The National, Friday January 8th, 2016
THE International Monetary Fund says Papua New Guinea is facing strong headwinds from lower global commodity prices.
The IMF report says while the commencement of the liquefied natural gas production has boosted overall Gross Domestic Product growth in 2014 and 2015, the slow growth of the non-resource sector calls for a renewed policy focus on inclusive growth in the post-LNG construction period.
It says falling commodity prices and temporary suspension of a large mining operation have lowered government revenue prospects substantially, reducing the country’s fiscal space and leading to an increase in government debt, which is likely to exceed the legislated targets in 2015.
“With LNG production and exports now coming on stream, resource sector growth is projected to expand strongly in 2015.
“But spillovers to the rest of the economy may be limited. Inflation remains contained, as the effects of the kina depreciation are offset by lower oil and commodity prices.
“Meanwhile, the current account balance is expected to turn into a surplus as the LNG plant has its first full year of operation.
“Nevertheless, lower commodity prices and a reduction in LNG project-related capital inflows have led to depreciation pressure on the kina since mid-2013.
“In early June 2014, the Bank of PNG introduced measures to require authorised dealers to transact with their customers within a trading band of 150 basis-points around the official (interbank) exchange rate.
“This move caused a large de facto currency appreciation. Since then, the kina has depreciated vis-à-vis the US dollar.
Risks to the outlook are increasingly skewed to the downside.