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Annual Report 2001

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Papua New Guinea

Economic performance

In 2001, real GDP in Papua New Guinea declined by 3.3%, led by a 9.0% drop in mining and quarrying. While the agriculture, forestry, and fishing sectors grew by 0.9%, economic activity declined or remained subdued in most other sectors. A fiscal deficit of 1.8% of GDP was recorded in 2001. The Government reduced expenditure in the second half of the year in response to a major shortfall in tax revenue. External debt increased by 5.6% in US dollar terms by the end of 2001. However, annual average inflation fell from 15.6% in 2000 to 9.8% in 2001. This allowed easing of monetary policy by reducing the kina facility rate to below 10.0% by end-2001, with modest relief in commercial bank interest rates. Broad money supply grew by about 10.0% in 2001. Declining exports caused the current account surplus to fall slightly to about $221 million. The overall balance-of-payments surplus also declined to about $106 million from about $130 million in the previous year. Gross international reserves reached $400 million or 5 months of imports. The local currency continued to depreciate, with the average rate against the US dollar falling by about 20.0% in 2001 compared with the previous year. Public sector reforms continued with increasing emphasis on public service delivery. The privatization program also progressed with Air Niugini brought to the point of sale, and privatization of the PNG Banking Corporation nearly completed.

ADB operations

Operational strategy: Poor governance and inadequate public sector management are the main development problems. ADB helps the Government strengthen public sector financial management by improving the machinery of financial and general public sector management at national and provincial levels, concentrating management on output and performance; and good governance institutions by improving systems and procedures and through capacity building. Private sector development is critical in reducing poverty. ADB helps strengthen sector policy and institutional frameworks; improve factor productivity, especially through skills development; and enhance market access, especially by rehabilitating and maintaining road and water transport infrastructure. Through public sector reforms, ADB will help improve the management and governance of social service delivery agencies, focusing in particular on health, education, and public works. In the social sectors, ADB will continue to be involved in developing policies, promoting infrastructure investments, and improving service delivery.

Policy dialogue: ADB’s policy dialogue with the Government has focused on improving governance and strengthening public sector management for more efficient and effective service delivery. Overall progress in implementing the Government’s structural reform program, including public service reforms, has generally been satisfactory despite very difficult economic conditions. ADB has taken a lead role in working with the Government, particularly in strengthening road sector management. As a result, the Government is changing the sector’s institutional structure to increase independence and accountability.

Loans and technical assistance: In 2001, two loans totaling $75.9 million were approved for a public service program and a nucleus agro-enterprise project. ADB approved eight technical assistance grants totaling $4.3 million, of which five were advisory assistance on health policy support, poverty analyses for socioeconomic development strategies, gas pipeline development, health sector review, and public sector management. Three were to prepare projects for developing a road authority, maintaining and upgrading roads in the Southern region, and gender and population. ADB also approved a $5.5 million grant, funded by the Government of Australia, to develop employment-oriented skills.

Project implementation: Since joining ADB in 1971, Papua New Guinea has received 55 loans, of which 13 were active at the end of 2001. Contract awards totaled $43.6 million, bringing the cumulative figure to $570.4 million. The contract award ratio was 21.9%, higher than the ADB-wide average of 14.8%. Disbursements during the year totaled $44.7 million, bringing cumulative disbursements to $565.5 million. The disbursement ratio was 19.6%, lower than the ADB-wide average of 20.5%.

While significant improvements in portfolio performance were noted in a country portfolio review in September 2001, an action plan was updated to assist in further improving portfolio management and performance. Executing agencies and government officials were briefed on ADB procurement procedures and project administration.

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