Interview: Geoff Toone
How would you characterise PNG’s response to the global economic downturn that is affecting many areas of its economy?
GEOFF TOONE: The world economy is in realignment and everyone is still waiting to see where the oil story is going, with very divergent forecasts. Ultimately, these are challenging times for oil-centred countries, such as Brunei, where the oil industry holds a 60% share of GDP. These developments have generated fundamental changes in PNG and in all the activities associated with liquefied natural gas (LNG). Yet the LNG project is still producing, and remains low-cost and sustainable. However, despite being a very large asset, this project, along with others in the sector, is not capital-and labour-intensive on an ongoing basis. Therefore, the related export dynamics of PNG are intuitive. Unlike PNG palm oil, which constantly adjusts to changes, oil and mining work more like an on/off process.
In response to the new context, PNG is realigning structurally. Regarding the impact on currency, several importers are looking for currency to execute trades. The export community is too narrow, trading mostly raw and extractive goods and too few value-added items. Large corporates leverage off their balance sheets and their relationships, and many of them are describing parent relationships as focusing on adjusting to the reality and staying committed.
The state adjustment to the economic downturn and the effects of the commodity crisis is being articulated in two ways. First, the central bank is implementing monetary policies to manage the currency situation according to their needs. Second, the Treasury is adopting a conservative view for the budget, and this approach is starting to play out, with money being spent in targeted ways. Synergies between the central bank and the government are working, and both levers should continue working together while currency flexibility is recovered.
How much of a solution do you consider the international bond to be for PNG?
TOONE: I see it as a positive story for the country in a number of ways. After a history of internal funding and a narrow lens from external markets, the issuing of an international bond is going to take the country to the global markets. Having a valid and reputable bond is going to change the dynamics of the global investment community, notably in the US, Hong Kong and London. Let us not forget that the Singapore business community has been aware of PNG for some time and is active in the country.
It is therefore not just a monetary matter but also a marketing move to put PNG on the global investment stage. Nonetheless, the challenge lies in transparency in the numbers. There has been a general leniency from the domestic markets as opposed to global ones. This issue is an opportunity to take the country and its industry to a more mature market and, subsequently, ease its access into global markets, such as sub-Saharan Africa.
PNG is a niche offering for the international markets. It is a formula has worked for other countries in a similar position. The timing could have been better though, as 2015 provided a stronger context for it. All things considered, long-term growth in the next decade is expected to occur in emerging markets and this bond is a real circuit breaker for PNG.
To what extent is PNG’s economy being affected by the current slowdown in China?
TOONE: China is still importing commodities and building infrastructure for LNG. While prices have changed, the volume of imports to China is the same. The global LNG industry is substantial, and there are much bigger available projects to invest in than PNG LNG. However, the PNG LNG project is on budget and on time, thus showing consistency and constituting a reliable investment project.
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