‘Economy contracted by 3.9pc’

PAPUA New Guinea’s economy contracted by 3.9 per cent last year due to the Coronavirus (Covid-19) related restrictions and weaker demand, according to the World Bank.
The bank in its recent East Asia and Pacific Economic Update report, noted that the fiscal deficit widened to 8.9 per cent of gross domestic product (GDP), with revenue underperformance rather than a sharp increase in spending, being the main driver.
“Consequently, the debt-to-GDP ratio surged to an estimated 49.2 per cent.
To accommodate temporary fiscal imbalances caused by the Covid-19 pandemic, the amended Fiscal Responsibility Act has temporarily (for a five-year period) increased the public debt ceiling from 45 to 60 per cent of GDP, targeting a return to below 40 per cent of GDP within 10 years.
This year, economic recovery has been dragged by falling gold and LNG production and the reintroduction of Covid-19 restrictions.
In the first half of this year, gold output fell in the Lihir, Simberi and Hidden Valley mines, while Porgera mine remained closed.
Scheduled maintenance at the PNG LNG project led to lower gas production.
Meanwhile, new waves of Covid-19 infections (of the 18,000 total cases, 95 per cent have been registered since February), slow vaccination roll-out (only 0.4 per cent fully vaccinated) and related restrictions have impacted mobility, dampening activity in the non-resource economy.
Inflation decelerated to 3.3 per cent year-on-year in mid-2021.
The Bank of Papua New Guinea kept the interest rate at 3 per cent.
The impact of Covid-19 on livelihoods of the poor and vulnerable households was severe, according to three rounds of a World Bank mobile phone survey conducted in June 2020, December 2020 and May 2021.
More than one quarter of those working last January were estimated to have stopped working by last December.
The largest employment losses were in the agricultural sector.
Despite some recovery in the second half of 2020, there remained a 28 per cent loss in total employment between January and December 2020.
Preliminary analysis from the May survey showed that employment did not change significantly since the beginning of this year.
While most households in the May survey reported no change in income since January, more than a quarter reported that their income had either reduced or stopped entirely.
Most households were anxious about their finances in the next month.
Overall, the survey results are consistent with a stall in economic recovery.