PORT MORESBY – The much hyped K50 billion ($F37.8b) and world class PNG LNG Project is seen to be a curse rather than a blessing.
Paul Flanagan, a visiting fellow from the Development Policy Centre at the Australian National University, who was formerly a senior executive in the Australian Treasury and went on secondment as an adviser to the PNG Treasury from 2011 to 2013, said the country’s biggest revenue earner which was thought to be a transformation has been dealt a cruel blow.
“The PNG LNG project has often been thought of as transformation for PNG,” he said.
“But just at the time the country was to benefit from the revenue and foreign exchange flows from this major project, international markets have dealt a cruel blow.
“The decline in LNG prices also significantly reduces the viability of other LNG projects in the pipeline. With good policies, adjustments could be made to deal with such a drop in oil prices,” Mr Flanagan said in his summary of an article titled, Papua New Guinea’s vanishing LNG export boom, published at the weekend.
The development policy expert however said, PNG had moved to poor policies over the last six months such as moving away from a market-based exchange rate, starting to print money to fund the deficit, and continuing with an unsustainable fiscal policy in the 2015 budget.
“PNG had set itself on a slippery slope towards a crisis, and the world just gave it a great big shove. But this is a problem that can be solved, provided that real changes are quickly made.
“At the end of its financial year for 2014, the PNG Government should not spend any extra money, but instead pocket any savings from unspent allocations.
“In face of such a large shock, there is a need for an urgent public debate in PNG on other policy responses. This should cover how the 2015 budget should be rewritten to avoid a spiralling deficit,” Mr Flanagan stressed.
The former treasury adviser reiterated that PNG also needed to move back to a market-based, floating exchange rate to provide a “shock absorber” for the economy, and find better ways to fund the deficit than printing money.
Mr Flanagan further cautioned that PNG must adjust to lower LNG/oil prices to avoid a crisis. The PNG LNG project is still extremely important but many of the benefits of the production phase of the project have vanished because of lower prices — probably for at least a decade.
