PNG growth to slow in 2013

 By MALUM NALU

THE Asian Development Bank projects Papua New Guinea’s economic growth to ease to 5.5% this year, as the scaling down of LNG project construction reduces construction and transport activities and affecting other sectors such as retail and wholesale trade, according to ADB’s Pacific Economic Monitor released yesterday.

The report said modera­ting prices of key agricultural exports and a strong kina were expected to depress rural incomes and consumption. 

“Continued declines in oil production, due to depletion of reserves in major fields, will likely weigh down growth this year,” it said.

“Increasing mining output will partly offset the declines in other sectors, as production bottlenecks are addressed at key gold and copper mines and production at the new Ramu nickel and cobalt mine ramps up.  

“The onset of LNG exports in late 2014 will boost mineral output, with overall growth in the sector expected to reach more than 60%. 

“ADB projects the economy will grow by 6% next year. 

“The national budget provides for large budget deficits in 2013 and 2014.

“The government plans significant increases in funding for infrastructure to boost long-term growth. 

“However, the extent to which this supports economic activity will hinge on how much private investment is crowded out by government spending.  

“Inflation is projected to reach 6.5% this year and 7.5% next year.

“High government expenditures are likely to stoke price growth for domestically produced goods and services. 

“Expected depreciation of the kina is likely to lead to resurgent imported inflation. 

“Downward pressures on prices will largely come from the winding down of LNG construction as shortages of skilled labour and private sector capacity constraints subside. 

“Accompanying declines in capital imports are also likely to ease port congestion.” 

The ADB said although large budget deficits were planned for this year and next year, public debt was expected to remain low by historical standards – peaking at around 35% of GDP next year. 

It said PNG needed to ensure that higher spending did not undermine the fiscal buffers that have allowed the country to withstand recent economic shocks such as the 2008 global financial and economic crisis.