Investment compulsory: Bank

INVESTMENT from resource projects is a pre-requisite to medium-term economic growth in Papua New Guinea, according to the Kina Bank.
In its mid-year economic and fiscal outlook, the bank noted the International Monetary Fund’s estimate that the global economy would shrink by 4.9 per cent this year.
“PNG by comparison is expecting a relatively modest 2 per cent fall in real gross domestic product (GDP),” it said.
“Additional Covid-19-related expenditure was required and revenue losses were felt by the economy, which placed upward pressure on PNG’s debt-to-GDP ratio.
“Initially projected at 40.3 per cent of GDP, debt is expected to increase to 48.9 per cent at the end of 2020 with a forecast medium-term track of increasing debt-to-GDP in line with ongoing fiscal deficits.
“This 8.6 per cent increase can be compared to the 19.3 per cent increase in Australia’s debt-to GDP expected from 2020 to 2021, and the 32 per cent increase in Fiji’s within the same period.”
The bank noted that although an increasing debt-to-GDP track was not ideal, in the current circumstance of a recessed economy, any major withdrawal of fiscal support would be negative. “An increasing track is tolerable if there is a level of confidence that the resource deals that are currently under negotiation, which represent up to US$31billion (K105.94bn) in foreign direct investments, are agreed,” the bank stated.
“This will lead to further investment in the country creating a large multi-year stimulus that will ultimately add to the longer-term cash inflows for the country.
“The road to recovery post-Covid looks promising relative to some of PNG’s neighbours, with the distinguishing local positive feature being the large potential investments to be made.
“We are quietly confident that the Government and project developers will confirm the US$13billion (K44.42bn) Papua LNG project late this year or early next year, with some progress being made in discussions.”