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Australian aid to PNG: a new paradigm?


While most commentary on Australia’s Official Development Assistance (ODA) budget for 2014–15 has focussed on the overall outlay, what has largely been overlooked have been the allocations for the two largest recipients of Australian aid—Indonesia and PNG.

While aid to Indonesia increased nominally by $3.7 million to $605.3 million, aid to PNG is set to increase by $57.7 million to $577.1 million. This amounts to about 12 per cent and 11.5 per cent of the total ODA budget respectively. In other words, aid spending in the two countries will account for about 23.5 per cent of overall aid expenditure.

In the case of PNG, its ODA allocation will amount to 50 per cent of the total outlay for the Pacific of $1,152.7 million.

On 19 May 2014, in a wide ranging but largely unreported speech at the 30th Australia Papua New Guinea Business Forum and Trade Expo held in Cairns, Foreign Minister Julie Bishop outlined her concerns as well as plans for the future directions of Australia’s development assistance to PNG.

Lamenting the fact that ‘despite a significant investment in aid into PNG over many decades, in some vital areas there has been no discernable progress’, the Foreign Minister announced that a new aid policy and performance benchmarks would be released in the near future:

… (a) new paradigm in aid funding based on economic development as the key driver of poverty reduction––of leveraging the private sector, of aid for trade initiatives, with an emphasis on innovation as a means of lifting living standards, and the introduction of performance benchmarks against which outcomes will be judged, and mutual accountability.

In the context of the aid program for PNG, Ms Bishop stated:

I am pleased to confirm that productivity-enhancing infrastructure is an agreed priority for the aid program in the years ahead. We will work towards allocating up to 50 per cent of the aid budget to infrastructure projects. There is also the infrastructure funding flowing from the previous Labor Government's deal with the PNG Government on Manus which we also support.

That the aid program will be re-oriented towards infrastructure projects is not surprising. They are a direct result of the Regional Resettlement Arrangement (RSA) agreement signed by Prime Minister Kevin Rudd and PNG Prime Minister Peter O’Neill in July 2013.

The RSA agreement effectively reprioritised and brought forward the design and scoping work for the Ramu–Madang highway, the lower court complex at Port Moresby and the redevelopment of the major hospital at Lae. Australia also agreed to fund on a 50:50 basis, the reform of the PNG university sector.

PNG’s Foreign Minister commented at the time that delivery had so far not been ‘clearly reflective of the PNG timeframe or of our priorities of health, education and infrastructure.’ Prime Minister O’Neill elaborated further and was reported saying:

For the first time we are realigning our aid program in PNG with the Australians, where we, the PNG government, will now set all the priorities under which Australian aid program will now be directed.

While details of the current infrastructure projects being financed by Australian aid are not yet available, it would be reasonable to assume that progress is being made in the implementation of the projects already agreed under the RSA.

Consequently, the increase in aid to PNG and the Foreign Minister’s commitment to work towards allocating 50 per cent of the aid budget to infrastructure projects is a continuation of the existing program. The capital-intensive nature of infrastructure projects would also, to an extent, explain the substantial increase in aid.

As Prime Minister O’Neill told the Forum meeting in Cairns, reflecting his comments made in July 2013:

One of the most important changes impacting our bilateral relationship has also been the abolition of the aid program, AusAID, by the Abbott government. I told Prime Minister Abbott and his Foreign Minister Julie Bishop when they visited Papua New Guinea recently that we welcomed this step with a lot of enthusiasm. One of the first consequences in that is that Australia’s generous development assistance program will now be closely aligned with our government and budget development priorities.