PNG's Growth to Moderate, Fiscal Pressures to Grow in 2012, 2013
PORT MORESBY, PAPUA NEW GUINEA – Papua New Guinea’s (PNG) economic growth will slow from 7.5% in 2012 to 4.5% in 2013, according to forecasts in the latest edition of the Pacific Economic Monitor, issued today by the Asian Development Bank (ADB).
The ADB report says that slowing economic growth will contribute to declining government revenues over the next 2 to 3 years, placing significant fiscal pressure on the government.
Moderate levels of public debt, and trust fund savings, should allow the government to maintain priority spending without upsetting the fiscal stability that has underpinned the last decade of economic growth, says the report.
“Ensuring this period of lower government revenue does not disrupt service delivery will require the government to continue its prioritization of funding towards the key development sectors of health, education, infrastructure and law and order,” said Aaron Batten, Country Economist in ADB’s Papua New Guinea Resident Mission.
The latest issue of the report, ADB’s review of the 14 economies of the Pacific prepared three times a year, notes that authorities will also need to reign in growing public expectations about the country’s ability to finance new projects with earnings from the PNG Liquefied Natural Gas Project, which are not expected to be large until after 2023.
The Monitor shows that although PNG recorded its tenth consecutive year of economic growth in 2011, the private sector remains small, with less than 10% of the working age population engaged in formal employment in private enterprises.
Employment growth can be encouraged by improving public infrastructure, reducing the perceived riskiness in PNG’s investment environment and encouraging competition, the report says.
PNG joined ADB in 1971. It is ADB's largest partner in the Pacific in terms of loans for public and private sector development.
ADB, based in Manila, is dedicated to reducing poverty in Asia and the Pacific through inclusive economic growth, environmentally sustainable growth and regional integration. Established in 1966, it is owned by 67 members – 48 from the region.
The ADB report says that slowing economic growth will contribute to declining government revenues over the next 2 to 3 years, placing significant fiscal pressure on the government.
Moderate levels of public debt, and trust fund savings, should allow the government to maintain priority spending without upsetting the fiscal stability that has underpinned the last decade of economic growth, says the report.
“Ensuring this period of lower government revenue does not disrupt service delivery will require the government to continue its prioritization of funding towards the key development sectors of health, education, infrastructure and law and order,” said Aaron Batten, Country Economist in ADB’s Papua New Guinea Resident Mission.
The latest issue of the report, ADB’s review of the 14 economies of the Pacific prepared three times a year, notes that authorities will also need to reign in growing public expectations about the country’s ability to finance new projects with earnings from the PNG Liquefied Natural Gas Project, which are not expected to be large until after 2023.
The Monitor shows that although PNG recorded its tenth consecutive year of economic growth in 2011, the private sector remains small, with less than 10% of the working age population engaged in formal employment in private enterprises.
Employment growth can be encouraged by improving public infrastructure, reducing the perceived riskiness in PNG’s investment environment and encouraging competition, the report says.
PNG joined ADB in 1971. It is ADB's largest partner in the Pacific in terms of loans for public and private sector development.
ADB, based in Manila, is dedicated to reducing poverty in Asia and the Pacific through inclusive economic growth, environmentally sustainable growth and regional integration. Established in 1966, it is owned by 67 members – 48 from the region.
PNG has a dual economy comprising a formal, corporate-based sector and a large informal sector where subsistence farming accounts for the bulk of economic activity. The formal sector provides a narrow employment base, consisting of workers engaged in mineral production, a relatively small manufacturing sector, public sector employees and service industries including finance, construction, transportation and utilities. The majority of the population is engaged in the informal sector. Migration to major city centres in the past decade has contributed to urban unemployment and social problems.
In comparison to other Pacific island countries, Papua New Guinea is in a reasonably strong macro-economic position, with the savings it accrued during the commodity boom acting as a fiscal buffer against the global economic crisis (GEC), and its financial sector relatively sheltered from the impact of the global credit crunch.
In 2012, real GDP is projected to grow at 8 per cent - the 10th year of uninterrupted economic growth, Growth is supported by a recovery in mining output, and construction activity connected with the PNG LNG project. Inflationary pressures continue, although .monetary tightening in 2011 slowed inflation to an annualised rate of around 7 per cent at the end of the year, down from near 10 per cent in the second quarter of 2011. Risks to the economy include the possibility of 'resource curse' impacts from LNG and mineral sector growth, and the disruption to the economy should major resource projects not proceed as expected. PNG government revenues remain vulnerable to volatility in global prices for gold, copper and oil.
The ExxonMobil-led PNG LNG project represents an enormous growth opportunity for Papua New Guinea and according to some estimates could contribute to an increase of 15 to 20 per cent in GDP per annum. The project is a vertically-integrated upstream natural and liquefied gas development with large facilities in the Southern Highlands and Port Moresby. Australian companies Oil Search and Santos have a substantial share in the project, with many Australian contractors providing technical support during the construction phase.
Australia and Papua New Guinea have a Joint Understanding on effective and transparent governance of the project's revenue, and the Australian Government has provided a loan of US$350 million to support Australian business equity in the project. Australia is supporting the development of a trained workforce by providing qualifications through the A$149.5 million Australia Pacific Technical College (595 students have already graduated). Australia has worked closely to support the PNG government's plans to design and establish a sovereign wealth fund which will help to manage the LNG project's revenue for use by future generations. Australia will continue to respond to PNG government requests for assistance in implementing the sovereign wealth fund.
Negotiations have commenced on an economic cooperation treaty which will replace the Development Cooperation Treaty with an umbrella economic co-operation agreement. Such an agreement – covering development assistance, trade, business and investment cooperation – could reduce the emphasis on aid which has dominated the relationship since independence.
Bilateral economic and trade relationshipThe bilateral trade and investment relationship is strong. Two-way trade in 2010-11 was A$7 billion. Total Australian merchandise trade with PNG amounted to A$5.6 billion in 2010-11, with exports of A$2.2 billion and imports of A$3.4 billion. PNG is Australia's 15th largest merchandise export market. Australian exports to PNG are dominated by crude petroleum and civil engineering equipment. Australia is PNG's top export market, taking over 30 per cent of exports. Gold is the major PNG export to Australia.
The resource sector has traditionally been a focus of Australian investment in PNG, particularly gold mining and oil and gas. Key Australian companies in the mining and petroleum sector include Santos, Oil Search Ltd and Highlands Pacific Ltd.
Other key investors in Papua New Guinea include Australia-based companies Coca Cola Amatil, Campbell's Australia Pty Ltd and Nestlé Australia.
Opportunities continue to exist for Australian companies to supply PNG's resource sector, particularly the PNG LNG Project, which will continue to look for competitive services, prompt delivery and good after-sales service. Source. The Australian Government. Department of Foreign Affairs
In comparison to other Pacific island countries, Papua New Guinea is in a reasonably strong macro-economic position, with the savings it accrued during the commodity boom acting as a fiscal buffer against the global economic crisis (GEC), and its financial sector relatively sheltered from the impact of the global credit crunch.
In 2012, real GDP is projected to grow at 8 per cent - the 10th year of uninterrupted economic growth, Growth is supported by a recovery in mining output, and construction activity connected with the PNG LNG project. Inflationary pressures continue, although .monetary tightening in 2011 slowed inflation to an annualised rate of around 7 per cent at the end of the year, down from near 10 per cent in the second quarter of 2011. Risks to the economy include the possibility of 'resource curse' impacts from LNG and mineral sector growth, and the disruption to the economy should major resource projects not proceed as expected. PNG government revenues remain vulnerable to volatility in global prices for gold, copper and oil.
The ExxonMobil-led PNG LNG project represents an enormous growth opportunity for Papua New Guinea and according to some estimates could contribute to an increase of 15 to 20 per cent in GDP per annum. The project is a vertically-integrated upstream natural and liquefied gas development with large facilities in the Southern Highlands and Port Moresby. Australian companies Oil Search and Santos have a substantial share in the project, with many Australian contractors providing technical support during the construction phase.
Australia and Papua New Guinea have a Joint Understanding on effective and transparent governance of the project's revenue, and the Australian Government has provided a loan of US$350 million to support Australian business equity in the project. Australia is supporting the development of a trained workforce by providing qualifications through the A$149.5 million Australia Pacific Technical College (595 students have already graduated). Australia has worked closely to support the PNG government's plans to design and establish a sovereign wealth fund which will help to manage the LNG project's revenue for use by future generations. Australia will continue to respond to PNG government requests for assistance in implementing the sovereign wealth fund.
Negotiations have commenced on an economic cooperation treaty which will replace the Development Cooperation Treaty with an umbrella economic co-operation agreement. Such an agreement – covering development assistance, trade, business and investment cooperation – could reduce the emphasis on aid which has dominated the relationship since independence.
Bilateral economic and trade relationshipThe bilateral trade and investment relationship is strong. Two-way trade in 2010-11 was A$7 billion. Total Australian merchandise trade with PNG amounted to A$5.6 billion in 2010-11, with exports of A$2.2 billion and imports of A$3.4 billion. PNG is Australia's 15th largest merchandise export market. Australian exports to PNG are dominated by crude petroleum and civil engineering equipment. Australia is PNG's top export market, taking over 30 per cent of exports. Gold is the major PNG export to Australia.
The resource sector has traditionally been a focus of Australian investment in PNG, particularly gold mining and oil and gas. Key Australian companies in the mining and petroleum sector include Santos, Oil Search Ltd and Highlands Pacific Ltd.
Other key investors in Papua New Guinea include Australia-based companies Coca Cola Amatil, Campbell's Australia Pty Ltd and Nestlé Australia.
Opportunities continue to exist for Australian companies to supply PNG's resource sector, particularly the PNG LNG Project, which will continue to look for competitive services, prompt delivery and good after-sales service. Source. The Australian Government. Department of Foreign Affairs
