THE World Bank says Papua New Guinea’s fiscal stress and limited foreign currency inflows is expected to continue given the expected low commodity price in 2017 and 2018.
According to the bank’s October 2017 edition of the “East Asia and Pacific Economic Update”, risks in the near term are weighted to the downside. “Fiscal consolidation, while necessary in the face of lower commodity prices, runs the risk of further moderating growth while the foreign exchange shortage would continue to dampen necessary imports. There is a number of challenges both in the near-term and the medium to longer-term.
“Firstly, maintaining macroeconomic stability and government’s ability to maintain a prudent fiscal stance and ensure public service delivery (particularly infrastructure) in the face of limited revenue receipts.
“Second, there is a growing risk that the longer the FX shortage continue, a more active shadow FX market may emerge.”
It said possible upside risks included:
- New major resource project(s) starting earlier than expected; and,
- Fiscal position improves with tax administration and policy measures are more successful than expected.
The report said the Government in late August released its 100-day economic stimulus plan to address the fiscal stress and structural measures to strengthen growth.
“Notwithstanding the higher growth in the agriculture and mining sector in the first half of this year owing to the end of the drought last year, GDP growth was projected to remain sluggish due to the ongoing weakness in commodity prices, further fiscal consolidation and a shortage of foreign currency coupled with an overvaluation of the Kina.”