Reform urged in PNG to boost private sector performance
The ADB says Papua New Guinea needs reform to ensure the private sector reaches its potential and becomes an important part of PNG's growing economy.
Papua New Guinea needs reform to ensure the private sector reaches its potential and becomes an important part of PNG's growing economy.
That's according to a new Asian Development Bank report.
A boom in mineral resources has contributed to PNG becoming the fastest growing economy in the Pacific.
Paul Holden is an ADB economist with the Pacific Private Sector Development Initiative and he told Sally Round the long-term prosperity of the country depends on private business.
PAUL HOLDEN: The business environment in Papua New Guinea has been really quite challenging. And it is our strong view that in order to make sure that the growth is sustained and the benefits are widely distributed, the private sector has to become a very important part of the PNG economy. And it is this tension between the expansion of the mineral resources on the one hand and the promotion of private sector development on the other that makes things complex.
SALLY ROUND: And private sector, is it suffering at the moment?
PH: Well the private sector has been doing really quite well. It has been experiencing a lot of the knock on effects of the construction of the pipeline to bring LNG to a place where it can be exported. On the other hand, the private sector is on record as having said that it is finding the business environment difficult. For a number of different reasons, among which are government policy, right now the current exchange rate policy and various issues connected with state owned enterprises. One of the key factors has been the unreliability of a number of services delivered by state owned enterprises, particularly electricity, which has been an ongoing complaint of the private sector now for many years.
SR: You've recommended policy adaptations. Can you just run through some of those?
PH: A number of different areas present challenges. One is in access to finance. While the PNG financial system has a number of quite sophisticated entities to provide funding to the private sector, overall access to credit is quite limited, it's one of the most limited in the region. We have been assisting PNG with modernising their framework for pledging collateral as security for loans. And that should come online towards the end of this year, and it ought to significantly improve the way businesses can go about accessing finance. Right now some concern is warranted in terms of the build up of arrears with foreign exchange, there is right now some rationing and there's a long queue of several billion dollars waiting for foreign exchange allocations which is similarly a concern. The private sector's ongoing complaint about the speed with which government pays private sector contractors who have done work for the public sector is also a concern. In particular it means because payment delays are so extended, smaller businesses simply can't get involved in supplying the public sector because they don't have sufficient access to finance to be able to wait months and in some cases even years to be paid.
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