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.”

One thought on “Investment compulsory: Bank

  • Agree. While the government is caution to strike a win-win deal with its extractive industry partners, it must know that the prolongivity will put more stressed on the debt level. There is less likely of more funding from IMF, ADB etc. when projects are stalled and not streaming any revenue. Besides, these funders have other countries to worry about. These financial institutions do not just give money, they assess money can be paid back to them using some measuring mechanics. PNG is measured with its resources, especially the extractive industries. While the global economy is shrinking, and other countries are struggling, PNG must take this opportunity to culminating negotiations and open -up the mines and launch the new ones to take market position and quickly pay- off its debt. Look East (China) for export taking advantage of its inward policy.

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