Australian Aid to PNG - AusAID

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2.2 Macroeconomic PerformanceThe 1975 to 1989 period was characterised by relative economic stability butpoor international competitiveness and associated low economic growth. Thisphase of development was brought to an end in 1989 as the economy faced amajor crisis following the closure of the Panguna mine in Bougainville andassociated civil unrest, and a large decline in agricultural export prices. The firststructural adjustment program was implemented at this time and, as oil andmining revenues grew quickly, the management of mineral revenues became anincreasingly important issue. A lack of fiscal discipline and poor progress onstructural reforms culminated in a balance of payments crisis in 1994 and led tothe adoption of a new exchange rate regime. At the same time, a shift fromdirect budget support to programmed assistance was well underway.Since 1995, a (managed) flexible exchange rate regime has been in place andthe move from budget support to programmed assistance has been completed.Reforms made with the adoption of the 1995 Organic Law on Provincial andLocal Level Governments saw a significant change in the relationship betweennational and provincial governments. In response to repeat episodes ofmacroeconomic instability, two further structural adjustment programs havebeen undertaken with the support of the international community. While theperiod from 1990 to 1994 saw considerable investment in the mining and oilsectors, investment has since been subdued and the economy has now been inrecession since 1999. The economy is once again facing the prospect ofmacroeconomic instability, triggered by excessive government expenditure.There continues to be a lack of confidence in the mining sector and generaluncertainty as to the credibility of current government policies.2.3 Rural DevelopmentPapua New Guinea has substantial renewable resources and 85% of thepopulation continues to rely on a mix of subsistence and cash activities in theagriculture sector. Despite the importance of small-scale agriculture,government policies have tended to focus on mining, logging, and the majorexport cash crops of coffee, oil palm, cocoa and coconuts.Agriculture’s share of GDP was around 30% in 1975 and has exhibited a gradualtrend decline to about 25% of GDP in 2001. At times agriculture has beenboosted by the impact of devaluations and at other times suffered from suddenand large declines in the terms of trade and drought. For most of the periodsince independence coffee was the most important agricultural export crop butsince mid-2000 oil palm has been more important. Price support schemes havebeen a longstanding feature of government policy but have at times been a6 The Contribution of Australian Aid to Papua New Guinea’s Development 1975–2000
significant strain on the budget and have had adverse incentive effects wheninternational prices are high. The significant real devaluation of the currencythat has occurred since the mid-1990s is considered to have been more effectivein providing appropriate price incentives to agriculture in general.Key constraints to the development of agriculture are a rudimentary transportnetwork, cumbersome land tenure arrangements, cultural factors, law and orderproblems and inadequate extension services. All of these factors are consideredto discourage investment and restrict the scope for productivity improvementsin agriculture.2.4 EducationInadequate education has been one of the most significant constraints toeconomic and social development in Papua New Guinea. Ultimately, this hasbeen reflected in skill shortages, low workforce productivity and, in conjunctionwith high real wages, it has contributed to low international competitivenessand low formal employment growth.Post-independence governments have specified universal primary education asa key objective. A substantial expansion of primary and lower secondaryenrolment was made in the 1975–89 period (World Bank, 1991, p. 107). Grossenrolment in the primary age group rose from 56% in 1975 to 72% in 1988.Moreover, during 1975–89, the share of female students in total enrolmentincreased from 37% to 44% in the primary schools and from 30% to 38% atthe lower secondary level.Despite improvements in basic education indicators, the 1990 population censusfound that over 50% of the population over the age of 10 had no schooling atall and around a further 20% had only completed grades one to five (Gannicott,1993). High and growing attrition rates at primary schools, falling transitionrates at the upper secondary level, low-quality teachers, high unit costs, andregional and gender disparities (although showing strong improvement) alsocharacterised the education system in the early 1990s. Many reasons have beenadduced in explanation of high attrition rates, all of which stress conditions inthe schools and other external factors: the payment of fees; distance fromschools; under-nourishment; tribal and clan conflict; and the high opportunitycost of education (Goodman et al., 1987, p. 175).There is a general consensus in the human resource development literature of theneed to give priority to primary and lower secondary education when a countryis at a relatively low level of economic and human resource development. Thisproposition was considered especially relevant to Papua New Guinea in thisperiod where unit costs for tertiary education were very high and where in 1989The Contribution of Australian Aid to Papua New Guinea’s Development 1975–2000 7
Page 5 and 6: BOXESBox 3.1 The Dutch Disease in P
Page 7 and 8: FOREWORDAs part of a broader focus
Page 11 and 12: programs to improve living standard
Page 13 and 14: sector since independence, 65% has
Page 15 and 16: 1 INTRODUCTIONThis report provides
Page 17 and 18: Figure 2.1 Real GDP per capita in P
Page 19: 1985 1990 1995 2000PNG HPC LIC LMC
Page 23 and 24: • Improved central coordination a
Page 25 and 26: Connell (1998, pp. 311-2) highlight
Page 27 and 28: y the successful mobilisation of cu
Page 29 and 30: 3 INTERPRETING THE DEVELOPMENT ANDG
Page 31 and 32: The estimated increase in private c
Page 33 and 34: 3.4 Reconciling the Growth and Deve
Page 35 and 36: 3.5 Implications for AidTo summaris
Page 37 and 38: Although the precise extent of the
Page 39 and 40: program saw a decline in the overal
Page 41 and 42: criticism that the withdrawal of Au
Page 43 and 44: Ministerial Forum found that real p
Page 45 and 46: management for Papua New Guinea, ov
Page 47 and 48: 5 THE IMPACT OF AUSTRALIAN AID INPA
Page 49 and 50: • Improved retention rates at sch
Page 51 and 52: • Achieved operational efficienci
Page 53 and 54: policing are being introduced, alon
Page 55 and 56: deliver community and public servic
Page 57 and 58: BOX 5.5 HEALTH IMPACTS OF AUSTRALIA
Page 59 and 60: also improved 24 , and there is evi
Page 61 and 62: 5.5 Renewable ResourcesIn total, Au
Page 63 and 64: Land Use Management• Established
Page 65 and 66: New Guinea needs donor financing fo
Page 67 and 68: only assist within the context of t
Page 69 and 70: Both within sectors and more broadl
Page 71 and 72:
However, it seems reasonable to arg
Page 73 and 74:
useful to document the findings of
Page 75 and 76:
ANNEX A EVOLUTION OF AUSTRALIAN AID
Page 77 and 78:
ANNEX B SECTOR BREAKDOWN OF AUSTRAL
Page 79 and 80:
8 REFERENCESAhai, N., 1988, The Dev
Page 81 and 82:
Garnaut, R., and Baxter, P., 1984,
Page 83 and 84:
Growth Strategy, Final Report, prep
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Australian Aid to PNG - AusAID

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