Programs to Alleviate Poverty. I will expect every NA Member in the coming Parliament to be fully committed to this goal within his or her community and to be fully supportive of constructive national policies.
Although I have been Treasurer these past few years with a mandate mainly to manage the budget I have been closely behind several major initiatives that is already bearing positive results around the country on the agricultural front.
One of these is the Productive Partnership in Agriculture Projects of the World Bank which has had great success in rejuvenating our cocoa and coffee programs in several provinces, including East New Britain, Bougainville, Chimbu and recently in the Momase Region.
We are also about to launch another major program, “Markets for Village Farmers” involving the International Fund for Agricultural Development as the lead agency. It will especially focus on vegetables and fresh produce from the Highlands Region with a broad goal of improving livelihoods among tens of thousands of farmers.
In Government, NA will adopt emergency measures to immediately deal with and resolve the coffee borer problem that has affected several provinces.
On the agricultural front much more attention will be paid to greatly increasing the productivity and cash incomes for our rural, smallholder farmers, along with concerted efforts to create a new lease of life for neglected plantations around the country.
Other integrated programs that will deserve special attention to help lift living standards throughout PNG will focus on provision of clean and reliable supplies of electricity, water and telecommunications services.
An NA-led Government will also be committed to ensuring a competitive and modern legislative framework for our resources sector to ensure Papua New Guinea remains an attractive destination for Foreign Direct Investment, one of the most beneficial and effective ways of improving living standards by obtaining adequate resources for service delivery.
Mega projects that need to be delivered would have to provide a better platform for our people to improve their living standards than has been achieved to date by the PNG LNG Project and other mining and oil projects.
Colleagues and friends, some initiatives of the current Government will be maintained and strengthened. In particular we remain committed to a policy of tuition free education and provision of basic health services. However, a much bigger focus needs to be placed on the upgrading of relevant infrastructure, adequate resourcing of schools, hospitals and aid posts and the quality of service delivery.
One of the biggest deterrents to the economy in recent years has occurred because of the inability of the Central Bank to successfully raise a sovereign bond to assist the National Government public debt strategy even though several other countries have been able to do so.
The economy has also been badly impacted with many employers reducing their staff levels because of inadequate supplies of foreign exchange on the domestic market.
I am of the belief, particularly with the upturn in gold prices in the past year, that the Central Bank has failed in its mandated task of ensuing that gold mining companies and other exporters repatriate all their net export earnings back into PNG.
For this and other reasons I intend to commit an NA-led Government to a review of the performance as well as the independence of the Bank of Papua New Guinea, which has been a feature of the PNG economy since reforms that were undertaken in 2002.
Overall I believe that a greater level of transparency and accountability should be demanded of BPNG.
Colleagues and friends, I believe the Government bureaucracy needs a much closer look as it has grown too large and is consuming far too much resources that could be effectively diverted into development of the rural economy. Much has been said about plans to further rationalise Government operations and delivery of services and this needs to be another priority goal for our Party in the coming years.
In conclusion, friends and colleagues I believe a future Government will also need to review policies and strategies related to the Sovereign Wealth Fund and better and more effective ways of promoting Public Private Partnerships as a means of creating a much more competitive and productive national economy.
FULL SPEECH OF TREASURER AND NA LEADER PATRICK PRUAITCH