The governor of the Papua New Guinea central bank, the Bank of PNG, Loi Bakani, says the high inflows of revenue from the huge LNG project pose major threats to other sectors of the economy, such as agriculture.
He says it is a form of Dutch Disease when growth in one sector can be detrimental to other sectors.
Mr Bakani says there has already been some impact with a rise and fall during the construction phase, which is now easing off.
LOI BAKANI: The situation now is that the construction of the project has eased off. And the amount of foreign exchange that the project is bringing in is far less than what it used to be two years ago. Now, that is affecting the exchange rate in that the kina is depreciating now against the main currency, like the US dollar. But with the agricultural sector not knowing or the growers not knowing that the kina deprecation is good for them, they already factored in that the price of their agricultural commodities are already very low. So in that instance, if they're not reacting to the depreciation by increasing production to take advantage of the depreciation of the kina, then it won't have an impact on the agricultural sector. Now, in a few years' time - next year onwards - we will start to get the receipts from the export procedure of the gas. There is the potential, again, of the kina appreciating in value. That is when if we don't start now to look at developing the agriculture, the agriculture can be killed by the appreciation of the kina, especially in the case where international prices continue to be low.
DON WISEMAN: With agricultural commodities particularly, because they're so price-sensitive, once you start to get some appreciation in the kina, agriculture is always going to be starting to go down the gurgler, isn't it? How do you counter that?
LB: If prices continue to be low and if the appreciation of the kina continues because of the large inflows of receipts we're getting, that obviously makes the agricultural sector very unattractive. People will not be producing on the plantations, all those kind of things. So this is the tax situation where you have the project sector or the mineral sector killing the non-mineral sector like agriculture.
DW: So what do you do?
LB: Because this has the potential to come I'm prewarning the government - let's develop the agriculture sector. If it's not using a current way of developing agriculture, current technology, go into new technologies of developing the agricultural sector, in terms of products and in terms of growing crops.
DW: Make it more efficient?
LB: More efficient, yes. And this is the time now to... Because we know these things are coming, you know? If we get the foreign exchange coming in there'll be a lot. And the government will be, of course, increasing expenditure and utilising the revenue. Therefore, to have this even out revenue flow for government in terms of economic activity, stable economic activity for the private sector, confidence by all the private sector and investors is to diversify the sector. Not only rely on the mining and petroleum sector, but develop the traditional agriculture sector. We can sustain economic activity, economic growth over the longer term.
