loi m bakani : png economic survey – “ from boom to gloom ” commentary by mr loi m bakani, deputy governor of the bank of papua new guinea, on the png economic survey : “ from boom to gloom ”, at the 2009 papua new guinea update, port moresby, 16 april 2009. * * * the survey is focused on : ( 1 ) the likely end of macroeconomic stability and economic growth that the png economy has enjoyed in the period 2003 to 2007 / 08, driven by high commodity prices and prudent management of macroeconomic policies – fiscal and monetary, although the survey does not explicitly give credit to the sound management of fiscal and monetary policies ; ( 2 ) the start of turbulent times arising from the adverse impact of lower commodity prices caused by lower demand for png ’ s export commodities, itself the consequence of the downturn in global economy ; and ( 3 ) a comparison of the national government ’ s management of the revenue windfalls of the 2000s and 1990s. the primary common factor that is analyzed extensively in the survey is international prices of primary export commodities, and the secondary but also important factor is government policies, both macro ( fiscal and monetary ) and micro economic policies. in the boom period, high international export commodity prices gave rise to increased foreign exchange reserves, government revenue, steady appreciation of the kina exchange rates, and low and stable inflation rates. government expenditure was within its means. whether there was enough productive government expenditure as opposed to consumption expenditure is another issue. on paper, there was promotion of capital, infrastructure, and other productive expenditures. actual effective spending of this was below budgeted levels. the survey did not explicitly give credit to prudent fiscal ( balanced budget ) and monetary policy management. these contributed to improved business confidence and macroeconomic stability and growth that the economy enjoyed. government spending and private sector credit growth supported the expansion in the economy. the survey gives evidence of these ; 6. 5 percent real gdp growth in 2007 and 7. 3 percent in 2008 quoted from the 2009 national budget, and employment growth, using the bank of png ’ s employment index. in the start of the gloom period, especially the second half of 2008, the declines in prices of png ’ s major export commodities will be the telling factor behind reduced government revenue, foreign exchange inflows, potential depreciation of the kina and high inflation rate. already, total government revenue was lower than budgeted in

involvement in enhancing their growth. the services provided by the mfis should be seen as complementary to the services provided by other licensed financial institutions ( lfis ) in both the rural and urban areas of png. other recent positive developments initiatives in this area are : the proposed partnership arrangements between banks and post png, and separately with the government ’ s district treasury offices. like all other developing countries, png is constantly challenged to provide answers or ways as to how best it can wrestle the problems associated with poverty and lack of employment opportunities. its 5 million population, of which 80 % live in the rural areas have been denied development opportunities for many years, partly due to the deterioration in infrastructure conditions and lack of banking services. given these challenges, we recognized that the weaknesses of the financial system needs to be addressed in order to improve the provision of financial services required for private sector development. this includes addressing the lack of banking and financial services in the rural communities. the recent surge in cases of various forms of money schemes are an outcome of this problem. the central bank has taken actions on some of these schemes and will continue to be vigilant in eliminating such practices. in addressing this problem, the government requested the asian development bank ( adb ) to provide technical and funding assistance in developing the microfinance sector in png. subsequently, this led to the establishment of the png - adb microfinance and employment project, which commenced in 2000. the project ’ s overall objective is to contribute to economic growth through private sector development and employment creation and further development of the financial system. the specific objective of the project is to provide sustainable microfinance services to viable formal and informal enterprises and savings services to the population at large. regarding regulation of mfis, there is currently no regulation in place to govern the activities of mfis. however, the bank is in the process of developing an appropriate regulatory and supervisory regime that would support the development of mfis and legally protect and equip them to serve the urban and rural communities of png. as deposit - taking institutions, these mfis are required by the central bank to be duly incorporated and operate legally within a prescribed set of rules to ensure sustainability in the future. since there is no regulatory framework in place to license mfis, the central bank gave conditional license to the wau microbank ( wmb ) under the existing banks and financial institutions act 2000 to operate as a licensed financial institution