Comments

No worries, Robert. With precedent activities across the region (e.g., G2P Fiji and PFIP's other work), I would be surprised if it is not feasible, particularly if you are looking at partnering with organisations like Nationwide Microbank or BSP with good penetration. If DFAT further funds such work, it would be great to see them properly evaluated with rigorous techniques and household survey panel data, a useful complement the ongoing (or perhaps complete) household diaries research.

Thanks Joel, great blog, it hits many of the the important issues squarely on the head. Particularly: GF is very problematic in small fragile states - heavily verticalised, distorting and over-complex processes and transaction costs. The GF TERG recently <a href="http://www.aidspan.org//node/2408" rel="nofollow">produced </a>some guidelines on how to adapt and be flexible, but it seems little action is being taken. It is high time we rationalise some of these funding streams into a Global Health Fund aimed at strenghtening systems, based on the <a href="http://www.odi.org/comment/4157-accra-high-level-forum-accountability-before-aspiration" rel="nofollow">principles </a> of IHP+ and JANS, that we seem to have all forgotten. There is no reason we can't still track progress and impact through specific health indicators, but we need to move away from short-term, donor-attributable verticalised results focus for the resources. And <a href="http://www.thelancet.com/journals/lancet/article/PIIS0140-6736(14)61345-3/fulltext" rel="nofollow">do we need another new fund</a>? There are so many already, adding to chaotic architecture and transaction costs. Lets rationalise and make more simple and effective the ones we have already constructed - and add more to it. Scholarships spending could be reoriented towards building in-country training and education, not just providing career-enhancing opportunities to a few lucky nationals. E.g. better twinning arrangements to offer International standard courses and qualifications through local education institutions. On the route to UHC, health insurance schemes have often been expensive and elitist - they rarely cover the whole population or the poorest. I found this to be a <a href="http://www.chathamhouse.org/sites/files/chathamhouse/field/field_document/20140521HealthFinancing.pdf" rel="nofollow">particularly good analysis</a> of how to finance UHC. The weak systems underlying the Ebola outbreak may be the wake up call we need to radically revise and simplify the global health architecture and international development assistance. Let's hope the SDGs capture it effectively, and combine with a focus on reducing inequalities.

All solar is not created equal. At the utility scale where NZ Aid has mostly been operating, it makes sense to import the expertise. The subsequent operations and maintenance, however, should be localised. For commercial/Industrial/household (think rooftop solar), there is a stronger argument for local installation and maintenance with training by international manufacturers plus assistance with the development of grid connection standards and processes. Some of the short to medium term solution for reducing the use of diesel fuel will be about increasing solar and other renewable penetration rates from the generally accepted 20% to greater than 60%. Increasing penetration rates is possible with clever electronics and batteries coupled with the existing diesel gensets. The approach uses batteries for instantaneous power adjustments in the milliseconds to minutes space for grid stability. The diesel gensets are retained to follow load in the minutes to hours space. The diesel gensets come into their own when renewables aren’t available e.g. solar at night. This approach optimises diesel fuel usage and minimises genset maintenance. During the day the gensets are set to operate at their most efficient loading. The solar (renewables) output is varied to follow changes in demand while the diesel genset output varies in a narrow band. The other benefit of the hybrid approach is fuel efficiency and diesel genset longevity. In the past the operation and maintenance regime of diesel gensets on Pacific islands has been poor e.g. never changing the oil just topping it up etc. This is exacerbated by periods of either a) under loading or b) overloading the diesel gensets. This operating regime is fuel inefficient and bad for the gensets. Operating the diesel gensets continuously at 60-80% of nameplate rating is more ideal for longevity and fuel efficiency. The economic efficiency of hybrid solar/diesel generation can depend on having a significant daytime load in a reasonable insolation environment. This occurs where there is government/commercial sector air conditioning load, industrial demand or tourism coupled with aircon/refrigeration load that has some inherent storage capability. See also the Irena publication "Renewable Options for Island Tourism" and the "SMA Fuel Save Solution" for details of the solar/diesel fuel saving concept.

Minister Bishop's focus on women in the aid budget is a welcome priority. Hopefully, our foreign aid for 2010-15 still includes AusAid's microfinance strategy of “Financial Services for the Poor”. One example of its benefits is in Afghanistan, where microfinance aid helps stabilize Afghan livelihoods and stimulate economic development. As an example: one 45 year-old widow with 2 children was able to borrow 10,000 Afghanis ($200), buy a sewing machine and make women’s dresses quickly instead of hand-sewing them. The thirty million people of Afghanistan face immense development challenges in creating their future, next year and in the years afterwards. Yet our foreign aid to Afghanistan is unfortunately decreasing by 10 %, from $149 million to $134 million in 2014-15. It's not yet mission accomplished in that country and more aid to the Afghan poor would be some small credit to Australia.

Thanks for the comment Paddy. Put simply no, I didn't have any other particular mechanism in mind. But I think about the DD as more than just the exchange rate; I might explain this further in a future post. In the documentation on the Alaskan Permanent Fund, I recall there being a mandate to use the fund to intervene when spatial price problems arise. I'm not sure how they do this [well]. However, I think its good to not just think of the effects of a booming sector and a DD at a national level, but also on a within-country basis, where it's more interesting. Cheers Ryan

Thanks for your kind feedback and excellent comments, Paul. I think you could argue either way on most of them. 1. On predictability, my preference is counter-cyclical distribution (i.e. delayed payments), then a smoothed approach. Commodity cycle-driven payments are not ideal: not for the economy, certainly not for households. 2. I agree with in principle with you how intergenerational equity may be less compelling if there is future discoveries are expected, but I have reservations about dismissing it as a starting point because of uncertainty. There is a chance there may not be much more. With increasing pressure to move away from fossil fuels, it is not impossible that known and unknown reserves will significantly devalue and exploration slow (i.e., using all known reserves under BAU scenarios is expected to give a 10-15 degree increase in temperature). Demand for the commodity in question might slow and extraction lose its voracity, and it's easy to muddy intergenerational equity and current generational smoothing when we are talking about sometimes very long commodity cycles. I'm not sure what the right answers are, but think its a great discussion to have. Also, I really distrust the argument that by growing today future generations will for sure be richer. Assuming today's policy will work and make the future that much better is a bit like 'shooting from the hip', particularly if we are talking about PNG. 3. I have not thought in detail about issues around local support and land ownership, but they are no doubt important and have been raised with me before, including by some regular readers of this blog. Personally, I'd prefer national resource wealth policy centralised, as I imagine province and district based regimes have some perverse governance and spatial economic challenges. Maybe its possible to slice the issues apart (the land licensing and then what is below the ground)? 4. Is the first-best solution better governance? Of course. I don't have much doubt that a good SWF under perfect governance would be ideal. An SWF that distributes politically independent counter-cyclical dividend payments to offset commodity volatility would be even better in my view, but many will disagree with me on that. Extractive industries and extractive institutions (in various forms) go hand in hand though. As argued excellently in CGDs papers, directly bringing citizens into the process and broadening the tax base (as DDPs go into general revenue through income tax) might strengthen the social contract and increase accountability for good government more than any 'governance' interventions would. With the proliferation of mobile money in PNG I think this approach has great potential. In Australia, I certainly think that a new approach is needed to get any resource sector reforms past the mining lobby. I'm convinced a DDP-style approach, giving every citizen skin in the game so it is the entire population vs. the mining lobby (c.f., government vs. the mining lobby) and equal distribution (c.f., 'a big tax') has the best chance at doing this. Or perhaps the PRRT might just be extended to onshore assets without anyone noticing, but doubt this will be the case and there is still a strong case for a SWF and lots of proponents of one out there hiding in the shadows. Lastly, I just wanted to flag that Todd Moss and colleagues from the CGD have a new Oil-to-cash book coming out 2015, which will deal with a lot of these issues. Thanks again Ryan

Can you expand on using SWF to sterilize dutch disease? My understanding is that if you don't raise peoples' incomes, because you are stashing income away in overseas assets instead, then there is no DD to sterilize. That sounds like a semantic quibble buy really I'm asking whether you have some other mechanism in mind

Thanks Sam. A great post. I look forward to a 'further lessons learned' blog! Given how you outline WHO's funding shortfall, I was surprised you didn't conclude with a recommendation for Australia to increase its funding to WHO. Any reason for this? For the G20 and Ebola, the UN has an existing Ebola appeal for $1 billion, which is woefully underfunded. If wealthy governments can't even give $1 billion in a current crisis like Ebola, are they really going to give $20 billion for a health emergency response fund? At this point, the idea seems to me a distraction from the pressing task at hand - better to get the G20 countries to fully fund the Ebola response now. Although, I do like the idea of a health emergency response fund, but I wonder how practical it is. I can see the benefits of having money sitting there, ready to use. But on the other hand, this would be money sitting idle that could be spent on primary health and health promotion. And do we really need another fund for health? The sector is already burdened with a variety of funding mechanisms. In terms of the G20, there is no debate that health and human wellbeing are integral to functioning economies and development in general (as you've argued elsewhere), so there is no reason why the G20 members can't commit to putting more money into health and examining other issues, such as trade, through a health promotion lens. Owen Barder had a great post about the need for more investment in health, in relation to the Ebola outbreak: http://www.owen.org/blog/7435. The G20 prioritising health is the sort of commitment required to prevent infectious outbreaks and deal with the slow-burning NCD crisis.

Tenkyu tru, tupela. Most enlightening. Personally I don’t trust, “trust” funds in PNG as they seem to be a place to park funds until everybody forgets they are there. If they are ever expended for the designated purpose is anyone’s guess. Not to mention if they achieve value for money. Take your point on how they and the other factors influence the reporting and bottom line, though. Thanks very much. Understanding data and trends in PNG must be an economist’s equivalent to the art of herding cats! But I suppose that is the same in many other countries. The big picture still seems heartening for PNG. A little like a guesthouse in an under-discovered tourist heaven that knows if it spends on infrastructure and new capacity for a few years (read LNG/mining) it will be fully booked and earning good income for another 20 years or so. Nice! Paying back the investment cost with the early earnings will impact on any initial surplus, but still be a good thing in the long run. And they might even build another guesthouse or two along the way! As long as no-one burns them down, of course. Intangible, unpredictable and indirect benefits and impacts of a general confidence in the economic future, even over 2015 before the income starts flowing (the spending already has!), may also be interesting to observe over coming months. It is certainly a more optimistic outlook than many other parts of the globe. It seems understated that over the past 8 years or so while most of the rest of the world has been sweating over their finances, PNG has been quietly booming … with more to come. Plenty of waste and mismanagement, no doubt - but still moving forward. Plenty of problems to manage – Dutch disease, how best to spread the love etc. – but good problems to have in these times and for a country only 38 years into nationhood. Look forward to reading more of your articles and insights. Thanks for responding to my comment, I learned something.

Great reading, also "The Three Delays" essay. Currently in South Sudan, locked in battle about the provision of an ambulance at county level for "referral"", where "referral pathways" do not exist. I am sharing this with my county teams and other partners.

Richard, as you comment, under-spending of planned budgets can have significant implications. Under-spending in planned budgets can lead to several outcomes in PNG. First, the under-spending can be recognised as simply a timing issue in a multi-year budget. If there have been delays in getting a project going, this should simply shift some funding in future years. This was one of the aims of the introductions of multi-year budgeting in 2012 - to reduce the pressure on the end-of-year spend-up typical of annual budgets. Such a re-allocation will reduce the deficit. Second option is the end of year reallocation process (called the "Close of the Accounts" in PNG). Under-expenditures in some areas are moved to over-expenditures in other areas. This has no impact on the deficit. Arguably, the moves between appropriations are not very transparent in advance and certainly not subject to Parliamentary approval. Possibly this process should be more limited. Thirdly, known under-expenditures can be transferred to a trust fund. This occurred in 2013 where significant under-spends were reallocated to the South Pacific Games expenditures in 2014 (some K386 million) through a "Supplementary Budget". Under PNG's current reporting system, this is treated as expenditure in the year the funds are put into the trust account (2013 in this case) and so does not reduce the deficit even though the funds are not actually spent until 2014. This will change as PNG moves from the 1986 to the 2001 Government Financial Statistics reporting requirements when payments into trust funds will not be counted as expenditure. Finally, some of the "under-expenditure" can be based on whether certain financial transactions are regarded as being counted "above or below" the line for determining the deficit. For example, PNG was required to spend K305 million in 2013 to keep its equity share in the PNG LNG project. As this is simply the purchase of equity in a project, some argue that it should be treated as a below the line transaction (a capital financing event that doesn't affect things such as the delivery of services). The PNG treatment of this changed three times during the last year. The rub is that if such equity purchases are treated above the line, then the PNG's OilSearch purchase should also be treated above the line. This would blow the 2014 deficit out by more than a billion Kina. If it is treated below the line, then for consistency, asset sales should also be treated below the line. This would mean that possible sales of parts of Air Nuigini and PNG Power should not be counted as helping with the program of reducing the deficit in 2015 (although it will help reduce the level of debt). These types of decisions on how to report various types of spending, and the importance of consistency, will be important for really understanding the 2015 budget.

Ryan. This is an excellent analysis. I think your suggestion of some form of hybrid that combines the macro-economic stabilisation elements of a SWF with the direct dividend approach is a minimum variation to the DPP idea. Four further questions. First, are households better off (and the economy) with a relatively predictable and steady stream of annual dividend payments, or should they accept the volatility of usual mineral resources incomes? Mineral prices are volatile - so a straight payment of the ups and downs of annual profits through dividends could lead to considerable volatility in household incomes. Second, if the resource wealth in a country is considerable with the likelihood of new discoveries and enhanced ability to extract existing ones, the need for inter-generational equity is diminished. In the case of Norway and Timor Leste, the concern is that the existing discovered petroleum fields may be the richest in their area - so using them now for the next generation means the next generation will not have that type of wealth anymore. However, in countries such as Australia (with some minerals expected to last for hundreds of years at current rates of extraction) and the likelihood of undiscovered mineral wealth in PNG, the inter-generational argument may be less compelling. Third, on the politics, how does the proposal deal with the special interests of local landowners? Any sustainable scheme would suggest they may need more dividends to continue local support for any mine. Finally, in the case of both Australian and PNG, is the first best solution to improve governance? Thanks again for raising such an interesting idea.