Regions and Countries

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Country Strategy and Program Update 2002-2004: Papua New Guinea

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II. Implementation of the Country Strategy and Program

A. Poverty Reduction

10. The strategic priorities for ADB in PNG are to reduce poverty through (i) improved governance, (ii) enhanced private sector development, and (iii) improved social indicators. Appendix 3 provides details of the ADB strategy for PNG and sector policies are in Appendix 4.

11. With about 5.2 million people, PNG is the largest Pacific island nation. An estimated 37 percent of its people live in poverty, nearly all in rural areas cut off from the capital by rugged mountains or the sea. Economic and social inequities are profound, with PNG ranking last in the Pacific on the UNDP’s human development and human poverty indices, reflecting the underfunding of essential services and the difficulty of providing them across its remote and scattered regions. PNG’s Gini coefficient of 0.484 for consumption expenditure indicates a moderate to high degree of inequality.

12. The economy is extremely dualistic, with an export-oriented and capital-intensive minerals sector operating in parallel to a traditional subsistence economy. Despite significant wealth generated from mineral exploitation over the last 20 years, the sector has provided few jobs. The result is significant wealth coexisting with widespread and often severe poverty. Semisubsistence agriculture remains the dominant way of life, with over 85 percent of the population relying on household production to meet their daily needs. Poverty is three times more severe in rural than urban areas, and varies in severity between rural areas, with three quarters of the poor living in the Highlands and Sepik regions. Impediments to development of the informal sector need to be addressed.

13. Rural people have limited access to education and health services. In the Highlands, two out of three people are illiterate, only half of all children of primary-school age go to school, and only one in seven girls completes primary school. Yet postsecondary education absorbs a far higher share of education expenditure than in other Pacific developing member countries (DMCs). Maternal, infant, and child health services are inadequate, and service provision is worsening in the poorest provinces. Expenditure on health services is the lowest among Pacific DMCs, as a percentage of GDP and in per capita terms (although the current Government doubled per capita health expenditure). Rapid population growth is increasing pressure on traditional farming systems and worsening poverty.

B. Thematic Priorities

1. Economic Growth

14. The average real economic growth rate of about 3.2 percent recorded over 20 years (1980-2000) 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 five years, and in per capita terms growth has been 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. The contributions from oil and other mineral projects are diminishing and need to be replaced by exploitation of the known natural gas reserves and other mineral resources. The pattern of economic growth must be transformed. Dependence on mineral resources needs to be diminished by diversification of economic activity. Private sector development, focusing on employment creation, will be critical.

15. The key development issue is to achieve sustained economic growth with equity. The poorest 40 percent of the population must participate in and benefit from the growth process. The country faces severe development challenges, including 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 ease some key development challenges.

2. Human Development

16. The country’s fundamental development problem is ensuring that the majority of the population participates in and shares the benefits of economic growth. The levels of social indicators remain extremely poor, especially for women. Low life expectancy, high infant mortality, poor adult literacy and low enrolment at all levels of education combine with low per capita income to make PNG’s human development level the lowest of the ADB’s Pacific member countries, as noted earlier. The poor achievement to date reflects past underexpenditure on the provision of essential services and inadequate development management, in the context of the very difficult physical and social conditions.

3. Gender and Development

17. While women provide most of the subsistence agriculture workforce, their participation in the formal economy is low and they account for only one in five of the paid work force. 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 and public service management is negligible. Domestic violence against women is common.

18. ADB operations focus on gender issues and the need to improve the appalling status of women. Population and health promotion and protection activities specifically target women. The ongoing Smallholder Support Services Pilot Project addresses the needs of women smallholders, as will the proposed smallholder rural sector linkages project. The Microfinance and Employment Project has an explicit gender orientation. The ongoing work on informal sector constraints has a similar thrust. The Health Program Review will focus on gender issues in the delivery of health benefits.

4. Good Governance

19. 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. Greater political stability, reduced corruption, and greater use of civil society in service delivery are important to sustain income growth and improve social welfare.

20. The Government has significantly improved governance. The Government has (i) reestablished national and local planning processes, (ii) strengthened public procurement processes, (iii) made significant progress in privatizing state-owned enterprises, and (iv) introduced wide-ranging public sector reform. 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. Land tenure, although a sensitive issue, needs to be reviewed. It is encouraging that the Government and the public are seriously discussing these long-term constraints to development.

5. Private Sector Development

21. The Government is committed to improving the enabling environment for private sector development and has restored macroeconomic stability. The Government has reviewed and amended the tax system to improve its competitiveness to encourage investment. 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 have greatly improved.

22. 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 seven-year program of tariff reform, with a value-added tax replacing most tariffs. The Government is also reviewing its investment competition policies.

6. Environmental Protection

23. Environmental issues and the conservation of PNG’s biodiversity are critical. Rapid population growth is exacerbating environmental pressures in some areas. Other development partners, notably UNDP and the World Bank, are providing the leading assistance in this area. However, environmental concerns will be taken up throughout the program and specific assistance may be identified as implementation proceeds.

7. Regional Cooperation

24. In parallel with its PNG program, ADB will continue to support a substantial regional TA program for the Pacific, including PNG. The Pacific Financial Technical Assistance Centre is of note. It is also envisaged that PNG will participate in ADB initiatives to (i) build trading relationships within and with blocs outside the region, (ii) draw up cooperative arrangements in aviation and shipping, and (iii) coordinate policies and approaches to fisheries management.

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