Papua New Guinea - Policies and prospects for sustained and broad-based growth : Main report

Repoft No. 7121-PNG Papua New Guinea Policies and Prospects for Sustained and Broad-Based Growth (In Two Volumes) Volume l: Main Report April 19, t196 Country Department V Asia Regional Office FOR OFFICIAL USE ONLY /~~~~~~~~~~~~~ Document of the WVorl Bank This report has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY FDp.XVAl=S Annual Averag 1981 K 1.00 - US$ 1.487 1982 K 1.00 - US$ 1.356 1983 -K 1.00 - USS 1.199 1984 K 1.00 - US$ 1.118 1985 K 1.00 ' US$ 1.000 1986 K 1.00 - US$ 1.030 1987 K 1.00 - US$ 1.101 March 31, 1988 K 1.00 - US$ 1.133 FISCAL YEAR January 1 - December 31  PM OU1UNAL U I4L1 PAPUA NEW GUINEA _ CIRS AND POSC FOR AA VOLuJe I: MAIN REPORT PA" No. COUNTRY DMT ABREVIAATIONS AND ACRONYMS IV ...............................................i I. DEVELOPEENT IN PNG: OVERVIEW OF PERFORMANCE. POLICY ISSUES AND PROSPECTS .............. A. Introduction ....................................... 1 B. Recent Performance .................. 1 C. Development Objectives . . 5 D. A Policy Agenda . . 7 E. Medium-Term Prospects . . 12 F. Major Uncertainties in Outlook . . 13 II. DEVEOPMN ISSUES AND STRATEGIES FOR KEY SECTORS ...... 15 A. Overview ........................................... 15 B. Role of Mining and Petroleum Industries ............ 15 C. Accelerating Growth in Agriculture and Other Productive Sectors ........ ......... 18 (a) Agriculture ................ .......... 18 (b) Fisheries and Forestry ........................ 22 (c) Industry ....................................... 22 This Report was prepared by a team led by M. Zia Quresxi (AS5CO) and com- prising Roslyn Hees (AS5PH), Emmanuel James (AS5IN), Andres Liebenthal (AS5IE), John Strongman (AFTIE), Graeme Thompson (ASSCO) and James Kearns (Consultant). Field work for the Report was done during a mission in October-November 1987. Reza Kibria (IHF) also participated in the mission. The chapter on agriculture is based on the report of a parallel Bank sector mission (Agricultural Assessment Review, Report No. 7090-PNG) and was contributed by Helen Garrison (AS5AG). Other contributions were made by Robert Calderisi (AS5CO), Amar Bhattacharya (AS5CO) and Mark Tomlinson (AFTIE). Statistical assistance was provided by Peter Osei (AS5CO). A draft of the Report was discussed with the Government in March 1988. This document hus a resticted distribution and maY be ud by recipentg onl d pofomnuse of their official dutie. Its contents may otMoterwis be disclosedwithout Wod lak autboriation.  D. Provision of Basic Infrastructure . . 23 (a) Transport ..................................... 23 (b) Power ......................................... 26 (c) Telecommunications ............................ 28 E. Human Resource Development . . 29 (a) Population and Family Planning ................ 29 (b) Educatien ant- Training ........................ 30 F. Outlook for Output Growth and Employment . . 32 G. Regional Dimensions of Development . . 34 III. INVESTMENT STRATEGIES AND POLICIES ..................... 38 A. Overview ........................................... 38 B. Trends in Aggregate Investment ..................... 38 C. Investment in Mining and Petroleum ................. 40 D. Policies to Promote Nonmineral Private Investment.. 43 E. The Public Investment Program ...................... 48 F. Financing of Investment ............................ 54 IV. RESOURCE MANAGEMENT IN THE PUBLIC SECTOR ............... 57 A. Overview .......... ................................ 57 B. Improvement in Fiscal Management . . 57 (a) Management of Current Expenditures .... ....... 59 (b) Policies for Domestic Revenue Mobilization .... 61 (c) Mineral Revenue Management .................... 65 C. Role of External Budgetary Support ................. 66 D. Financing the Public Investment Program . . 66 E. Institutional Reform in the Public Sector.. 68 V. EXTERNAL TRADE AND FINANCE ............................. 72 A. Overview ........................................... 72 B. Export Performance and Prospects ................... 74 C. Import Requirements and the Services Account ....... 75 D. External Financing Requirements .................... 77 E. Sources of Financing ............................... 79 F. Role of Official Assistance ........................ 80 G. External Debt Management ........................... 86 H. Uncertainties in the External Outlook .............. 88 STATISTICAL APPENDIX MAP  LIST OF TEXT TABLES Table No, 1.1 Selected Economic and Financial Indicators, 1981-87 ........................................... 2 2.1 Gross Domestic Product by Sector, 1980-95 ........ 33 2.2 Socioeconomic Indicators and Access to Basic Services .36 3.1 Distribution of Fixed Investment by Sector, 1981-87 ..... 39 3.2 Fixed Investment by Sector, 1988-95 .............. 40 3.3 Projected Mining Sector Capital Expenditures, 1988-95 ......................... 41 3.4 Wages and Prices, 1972-87 ........................ 46 3.5 Indices of Real Effective Exchange Rates, 1978-87 .47 3.6 Distribution of Public Investment Program by Cost Category, 1988-92 .49 3.7 Distribution of Public Investment Program between Sectors, 1988-92 .50 3.8 Public Investment Program, 1988-92: Distribution by Sector and Agency ................ 51 3.9 Financing of Investment, 1981-92 ................. 55 4.1 Central Government Fiscal Operations, 1981-88 .... 58 4.2 Projected Current Expenditure, 1988-92 ........... 61 4.3 Projected Domestic Revenue, 1988-92 .............. 64 4.4 Proposed Financing of Government Operations, 1988-92 ....................................... 67 5.1 Balance of Payments, 1981-87 ..................... 73 5.2 Growth in Exports, 1981-86 and 1988-95 ........... 75 5.3 Projected Balance of Payments, 1988-95 ........... 77 5.4 Contribution of the Mining Sector to the Balance of Payments, 1988-95 .78 5.5 External Financing Requirements and Sources, 1983-92 .79 5.6 Commitments of Official Assistance by Type of Assistance, 1981-89 .82 5.7 Public Investment Program,.1988-92: Summary of Project Financing Status .84 5.8 Commitments of Official Assistance by Source, 1981-89 .................................. 85 5.9 External Debt and Debt Service, 1981-95 .......... 86 5.10 Alternative Balance of Payments Scenarios, 1989-95 .89  inmAUV DATA - PAPUA NW 111011A MREA PWWAUTII US 461,700 qkm Malt. Mo (ISM) 7.0 p o km(11S6) POPIIATIU OVARACTRaSTRc IM.1N Crude birth rote 8W1 7.0 PepeoletI. pee lei"m a 11,700 Crud den" rte 18.0 Pe_iem per _ t beid S (1 47 Lift Exwemo at nirt (ser) (1861) 81.0 Info"mo Mrtality Ret.e (per 1,000 liv. birthe) (10) 7n.0 ACCE TO SAE mAm (I of Poi&blem) e _ CUATI U CAPITA a1 eese (me COAL 54VAL M Tetl 20 is 1070 149 Urban so a Rural i0 10 160 279 WJTITmIN / 0UCATION Per Capita Supply ets Adult literac* rate (190) ( 81.0 Calorie. (per idy) 2148 Priery eabeel esrel Iemt(1065) (1) 64.4 Proteins (Gram. per day) 40 Lmer secondary enrol lmot(106) 14.5 OW P CAPITA IN 16: USOO GROSS DOMESTIC PRODUCT IN low ANUAL RATE OF GROWTH (3, 1901 priem) UW Mim 3 116-S 196647 1666/87 ODP at market prim 1,54s.5 100.0 2.8 8.1 219 Gross D.osetlC Inveetmat 600.8 1.7 -2.1 8., 0.7 Gros national aviwng 412.1 1l.9 Current account balanoe -172.6 -0.9 Exports of good, s 1,181.5 44.6 4.1 2.9 0.8 Imports of good., NFS 1,848.6 5.0 -1.5 -J.6 -7.1 OUTPUT AND EMPLDY4EFT Overall Labor Foro. Vsalue Added Labor fore* 1064 O6 1 (Pr l Sector) M min x Mln x $00o I Agriculture 6.6 85.5 1.18 *6.0 48.4 24.9 Induetry 606. 27.1 0.05 8.6 84.8 17.7 Services 906.0 87.8 0.17 11.4 111.4 $7.4 Totel 12,54.5 100.0 1.60 100.0 194.2 100.0 GOVERNMEiT FINANCE Cntra l Government K in XotfP 1066 1907 1964 1906 1907 Current Reolpte 761 70 $8.5 $1.0 29.0 Currnt Expenditure 721 749 80.8 18.6 28.1 Current Surplus 84 44 8.2 1.4 1.7 Capital Expenditure 110 Los 4.5 4.4 4.1 Overall n Ice -76 -64 -1.8 -8.1 -2.4 a/ Most recent estimate.  MONEY, CREDIT AND PRICES tK Lin) (END OF PERID) b 1992 1966 164 1966 1996 Broad Money (1S3) c/ 484.5 498.4 5U4.0 68.9 789.4 Dometic Credit 425.6 414.5 501.? 616.8 6J2.2 Claims on Government (not) 71.2 2.0 0.6 20.2 1.2 Claim on Private Sector (net) 854.6 412.5 501.1 596.1 661.0 Consumer Price Index (1981-100) 106.9 116.0 121.1 126.8 188.0 Broad Money/aDP(S) 24.9 25.0 27.4 29.0 80.0 Consuer Price Index (Period Average): Annual Percentage Change 5.6 7.3 7.5 8.6 5.5 BALANCE OF PAYMENTS (USS Mln) 1985 169" 1967 MERCHANDIS