Monday, July 28, 2014

What are the implications for PNG of Australia's new foreign aid policy?

My interest in Australian aid to Papua New Guinea was heightened while I was in Papua New Guinea late last year and earlier this year working on a review of agricultural policy implementation for the PNG government. I was surprised to learn that, apart from some ACIAR projects, not much Australian aid money has gone to agricultural development in PNG in recent years. (In case anyone is wondering, the project I was working on was not funded by foreign aid. Work on this post was not funded by anyone other than myself and I have not discussed the topic with anyone prior to publication.)

PNG is still a major recipient of Australian foreign aid. Development grants to PNG are estimated at about $500 million in 2014-15, which is more than half of all allocations for Pacific countries and about 15 percent of total allocations for country and regional programs.

From a PNG perspective, however, development grants from Australia do not now make a huge contribution to the government’s budget. Such grants currently account for about 6 percent of total PNG government spending; development grants from other foreign sources account for a further 2 percent of spending. The amounts involved are substantial when compared with current tax receipts from sources such as GST and personal income tax, but seem quite small when compared with amounts raised by borrowing – amounting to about 34 percent of estimated government spending for 2014. The high level of borrowing reflects the rapid rise in government spending in recent years in anticipation of substantial revenue flows from LNG exports.

The relatively small amount of Australian aid money flowing to agricultural projects can be explained in terms of the priorities established in the “PNG-Australia Partnership for Development” in 2011. This agreement gives priority to education, health, transport infrastructure, and safety and justice (policing, security, access to justice etc.). Those priorities, in turn, reflect the priorities of PNG’s Medium Term Development Plan 2011-2015 (MTDP).

That all seems to make sense in terms of ensuring that aid money contributes to national goals of the recipient country. The priorities of the MTDP also make sense in terms of its objective of laying the foundation for economic growth by addressing supply side constraints. Improvements in law and order and transport infrastructure have potential to reduce costs and improve the competitiveness of export industries. Improved education and health services (e.g. malaria prevention) have potential to make an important contribution to improving productivity. Moreover, while many services in the priority sectors can be most efficiently provided by private firms, those sectors also encompass core functions of government.

So, what is wrong with the idea that foreign aid should be used to help the government to perform its core functions better? Not much really, except that in the context of a country like PNG there is no magic wand that can be purchased, with or without foreign aid, to improve performance of core government functions. I puzzled over one aspect of this question a few months ago in a post entitled “How do peaceful societies come about?”. History seems to tell us that law and order is more likely to be established through the emergence of better economic opportunities for potential criminals than through massive investments in deterrence of crime.

The dynamics of the development process certainly do not require that improvements in core government functions must necessarily precede the development of more widespread economic opportunity. In the PNG context I think such considerations provide a strong case for agricultural policies to be used to help promote more widespread economic opportunity. I don’t want to attempt to explain why that is so in this post. I think it is adequately explained in the report I helped to prepare, entitled “Towards Agriculture Transformation and a New Direction for Enhancing Productivity in Agriculture”, which is now publicly available. The recommendations of the report have been accepted by the PNG government.

So, that provides the context in which I ask myself what are the implications for PNG of Australia’s new foreign aid policy. The new aid policy has a strong focus on private sector development, growth of international trade and the development of agriculture and fisheries.  The new policy links funding to performance: programs and partner organisations that perform well will be rewarded with additional funding.


There seems to be potential for the new framework for agricultural transformation adopted by the PNG government to mesh well with Australia’s new foreign aid policy. It will be interesting to see how much emphasis there is on encouraging innovation in agriculture in PNG as Australia’s new aid policy is translated into Aid Investment Plans over the next 12 months. 

Postscript:
The following comment has been supplied by the PNG Minister for Agriculture, Hon. Assik Tommy Tomscoll, MP:

“I read your article and agree. In PNG the best opportunity to create wealth, capture a large proportion of the population in economic participation, promote industrialisation and improve living standards for the majority, lies in the development of the agriculture. Around 87% of our people depend on agriculture for both cash and subsistence, and the agriculture sector contributes 24% to 27% to gross domestic product. PNG is an agriculture-based economy, not a hydrocarbon and mining economy.
Thanks for your worthy contribution in the FER - and so the sector is forging ahead at long last.”

Appreciative comments were also received from Dr Vele Ila’Ava, Secretary of the PNG Agriculture Department, and Dr James Kaiulo, Chairman of the FER Steering Committee and FIA Team Leader. Dr Kaiulo commented as follows:
“You have ‘hit the nail on the head’ in relation to the Australian Foreign Aid Policy on social (health, education, law and justice) programs that are being promoted and funded by the Australian Government while ignoring the agriculture sector.  The Australian Aid on agriculture has been focused in the area of R&D programs without any significant impact on the improvements to the livelihoods of the rural farmers.

I hope they take note of your comments.”



Some of my colleagues on the FER team have also provided supportive comments. I would like to draw attention to the comment provided below by Dr Eric Omuru: 
"Increased funding support to agriculture by PNG government is gaining momentum. The findings and recommendations of the FER report have been well received by the government. The support and efforts to this cause by our minister and secretary is the best I have seen in the sector in a long time. If Canberra can join the party and contribute a certain % of what it gives to PNG as foreign aid specific for agriculture, it will be a meaningful contribution. 

Enjoyed reading your article."

1 comment:

Eric Omuru said...

Increased funding support to agriculture by PNG government is gaining momentum. The findings and recommendations of the FER report have been well received by the government. The support and efforts to this cause by our minister and secretary is the best I have seen in the sector in a long time. If Canberra can join the party and contribute a certain % of what it gives to PNG as foreign aid specific for agriculture, it will be a meaningful contribution.
Enjoyed reading your article.