Chapter 2
Background
Introduction
2.1
The Independent State of Papua New Guinea (PNG) is a Pacific country
that includes the eastern portion of the island of New Guinea. With over 800
distinct languages, PNG is one of the most culturally diverse countries in the
world. Most of its approximately 7.5 million people live in rural and coastal
areas.
2.2
PNG is rich in natural resources. The economy is concentrated in the
agricultural, forestry and fishing sector, which engages most workers; and the resources
sector which accounts for the majority of export earnings and Gross Domestic
Product (GDP). Despite these natural resources, PNG remains a developing
country. GDP per capita in PNG was US$2331.6 in 2015 (compared to US$61,979.9
in Australia in 2014). PNG currently ranks 158th out of 188
countries on the United Nations Human Development Index (HDI). PNG was ranked 128th
of 173 countries in 1994.[1]
2.3
The Department of Foreign Affairs and Trade (DFAT) Performance Report
for PNG in 2014-15 provided an overview of the development challenges facing
PNG:
Over three million people – or 40 per cent of the population
– remain poor and/or face hardship:
-
Malnutrition rates are high (45 per cent of children stunted and 14 per
cent wasting).
-
Around 80 per cent of the population reside in traditional rural and
remote coastal communities and secure their livelihoods from subsistence
farming, fishing and small-scale cash cropping.
-
Life expectancy is only 62 years (compared with 60 years in 2005) and
infant mortality is 47.3 per 1,000 live births (compared with 51.5 per 1,000 in
2005).
-
Women and girls suffer unacceptably high death rates related to
pregnancy and childbirth, and the majority experience sexual and family
violence.
-
It is estimated that around 15 per cent of the population has some form
of disability.[2]
2.4
Despite its development challenges, PNG is recognised to have maintained
a stable democratic system with regular elections, an independent judiciary and
a free media.[3]
A constitutional monarchy, PNG has three levels of government - national,
provincial and local. Members of the National Parliament are elected from 89
single-member electorates and 22 regional electorates. The regional electorates
correspond to PNG's 20 provinces, plus the Autonomous Region of Bougainville and
the National Capital District. Members from regional electorates also serve as
provincial governors. Each province has its own provincial assembly and
administration.
2.5
The PNG Government's aims for development are long term and ambitious.
The National Strategic Taskforce's Vision 2050 indicated PNG's aim to improve
its ranking in the United Nations HDI to among the top 50 by 2050 'through the
creation of opportunities for personal and national advancement, as a result of
economic growth, smart innovative ideas, quality services and a fair and
equitable distribution of benefits'.[4]
Australian aid
2.6
PNG was administered as an Australian territory from 1945 to 1975 when
political independence was granted. Australia has provided aid assistance to
PNG since its independence. Supporting a stable and developing PNG has been
perceived as a priority by successive Australian governments. Initially, nearly
all aid was provided as budget support directly to the PNG government. However,
during the 1990s this budget support was replaced by program aid. The 1997
Simons Review into the Australian aid program noted that the reason for the
shift was that 'budget support was not well used' and that 'programmed
Australian aid can be more effective in the restoration of services and the
building of capacity'.[5]
2.7
Most Australian aid to PNG is delivered through DFAT (following the
integration of AusAID), however a large number of other government agencies
also provide types of assistance to PNG. As the PNG economy has grown, its
dependency on overseas aid has reduced.[6]
DFAT will manage an estimated $477.3 million in bilateral funding to PNG in
2015-16. Total Australian Official Development Assistance (ODA) in 2015-16 will
be an estimated $553.6 million. The 2016-17 Budget included an estimated $477.3
million in bilateral aid to PNG and an estimated $558 million total ODA for
PNG.[7]
2.8
In 2015-16 and 2016-17, PNG's allocation includes $49.4 million per
annum under the Joint Understanding between Australian and PNG on Further
Bilateral Cooperation on Health, Educations and Law and Order (Joint
Understanding) signed in 2013. Under the Joint Understanding, Australia
committed $420 million of assistance to PNG over 4 years.
2.9
This makes PNG the largest recipient of Australian aid. Australia is
also the dominant aid donor to PNG providing 68 per cent of the ODA which PNG
receives. In 2015, Australian aid flows were estimated to represent 7 per
cent of PNG's total official expenditure and this is expected to track towards
5 per cent by 2020.[8]
Australia's aid program in PNG has covered a broad range of sectors including:
-
health;
-
education;
-
law and justice;
-
transport infrastructure; and
-
gender equality and women's empowerment.
2.10
The outcomes from the Australian aid program in PNG have been mixed. For
example, the DFAT performance report for 2013-14 observed:
Good progress was made towards outcomes in health and HIV,
and transport infrastructure investments achieved their targets for road
rehabilitation. Modest gains were made from education and law and justice
investments. The challenging political and security environment in PNG limited
the achievement of outcomes for Australian-supported activities in the
governance sector while deep-rooted socio-economic issues affected progress on
programs designed to advance gender equality and women’s empowerment.[9]
2.11
A DFAT assessment of Australian aid noted that six out of seven program
objectives in PNG in 2013-14 were classified as 'at risk'. It stated:
The financial benefits from PNG's mining and petroleum assets
have not yet translated into improved living standards for the majority of its
citizens. Despite 14 years of consecutive growth, PNG has one of the lowest
levels of GDP per capita in the region.[10]
Recent policies changes
2.12
At the PNG–Australia Ministerial Forum in December 2013, Ministers
agreed that Australia would undertake an assessment of its aid investment in
PNG. This assessment was intended to better align Australia's aid with both governments'
priorities and position the aid program to address key constraints to
sustainable economic growth and equitable development in PNG. This assessment,
titled A new direction for Australian aid in PNG: refocusing Australian aid
to help unlock PNG's economic potential, made nine recommendations:
- Align the aid program with
shared political and economic objectives of Australia and Papua New Guinea.
- Reprioritise 30 per cent of
the current aid program, over the coming three years, to fund initiatives
focused on private sector-led growth and aid for trade.
- Maintain priority
investments in improving health, education, infrastructure and law and justice
systems.
- Increase effective
partnerships with the private sector.
- Expand our support for good
governance.
- Maintain a strong program
of support for building the capacity of PNG's police.
- Expand support to women's
empowerment.
- Increase aid investments in
Bougainville as a greater proportion of the bilateral PNG program.
- Establish clearer,
realistic performance benchmarks to assess both our and PNG's performance
against set targets, and to drive mutual accountability for agreed actions.
2.13
The 2015-16 budget included reductions for Australia's overseas aid
program, however aid funding to PNG was relatively unaffected. Bilateral aid
funding to PNG went from $502.1 million in 2014-15 to $477.3 million, a decline
of approximately 5 per cent.
2.14
In September 2015, DFAT released the Aid Investment Plan – Papua New
Guinea 2015-16 to 2017-18 which set out a new strategic framework for
bilateral aid to PNG. The new PNG-Australia Aid Partnership Arrangement
2016-17 was signed on 3 March 2016 to 'facilitate closer cooperation
and promote more effective governance, better enable economic growth and
enhance human development'.
Parliamentary inquiries
2.15
In 2003, the Senate Foreign Affairs, Defence and Trade References
Committee tabled its report A Pacific engaged: Australia's relations with
Papua New Guinea and the island states of the southwest Pacific. In
November 2009, the committee tabled volume 1 of its report Economic and
security challenges facing Papua New Guinea and the island states of the
southwest Pacific. Both of these reports addressed aspects of Australia's
aid program in PNG.
2.16
In March 2014, the Senate Foreign Affairs, Defence and Trade References
Committee tabled its report on Australia's overseas aid and development
assistance program. The committee made a number of recommendations
including that the Australian Government should keep Australia's ODA/Gross
National Income (GNI) ratio above 0.33, that funding cuts made to Pacific
nations in the 2014-15 budget should be reversed and that the Medical Research
Strategy should be expanded.[11]
2.17
The Joint Standing Committee on Foreign Affairs, Defence and Trade — Foreign
Affairs and Aid Sub-Committee tabled its report Partnering for the greater
good in June 2015. The report made a number of recommendations on
facilitating private sector involvement in promoting economic growth and
reducing poverty in the Indo-Pacific region.
Recent assistance
2.18
An El Niño weather pattern has created severe drought and localised frost
conditions in PNG during 2015-16. This has had a major impact on water supply
in many parts of PNG, with negative impacts on school operations, women's
labour and villagers' health. Subsistence food supply, which many people are
dependent on, has also been affected. A recent study identified 27 rural local
level government areas where 'food supply from all sources (subsistence,
purchased or donated) is very scarce or extremely scarce'.[12]
2.19
On 7 November 2015, the Australian Foreign Minister announced
a package of assistance to assist 'communities and governments across the
Pacific to prepare for and respond to the effects of El Niño'. This included $5
million for PNG to:
-
improve food security for around 500,000 people by providing seed
stock for drought resistant crops;
-
determine water and sanitation needs across at least six
provinces in partnership with non-government organisations (NGOs);
-
support vulnerable groups including children, women and the
elderly through church health services;
-
support the National Disaster Centre, NGOs and local churches to
improve logistics and coordination efforts; and
-
provide high quality mapping of the impact of the drought on
water, vegetation and crops with the support of Geoscience Australia.[13]
Budget and economic difficulties
2.20
The drop in global commodity prices and lower expected revenue, has led
to 'a deliberate intervention by the [PNG] Government to cut down on
expenditures and to support continued economic growth with expenditures
prioritised towards the Medium Term Development Plan (MTDP) enablers
particularly infrastructure due to its more immediate impact on future economic
growth'.[14]
2.21
Concerns have been raised that these cuts to public expenditure could
negatively impact development outcomes in PNG. DFAT noted that the PNG Mid-Year
Economic and Fiscal Outlook (MYEFO) reported the impact of declining commodity
prices on PNG's budget. Sharply reduced government revenues have placed PNG's
fiscal position under pressure. DFAT expected that savings are likely to be made
by reducing government expenditure on services, potentially putting pressure on
already fragile sectors such as health and education.[15]
2.22
This appears to have occurred. Mr Paul Flanagan's recent analysis has
highlighted deep cuts to core development sectors:
The 2015 [Final Budget Outcome] reveals that overall domestic
expenditure reductions in 2015 amounted to 14.3%. However, the cuts in
particular sectors are particularly worrying. The largest cuts were to health –
an extraordinary within year cut of 37.1%. Infrastructure was cut by 36.0%, and
Education by 30.3%. This pattern of cuts is the opposite of what the government
claims are its priorities and the areas that would be protected. These are
frightening figures for service delivery in PNG, as well as investment in human
resources.[16]
2.23
Lower economic growth has also been predicted for the PNG economy. The PNG
Government has forecast the economy will grow at 4.3 per cent in 2016. The
Asian Development Bank, World Bank and the International Monetary Fund have
also released projections which indicate the 'most likely scenario for PNG
economic prospects in the short-term will be one of restrained growth'.[17]
Figure 1. PNG economic growth 2004-2020[18]
Navigation: Previous Page | Contents | Next Page