ADB: Economy strong

By MALUM NALU
PAPUA New Guinea’s (PNG) economy remains strong, with growth projected at 7.5% for this year, according the latest edition of the Pacific Economic Monitor, issued yesterday by the Asian Development Bank (ADB).
This is against a backdrop of slowing world economic growth, eurozone instability, and declining commodity demand from China,
According to the report, this growth would be supported by construction of the US$16 billion LNG facility, which is now entering its peak development phase.
It said growth would be further supported by high government spending and commodity prices, which remain high by historical standards despite recent declines
The Pacific Economic Monitor, a review of the 14 economies of the Pacific prepared three times a year, says business conditions are also being boosted by a recent decline in price growth for the PNG economy, with the high value of the Kina exchange rate helping to bring down inflation to 4% on an annualised basis in the March quarter of this year.
The ADB report said that although business confidence and conditions remain solid, global instability is beginning to have an impact on commodity prices and government finances, with the next few years likely to be a more austere period for PNG.
Prices of PNG’s two largest export and government revenue earners – gold and copper – fell below this year’s budget projections during the first half of the year, placing increasing pressure on the government budget.
The Pacific Economic Monitor also notes that international prices of agriculture products, such as logs, cocoa, coffee, palm oil and copra, which together comprise 20% of PNG’s exports, also fell during the first half of this year.
Lower prices for these commodities, along with the high value of the kina exchange rate, would have a significant impact on incomes for PNG’s largely rural population.
“To help manage these fiscal pressures, medium-term expenditures will need to focus on rehabilitating existing service delivery infrastructure, rather than creating new assets that may further undermine the country’s ability to fund recurrent maintenance,” Aaron Batten, country economist in ADB’s PNG resident mission, said.
“Strengthening revenue compliance and reviewing resource sector taxation arrangements will help boost fiscal stability over the longer term.”
The ADB highlighted in its outlook for PNG:
n A survey of PNG’s top 100 chief executive officers (CEOs) found that 90% expect company profits to be higher this year than last year, with none expecting a decline;
n Rising firm profitability, combined with constraints on local investment, have led to a dramatic increase in offshore investment since PNG’s commodity boom began in 2002; and
n Inflation is expected to decline to 6.5% this year as the stronger kina translates into lower prices for imported goods.