Papua New Guinea (PNG) is already showing signs of the Dutch disease (DD) but may worsen if the government heavily focus on extractive industries including mining, oil and petroleum and less on agriculture.
As was the general consensus reached during the seminar held at the National Research Institute to discuss PNG’s sovereign wealth fund, legislation of which will be tabled at the parliament soon.
Some commentators argued that the solution to the fall of the Kina and the DD lies in restoring agriculture for both the export market and the domestic economy.
That argument is supported by the notion that export of agriculture products wins hard currency that helps push up the value of the Kina.
David Osborn, visiting fellow from Development Policy Center of the Australia National University in an in an interview with PNG Loop defined Dutch disease as;
“The Dutch disease is the apparent relationship between the increase in the economic development of natural resources and a decline in the manufacturing sector (or agriculture)”
David also told PNG Loop that the inflow of currency would lead to currency appreciation, making other domestic products less price competitive on the export market.
He further added that high inflow of currency would also lead to higher levels of cheap imports with negative consequences, thus triggering inflation.
He praised the Government for taking the right steps in reducing the disease’s impact through the implementation of the SWF.
The SWF tries to mitigate the exchange rate appreciation; in so doing it protects the traditional export sector as well as lessens the impact on domestic money supply, stemming possible inflationary pressures.
However, given a record of poor management of past funds such as the Agricultural funds, Mineral Resources Stabilisation Fund (1974 to 2000), PNG Sustainable Development Program (2002 to 2013) and the Trust funds (2006 to current), David as well as majority of those present during the seminar voiced concern on the transparency of managing the SWF that in turn will take care of the issues like the DD.