IMF: PNG having ‘weak economic growth’

A RANGE of factors including adverse weather conditions have been accredited for the slow economic growth last year, according to a report by the International Monetary Fund.
The 2017 staff report noted the need for sincere government action to avoid a financial crisis.
“Papua New Guinea is experiencing weak economic growth resulting from falls in major commodity export prices, the completion of the huge PNG LNG pipeline project, and a severe drought,” the report said.
“These developments have led to fiscal deficits and increasing public debt as government revenues have declined. They have also led to foreign exchange shortages and import compression, partly owing to large private debt service outflows related to the LNG project.
“A credible government commitment to substantial fiscal consolidation through the medium term could mitigate the risk that financing of the fiscal deficit could become extremely difficult, leading to a fiscal and financial crisis. In such a crisis, a severe fiscal contraction would be likely and monetary and exchange policies would also be at risk.”
The report recommends:

• The 2017 supplementary Budget took an important step forward in reducing expenditures, but significant additional consolidation is needed to bring spending in line with a realistic assessment of revenues that can be raised in the next few years, and begin to reverse the recent increases in the debt-to-GDP ratio.
• To support higher and more inclusive growth, PNG should mobilise additional revenues over the medium term to finance essential infrastructure, education and healthcare.
• A gradual move towards a greater exchange rate flexibility and elimination of overvaluation of the kina should go hand-in-hand with the adoption of a credible fiscal consolidation plan and medium-term fiscal strategy.