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p. 3 of 8 BACK | NEXT Executive Summary I. Current Development Trends And Issues II. The Government’s Development Strategy III. ADB's Development Experience IV. Strategy For ADB Support To PNG V. ADB's Assistance Program VI. Risks And Performance Monitoring And Evaluation Appendixes [ PDF ]

Country Strategy and Program 2006–2010: Papua New Guinea

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II. The Government’s Development Strategy

A. Development Goals and Strategy

35. A central development for the CSP is the adoption by the PNG Government of its MTDS 2005-2010, which has widespread internal and external support, sound expenditure priorities, and an ambitious but appropriate governance agenda. The MTDS draws on an earlier poverty strategy supported by ADB and on an extensive program of consultation conducted throughout the country and with PNG’s development partners. Given widespread concern over PNG’s deteriorating economic and social development performance during the 1990s and the early part of this decade, MTDS consultations revealed strong agreement in PNG on the need to concentrate on the basic prerequisites for broad-based economic growth and improved services. The MTDS therefore reflects both a focus on the basics and general agreement in PNG on the highest priorities. Importantly, and unlike previous such plans, the MTDS enjoys strong Papua New Guinean ownership, encompassing politicians, civil servants, and broader civil society.



36. The MTDS goal of improved living standards is to be promoted by ensuring good governance; implementing an export-driven economic growth strategy; and fostering rural development, poverty reduction, and human resource development. These objectives will be achieved through seven expenditure priorities, each with matching development programs:

    (i) transport infrastructure rehabilitation and maintenance (priorities are the Highlands Highway, district roads, water transport, and airport maintenance);

    (ii) the promotion of income-earning opportunities, including agricultural research, extension, and marketing; the nucleus agro-estate model; revitalizing the Rural Development Bank; microcredit and skills training; and establishing industrial parks;

    (iii) basic education;

    (iv) development-oriented informal adult education;

    (v) primary healthcare through the established sector-wide approach to health, as well as through water and sanitation programs;

    (vi) HIV/AIDS prevention; and

    (vii) law and justice through improved coordination and strengthening the sector agencies: police, courts, and legal and correctional services.

    
    
    
37. The MTDS also outlines key supporting policies and measures to create an enabling environment for development, focusing on political and policy stability, the rule of law, the business environment, protecting the vulnerable and disadvantaged, gender equality, and protecting the natural environment.



38. A number of crosscutting governance strategies and programs are highlighted as being essential to effective MTDS implementation. A medium-term fiscal strategy and medium-term debt strategy outline the Government’s approach to funding the MTDS. The PERR process is seen as a vehicle for generating the savings and cost-efficiencies necessary for successfully implementing the MTDS.



39. Public sector reform is recognized as being essential to MTDS delivery and improved development performance. A rightsizing committee recommended to the Government in late 2005 structural reforms to focus it on delivering priority functions and services. However, these proposals are unlikely to progress ahead of the 2007 elections. They will need to be seriously examined by the new Government after the elections if it is to create the fiscal space necessary to fully address the MTDS priorities. In the interim, the Government has capped public sector payroll budgets except in priority areas such as health, education, and law enforcement.



40. Building ownership and alliances with provincial and local governments is an MTDS priority. Strengthening service delivery in districts is a specific initiative that receives high priority, especially from PNG’s national politicians.

B. ADB’s Assessment of the Government’s Development Strategy

41. Development partners and the Government are jointly committed to the MTDS, in line with Paris Declaration Principles for Aid Effectiveness and based on assessments of its merit¹. Development partners are satisfied with the process for the strategy’s development, stakeholder ownership of the process, and the document itself. The partners have endorsed its contents and support the direction of the budget process toward its implementation². An ADB staff assessment (2005) in Appendix 7 also endorses this position, while noting that the MTDS will be challenging to implement. It notes that the MTDS correctly identifies the widely acknowledged and agreed priority issues and actions for strengthening economic growth, service delivery, and ultimately poverty reduction, with transport infrastructure and law and order being central to both the challenge of broad-based economic growth and service delivery. Primary healthcare, basic education, skills development, and HIV/AIDS prevention are also agreed human development priorities. Furthermore, ADB agrees that the PFM and public sector reforms identified in the MTDS are essential to boosting PNG’s financial and administrative capacity to deliver the strategy and are the right place to start in terms of governance reforms.



42. One specific area of the MTDS on which the Government and ADB have agreed to maintain a dialogue with each other and PNG’s private sector is expenditure priority 2: promotion of income-earning opportunities. While a number of the individual initiatives listed in the MTDS and further developed in the 2006 budget are also appropriate, it will be especially important for the Government to develop a coherent and focused approach to this objective, delineating a role for the Government in unleashing potential private sector investment and production.



43. Notwithstanding the foregoing, the MTDS is essentially a policy document, without strong links to sector or thematic implementation plans or concrete targets or indicators. MTDS implementation will be challenging, requiring concentrated effort. Progress has so far been limited to steps by the Government, however welcome, to redirect expenditures toward priority areas in the 2005 and 2006 budgets. Three key implementation measures for government, supported by development partners, are to (i) put in place a performance assessment framework that is owned by the PNG Government and that donors can support and, if possible, adopt; (ii) develop clear sector and thematic operational plans linked to medium-term expenditure frameworks; and (iii) further strengthen Government–development partner coordination toward effective MTDS implementation. Last year, 2005, was something of a lost year for MTDS implementation, but tentative steps have recently been taken on these three measures. Significant progress should ideally be made in 2006, before national elections in 2007.

C. PNG Government Approach to Managing for Development Results

44. The PNG Government has committed itself to putting in place a whole-of-government performance-management framework during 2006, with preliminary work expected by mid year. The Department of National Planning and Monitoring will focus its efforts on development indicators for the MTDS (as discussed above), while the Department of Prime Minister and the National Executive Council will focus on institutional performance and reform. Australia is supporting this process through consultation and technical assistance. The focus will initially be on processes and outputs, with a view to establishing a simple and robust framework. Links to the 2007 and subsequent budgets will be important, as will a dialogue process with development partners. Based on a rapid review of PNG’s capacity to manage for development results undertaken in 2005³, which indicated relatively limited Government capacity in this field, ADB supports the proposed approach for the ownership it is expected to generate and for its simplicity. ADB has offered to support the Government, as appropriate, and to utilize the framework to be developed by the Government as the basis for results management for this CSP.

D. Resource Mobilization and Investment

45. PNG’s approach to resource mobilization and investment toward MTDS objectives and priorities is outlined in its Medium-Term Fiscal Strategy 2002-2007 (updated in the 2006 Budget Paper Volume 1) and the Medium-Term Debt Strategy 2005-2009. Both take a prudent approach, targeting a balanced budget and reducing overall debt, while at the same time seeking to create room for the gradual redirection of expenditures set out in the MTDS. Implementation of both strategies has met or exceeded targets in the past 2 years. The Government commits itself in its 2006 budget to increase the proportion of the total budget spent in the seven MTDS expenditure priority areas from 48% in 2005 to 55% in 2010. At the same time, more than 80% of the development element of the budget is to be spent on MTDS priorities each year. Given fixed commitments, this change in public expenditure composition is relatively ambitious and relies upon significant public sector reform through the public service rightsizing initiative, if it is to be achieved.



46. Accelerating PNG’s economic and social development will require extensive investment in infrastructure and social sciences over many years, along with improved governance. The primary source of this investment should be domestic, with effective use of natural resource rents, a growing domestic tax base, and the prudent issuance of domestic debt. This process has begun, with the Government creating new scope for PNG to increase its own contribution to development expenditures in MTDS priority areas (e.g., the additional financing for Highlands Highway rehabilitation made available in 2005). External financing should play a supplementary role, with PNG’s extensive external grants utilized effectively as a first priority in strengthening the provision of public goods and services.



47. The Government’s Medium-Term Debt Strategy 2005-2009 seeks to reduce PNG’s overall debt level, increase the relative role of domestic financing relative to external borrowing, lengthen and smooth debt maturities, better align the currency composition of PNG’s debt holdings to its currency requirements, maximize concessional borrowing in the mix, and strengthen the local capital market. PNG’s public sector debt is easing but still significant (falling from about 70% of GDP in 2002 to 50% in 2005). In the longer term, PNG is targeting the International Monetary Fund recommendation of external debt at 30% of GDP. In this context, PNG is interested in borrowing from international financial institutions such as ADB for a limited number of projects and programs with high economic impact. ADB fully endorses the debt strategy objectives and PNG’s proposed approach to borrowing. ADB loan products, such as currency swaps and local currency lending linked to domestic capital market issuance, may have a valuable role to play in helping PNG deliver its debt strategy.

E. Role of External Assistance

48. External assistance plays a very important role in PNG, both in financial terms and perhaps more importantly in helping PNG to address its institutional and capacity constraints. PNG’s recent weak development performance highlights how the Government’s own performance is the most important factor for development outcomes. However, there is also scope to further strengthen dialogue between PNG and its development partners and to improve the effectiveness of external assistance.



49. With the MTDS now in place, many of PNG’s development partners are putting new country strategies in place. While a joint donor strategy approach is not supported by the Government, new opportunities for coordinating external assistance are emerging. With PNG’s concurrence, its major development partners have been consulting extensively as strategy formulation proceeds. In line with the Paris Declaration on Aid Effectiveness, PNG’s development partners are encouraging the Government to take the lead in this coordination. Australia and ADB have been the first to advance their strategies in close consultation and are now communicating with the European Union (EU), World Bank, and United Nations (UN) system as those agencies follow a similar process.



50. Coordination and harmonization by PNG and its development partners currently occurs most effectively at the sector and thematic levels. Good progress on this front has already been made in the health sector and in public PFM, with ADB involved in both cases. Opportunities now exist to further extend this progress. Approval of the revised National Transport Development Plan in April 2006 makes transport a candidate sector for early progress.



51. Grant-financed assistance is the major part of PNG’s total external assistance, with Australia the largest donor. Australian grants of approximately $225 million per annum are equivalent to more than 15% of PNG’s total budget, though much of this assistance is in the form of projects outside PNG systems. An important new component in the PNG-Australia relationship emerged in 2003 with the addition to the regular aid program of the Enhanced Cooperation Program. This responded to Australian and PNG concerns about the functioning of key PNG Government agencies by placing approximately 40 Australian officials in important advisory and line positions in the PNG Government.



52. Among PNG’s other development partners, the EU is another important grant provider, and Japan and New Zealand also play important roles. The People’s Republic of China is an emerging development partner for PNG. ADB and the World Bank are the two largest lenders to PNG, while the Japan Bank for International Cooperation and the European Investment Bank have an interest in providing loans to PNG under the right circumstances. Table 1 summarizes the key areas of focus for PNG’s main development partners, while Appendix 8 provides more detail for key sectors and themes for the ADB-PNG partnership.

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