The ADB projects this growth taking into consideration the impact of the recent earthquake in the Highlands which disrupted gas production and other business activities.
Bank South Pacific general-manager, treasury, Rohan George said this when releasing the BSP’s Pacific Economic & Market Insight for March quarter.
He said 2018 would be challenging given ongoing foreign exchange shortages, fiscal challenges and rebuilding after the Highlands earthquake.
BSP head of treasury sales Jonathan Prince said: “The combination of slower growth and lower exports has had a dampening impact on economic activity in general and trade in particular.
“Despite this, our customers have adapted, where possible, through a combination of import substitution and focusing on key products and services.
“While we acknowledge the foreign currency shortage is likely to persist in the short term, we are not actually experiencing further deterioration.
“Medium-term prospects look very positive in that large foreign direct investment flows will quickly alleviate current levels of stress.”
The BSP Pacific Economic & Market Insight also reports that the “increased growth is expected to be driven by the increased activity in the non-mining section, supported by the spending relating to the Apec Summit.”
Headline inflation for PNG was estimated at 4.7 per cent last year compared to 6.6 per cent in 2016.
This was in contrast with the 5.9 per cent estimated in the 2018 budget.
Bank of PNG stated that the decline reflected lower economic growth, stable exchange rate and lower prices of seasonal food items.
According to National Statistics Office, alcohol beverages, tobacco, betel nut, health and household equipment increased by 12 per cent, 10 per cent and 6.9 per cent respectively.
Independent Consumer & Competition Commission (ICCC) statistics indicate that retail prices have increased by 6.5 per cent (18t) on average for petrol (+2.5 per cent), diesel (+10.8 per cent) and kerosene (+6.3 per cent).
ICCC expects fuel prices to increase by around 15.7 per cent in 2018, exerting a flow-on effect on to the prices of other goods and services.
Foreign exchange shortage continues to be a challenge for business in PNG.
Over the quarter, PNG Kina depreciated against the US dollar by 0.6 per cent to 0.3075.
Against the Australian dollar, the kina appreciated slightly to 0.3873 (1.2 per cent) reflecting broader-based weakness for the Australian unit.
“Outstanding foreign exchange orders have remained stable in recent months,” George said.
“We hope to see increased supply of foreign currency to the market as the year progresses, driven by seasonal flows from agriculture, a move back towards normal mining export flows and pre APEC FX inflows.”
The Government’s revenue was 5 per cent or K546mil higher at K11.5bil, compared to K10.9bil projected in the 2017 Supplementary Budget.
The higher-than-expected revenue reflected improved GST collections and higher-than-budgeted donor grants.
Economic growth in the Pacific sub-region has been downgraded to 2.2 per cent in 2018, due to the impact of natural disasters – earthquakes in the Highlands and Fiji and Tonga cyclones.
Australia and China’s foreign aid growing influence in the region has been the one of the main discussion topics in the first quarter of 2018.