Future brighter despite property market stress

Commercial and residential property markets in Port Moresby and Lae showed signs of stress over the past 12 months, according to Bank South Pacific.
The bank’s Pacific Economic & Market Insight for June Quarter 2018 economic said economic activity in the country has slowed down over the last six months.
“Despite the short-term slow-down, the medium and long-term prospects look positive in light of the major LNG and mining development projects in the pipeline,” said general manager, treasury, Rohan George.
“BSP expects GDP growth of around 1 per cent in 2018, in light of the impact of Highlands’ earthquake and the NSO downgrade to 2015 GDP estimate from 10.5 per cent to 5.3 per cent.”
Headline inflation eased to 4.5 per cent in the Q1 2018, compared to 4.7 per cent in Q4 2017.
Bank of PNG reported that all expenditure groups had relatively lower price increases than the fourth quarter of 2017.
The BSP publication also noted that the average price of fuel in Port Moresby had increased by 14 per cent (40 toea) over the seven months to July and by 33 per cent (84 toea) over the last 12-months.
BSP expects inflation to increase to around 5 per cent in 2018, given the price increases over the year, continued depreciation of PGK, and high Apec spending.
The report comments on the preliminary estimates of the fiscal operations of the national Government over the three months to March 2018.
It notes that the Government’s total revenue, including foreign grants, was K2.4 billion, while total expenditure was K2.7 billion over the three months of this year.
Financing of the K2 billion budget deficit projected for 2018 will be challenging, despite re-investment by banks and institutional investors in the fixed interest market.
In light of these circumstances, BSP Group chief executive Robin Fleming has proposed that the Government considers issuing sovereign bonds to attract more international investors.
Fleming said: “Sovereign bonds would lengthen the debt profile of the government, diversifying the government’s risk profile and supplying foreign currency to the FX market to help satisfy demand.”
The BSP Pacific Economic & Market Insight also reports that commodity prices continued their upward trend, with the World Bank’s energy price index and non-energy index rising by 20.9 per cent and 6.3 per cent respectively over the five months to May 2018.
Analysts expect prices to end 2018 on a higher note.
Prices for most of PNG’s export commodities are expected to rise in 2018, which will be positive for the economy.
Growth in the Pacific region is expected to slow to 2.2 per cent in 2018, compared to 2.9 per cent in 2017.
Visitor arrivals grew over the 10-years in the region, with Melanesian countries demonstrating significant growth (albeit off a small base).
The Australian government has allocated 30 per cent of its total aid budget to the region, including A$200 million (K477 million) for the high-speed communication cables for PNG and the Solomon Islands.