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Countries and Regions Country Partnership Strategies Document
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Country Strategy and Program Update 2003-2005: Papua New Guinea
I. Current Development Trends and IssuesA. Recent Political and Social Developments1. The political situation in Papua New Guinea (PNG) remains extremely volatile. Continuing jockeying for position among members of Parliament in the run-up to the elections in June 2002 posed considerable difficulties and the new Government will take some time to establish its policy framework. Legislation introduced in late 2000 will strengthen the position of political parties and is expected to increase stability after the elections. New legislation will bring in preferential voting for the next elections (in 5# years), which will require each politician to reach out to a larger part of the electorate. 2. General development continues to be hampered by the deteriorating nationwide peace-and-order situation, which is worsened by tribal fighting in the Highlands Region. However, progress in ending the Bougainville civil war has been underpinned by recent highly positive legislative moves to give the province autonomy. Appendix 1, Table A1.1 indicates PNG's progress toward the Millennium Development Goals (MDGs) and targets. B. Economic Assessment and Outlook3. In 1997-2001, real gross domestic product (GDP) contracted in 4 of the 5 years due mainly to poor macroeconomic management, drought, the Asian financial crisis and, most recently, slow world economic growth and low commodity prices. The combination of a sharp decline in mining, weak domestic demand, and poor industrial profitability kept the economy in recession in 2001, with a 3.3% decline in real GDP. The continuing decline in GDP and per capita income has increased social tensions and unrest. In 2001, for example, students protested against privatization and landowners caused temporary halts in production at important mining and oil projects. Increased political activities in the run-up to the elections in June 2002 made the situation even more volatile. 4. In 2001, exports declined by 13.7% in dollar terms, and imports by 6.4%, reflecting weak global and domestic activity. The overall balance-of-payments surplus increased from $130 million in 2000 to $211 million. At the end of the year, gross international reserves were around $480 million, sufficient to cover more than 6 months of imports or about 9 months of nonmining imports. The kina depreciated by 18% (annual average) against the dollar from the previous year's level. Many of the ongoing externally supported adjustment programs closed. Managing the balance-of-payments account and maintaining the kina's stability will be a major challenge in the medium term. Appendix 1, Tables A1.2-4 provide economic, poverty, social, and environment indicators. 5. The economy faces the grim prospect of the depletion of known mining and oil resources within a decade, as well as the continuing weaknesses in physical and social infrastructure. C. Implications for Country Strategy and Program6. The economic and political situations have no significant implications for the Country Strategy and Program (CSP). The new Government and the continuing severe economic difficulties require that the Asian Development Bank (ADB) remains closely engaged. ADB should continue to support the bureaucracy's relatively recent commitment to placing poverty reduction at the center of development planning. The main implications for the CSP arise from the political risk and potential opportunities presented by a new Government. Together with other development partners, ADB will offer to brief the new Governmen on key policy concerns.
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