PAPUA New Guinea looks poised to outperform many emerging market economies in Asia in the near term, according to the Australia and New Zealand Banking Group (ANZ).
The bank said growth had remained relatively resilient despite the global economic and financial crisis and public finances continued to be run prudently.
However, the external sector has taken a hit from the crisis and high credit growth continues to fuel inflation.
ANZ has warned that while public revenue and dividends from the liquefied natural gas (LNG) project would be large once the project is complete, these funds would need to be managed and spent prudently and in a transparent manner.
Paul Gruenwald, ANZ chief economist for Asia, said expectations of these flows were already showing up as demand pressure grew.
“By wisely managing the windfall from the LNG project would help to permanently diversify gross domestic product (GDP) growth, helping and addressing longstanding development needs,” Mr Gruenwald said.
In his discussions on the outlook for emerging Asia and PNG, Mr Gruenwald told a Lae Chamber of Commerce and Industry breakfast last week that despite the global economic and financial crisis, GDP growth had remained solid, falling only a few percentage points, and should come in around 5% this year.
This, he said, reflected in a large part the composition of output, most of which was orientated toward domestic activities.
He also said the kina had appreciated sharply against the Australian dollar as the latter fell early in the crisis, but had been much more stable against the US currency and in trade-weighted terms, appeared close to its decade average.
Mr Gruenwald also told the breakfast meeting that the overall budget balance remained near zero, as public sector debt-to-GDP level continued to trend downward.
This prudent fiscal policy meant that public sector risks were being lowered and the fiscal path appeared sustainable.
Mr Gruenwald also said that while trade had contracted sharply since the onset of the crisis, with both volumes and prices falling, the current account has remained in surplus and as a result, external vulnerability was low.
He was until recently, head of the Asia regional studies unit at the International Monetary Fund (IMF) and its representative to Hong Kong and Korea, and deputy chief of the IMF’s China division.