Growth to slow next year

By MALUM NALU
PAPUA New Guinea’s extraordinary growth will decline next year, according to ANZ’s Pacific Quarterly economic update released yesterday.
It said the growth should continue through this year, but would decline next year as the LNG project construction phase winded down.
“Government development and infrastructure projects, which are on hold now so as not to compete for resources with LNG-related activities, should ramp up next year and provide some offset,” the report said.
It highlighted the year-long political power struggle ended peacefully in early August with the election of a new prime minister.
“Growth remains strong driven by the LNG project and public spending, although inflation has surprisingly declined,” the report said.
It highlighted:
n    Peter O’Neill of the People’s National Congress Party was elected prime minister early last month, ending a year-long power struggle.
His main rival, Sir Michael Somare, threw his support behind O’Neill last month;
n    Trade values in first quarter declined sharply on price effects.
Exports fell 37.7% year-on-year led by minerals while imports fell 38.3%;
n    Private sector employment growth remained steady in first quarter, rising 1.1%, marginally higher than the previous quarter.
LNG-related sectors saw employment rise, while agriculture, transport and wholesale-retail fell.
n    Inflation continues to decline, falling to 4% year-on-year in the first quarter from 6.9% in the fourth quarter last year.
This reflected a strengthening of the kina, which lowers import prices, a decline in global food prices, and the government’s tuition-free education policy;
n    The central bank remains concerned about banking sector liquidity, which remains high. This is despite inflation remaining in check so far. The liquidity stems from unsterilised foreign currency inflows;
n    Credit growth picked up in first quarter, rising by K350.6 million, fully accounted for by the private sector.
This was three times the rate of the previous quarter;
n    Official reserve levels eased in the second quarter, but remained comfortable. At end-June, reserves totalled the equivalent of US$4.9 billion or nearly 11 months of imports; and
n    The fiscal balance in the first quarter was broadly unchanged from last year, posting a deficit of 0.3% of gross domestic product.
However, lower commodity prices run the risk of reducing tax revenue.