Regions and Countries

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p. 2 of 4 BACK | NEXT I. Current Development Trends and Issues II. Implementation of the Country Strategy and Program III. Portfolio Management Issues IV. Country Performance and Assistance Levels

Country Strategy and Program Update 2003-2005: Papua New Guinea

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II. Implementation of the Country Strategy and Program

A. Progress Toward a Poverty Partnership Agreement

7. PNG is the largest of the Pacific developing member countries and ranks last among them on the human development index and the poverty index of the United Nations Development Programme (UNDP), which suggests that the country has alarming economic and social disparities. PNG, therefore, faces formidable tasks and challenges in achieving the MDGs. An estimated 37% of the population lives in poverty, 93% in rural areas. PNG's Gini coefficient of 0.484 indicates a moderate to high degree of inequality of consumption expenditure across the population (Appendix 1, Table A1.3 provides details of poverty indicators). The disappointing human development index of 0.314 reflects low life expectancy, poor adult literacy, and low enrollment at all levels of education. Maternal, infant, and child health are very poor and worsening in the most disadvantaged provinces. Access to education and health services is very limited, especially for the rural population. Gender inequalities are significant, with women's life expectancy, income, and educational achievements universally lower than men's. The Government and the people face a complex development task, which will require competent, motivated management and a sustained long-term coordinated effort at all levels of the society.

8. Through technical assistance (TA) and ongoing policy dialogue, ADB is helping the Government analyze poverty and develop a strategic program to reduce it. This strongly country-owned poverty strategy will form the basis for the poverty agreement between ADB and PNG. The Government is making its poverty analysis and strategy the focal point for the new medium-term development strategy. The strategy has a strong poverty focus and will form a solid foundation for ADB's new CSP, which is being prepared for consideration in 2003.

9. To reduce poverty, ADB's strategy, loan, and TA programs emphasize improving the quality and efficiency of public sector management as well as creating an enabling environment for private sector development. Progress in achieving the social sector MDGs will require increased and sustained public investment in the education and health sectors. To meet the social needs of the disadvantaged, ADB provides policy and financial assistance in health, while other development partners, notably the Australian Agency for International Development (AusAID) and European Union, address education issues. Overall progress in achieving the social goals will need to be assessed on the basis of an updated UNDP human development index in 2003. ADB TA and loan projects for gender and population proposed for approval in 2002-2003 will help improve low social indicators.

B. Progress in the Country Strategy and Program Focus Areas

1. Economic Growth

10. The average real economic growth rate of about 3% recorded since 1984 conceals considerable year-to-year variation, resulting from the combination of external economic shocks, natural disaster, and economic management problems. Little overall growth has occurred in the last 5 years, and, in per capita terms, growth has been strongly negative. Medium-term prospects are somewhat better, assuming improved macroeconomic stability and continuing success in implementing the reform program. However, the longer-term prospects are more problematic. Oil and other mineral incomes are diminishing and need to be replaced by exploitation of natural-gas reserves and other mineral resources. (ADB is helping the Government refine its policy with respect to a potential gas pipeline to Australia.) The pattern of economic growth must be transformed: dependence on mineral resources needs to be diminished by diversification of economic activity, and the private sector must be developed, especially to create jobs. The ADB program will directly support economic growth by, for example, encouraging small and medium-sized enterprises, and complementing ongoing assistance for microfinance by supporting a review of development finance, which could lead to direct involvement in the sector. Concept papers for the proposed lending products are in Appendix 2, and for the proposed nonlending products in Appendix 3.

11. The main objective is to achieve sustained economic growth with equity. The poorest 40% of the population must participate in and benefit from growth. The country suffers from a rugged terrain, extreme population dispersion, complex land tenure systems, a serious peace-and-order problem, and poor human resource development. Appropriate government action, however, can overcome some of these challenges. ADB will help analyze options to address land tenure systems.

12. Agricultural and rural development are critical to reducing poverty. One proposed project seeks to use innovative agro-industry interventions to reduce poverty sustainably through partnerships with the private sector. The project will build on the results of the ongoing TA loan for feasibility studies in agriculture. Based on the results of a TA to formulate an agriculture and rural development policy, a proposed rural development project will build on the lessons from the ongoing smallholder support services pilot project, tying in with attempts to reduce other constraints on rural sector activities. A regional development project (in the poor Sandaun and East Sepik area) will aim to reduce poverty; the loan project is scheduled for about 2006. Loan assistance (proposed for 2002) is envisaged for coastal fisheries development, and also for transport for disadvantaged coastal communities. To complement ADB involvement in coastal fisheries and transport, assistance is proposed for coastal area management to increase income opportunities in coastal areas.

13. Given its critical importance to poverty reduction and economic growth, transport will remain a leading priority for ADB. For roads, the highest priority is to redress the deterioration of the existing road system (especially of feeder roads). Building on the ADB-assisted road asset management system, ADB is helping rehabilitate and maintain roads in the Highlands Region. A similar project is envisaged in the Southern Region, in close coordination and cooperation with the World Bank and AusAID. ADB will also help establish a road authority, encompassing a road fund, which will improve management and cost recovery throughout the country.

14. Given the importance of sea and inland waterway transport, especially for the poor, infrastructure and institutional investments will yield suitable economic returns. ADB is helping restore the system of maritime navigation aids and establish a sustainable institutional framework for marine transport. A 2002 project will help develop local water transport facilities, together with an institutional framework, and reestablish a network of local shipping routes.

2. Human Development

15. The country's fundamental development problem is ensuring that most of the population participates in and shares the benefits of economic growth. The levels of social indicators remain extremely poor, especially for women, due to past underexpenditure on providing essential services, and inadequate development management. ADB's ongoing and planned assistance in the health sector aims to improve health indicators. An ongoing water supply project is helping to provide safe water to communities in small towns and provincial centers. ADB is helping address gender and population linkages, and is supporting skills development, which will be complemented by ADB assistance in adult and informal education. Other funding agencies are helping with the remaining aspects of PNG's educational needs.

3. Gender and Development

16. While women provide most of the subsistence agriculture workforce, their participation in the formal economy is low and they account for only about 20% of the paid workforce. Females receive much less education and medical care than males. Boys are allocated a far greater share of household income than girls. Female literacy and school enrollment rates lag well behind those of males. Female representation in politics is negligible. Domestic violence against women is common.

17. ADB operations focus on gender issues and the need to improve the extremely poor status of women. The proposed gender and population project targets women. The ongoing Smallholder Support Services Pilot Project helps women smallholders. The ongoing Microfinance and Employment Project has an explicit gender orientation as does the sector work on informal sector constraints. The ongoing Health Sector Review focuses on gender issues in the delivery of health benefits.

4. Good Governance

18. Political and public service governance shortcomings in PNG worsen inherent development problems, and political instability compounds inadequate development management. The extent of rural poverty is a direct consequence of sustained low levels of investment, particularly in agricultural productivity, education, and health. Political stability, reduced corruption, and greater use of civil society in service delivery are important to sustain income growth and improve social welfare. ADB will support a review of public expenditure in 2003.

19. The Government has significantly improved governance. The Government has (i) reestablished national and local planning processes, (ii) strengthened public procurement processes, (iii) made progress in privatizing state-owned enterprises, and (iv) introduced wide-ranging public sector reform with ADB assistance. However, peace-and-order problems continue to impede development. As the rule of law does not always prevail and well-defined rights are not always respected, watchdog institutions must be strengthened; the Auditor General's Office is being strengthened under the ADB-supported public service program, and other agencies with AusAID assistance. Land tenure, although a sensitive issue, needs to be reviewed; ADB will provide TA in this area in 2004. ADB is helping improve public sector financial management under an ongoing loan project. Program assistance is being provided for public service improvement, encompassing improved management of the public service, strengthened institutions of good governance, and improved delivery of basic services, especially at the provincial and local levels. Further assistance is envisaged to be provided to strengthen provincial and local level government management capacities.

5. Private Sector Development

20. The Government is committed to improving the enabling environment for private sector development and has had some success in improving macroeconomic stability. The Government has reviewed and amended the tax system to improve its competitiveness to encourage investment, with ADB assistance for the minerals and hydrocarbons sector. The financial sector has improved markedly, with monetary policy now the responsibility of a fully independent central bank; the exchange rate, interest rates, and liquidity management are now market based, and regulation of banks and other financial institutions has improved. ADB assistance for private sector development is extensive.

21. Although progress has been slow, the Government has embarked on a privatization program to (i) improve service delivery and efficiency, (ii) reduce involvement of the Government outside its core areas of competence, and (iii) reduce debt. To liberalize and promote trade, the Government is implementing a 7-year program of tariff reform, with a value-added tax replacing most tariffs. The Government is also reviewing its investment and competition policies.

6. Environmental Protection

22. PNG faces critical environmental issues related to inadequate access of the population to safe water, and loss of biodiversity. PNG's environment-related legislation is generally adequate, but could benefit from further strengthening and improvement. Other funding agencies are helping strengthen PNG's implementation capacity.

23. Environmental issues and the conservation of biodiversity are critical. Rapid population growth is exacerbating environmental pressures in some areas. Other development partners, notably the World Bank, UNDP, and AusAID, lead in providing assistance to improve the environment. However, environmental concerns will be taken up throughout the ADB program, and specific assistance may be identified as implementation proceeds. Specific ADB assistance for coastal area management will complement ongoing ADB involvement in marine transport and fisheries.

C. Highlights in Coordination of External Funding and Partnership Arrangements

24. PNG's largest donor is Australia, which provides about A$300 million each year in direct development assistance, now all in project assistance. Japan also provides significant bilateral assistance. The World Bank and European Union are major multilateral financiers. ADB plays a significant catalytic role in strengthening public sector reforms, together with other funding agencies. ADB, AusAID, and the World Bank, as the major funding agencies, are working together to improve the coordination of external funding by holding regular coordinating meetings. The proposed ADB resident mission, together with the imminent upgrading of the World Bank's presence, will further facilitate coordination. Appendix 1, Table A1.5 summarizes the external assistance to PNG.

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