The National, Tuesday 10th July, 2012
By MALUM NALU
THE international commodity prices of PNG’s major exports are generally trending downward, according to Bank of PNG Governor Loi Bakani.
He said in BPNG’s March Quarterly Economic Bulletin that although commodity prices rebounded in the first quarter of this year, it remained below the 2010 levels.
“As of May 25, 2012, the price of gold fell to US$1,572.4 per ounce, crude oil price dropped to US$104.09 per barrel, and copper declined to US$7,711.60 per tonne,” Bakani said.
“The prices of major agricultural export commodities also declined up to May 2012 with coffee at 186.38 US cents per pound, cocoa at US$1,422.64, copra oil at US$1,030 and palm oil at US$1,015 per tonne.
“The decline in commodity prices meant lower export receipts and foreign exchange in the market.
“In kina terms, the export receipts were also lower because of the appreciation of the kina against the US dollar.
“Exporters of agricultural commodities have raised concerns that lower kina prices and the appreciation of the kina exchange rate have affected their export earnings.
“At the same time, the increase in their operating costs has reduced their bottom-line profits and resulted in the scaling down of some of their operations.”
Bakani said the downward trend in commodity prices had also led to narrowing of the trade account surplus in the balance of payments and reduced mineral tax revenue received by the government.
Given the lower tax revenues and increased spending in the lead up to and during the national elections, he has warned the government to reduce the phase of spending and not to resort to domestic financing for funding of any excess expenditure.
He cautioned that if the level of expenditure was not controlled there would be serious consequences on the budget outcome for the year, and increase in government debt.
“It will be necessary for the new government to immediately review the 2012 national budget and make necessary adjustments to ensure a balanced budget is achieved for the year,” Bakani said.
He said PNG would continue to experience high economic growth this year due to significant domestic activities associated with the on-going construction of the PNG-LNG project and a general pick-up in private sector investments.
“These developments have benefited some sectors of the economy mainly the building and construction, manufacturing, transportation and commerce sectors, including hotel services and local food production,” he said.
“It can be expected that the LNG project construction phase will peak this year, and start to ease next year as construction winds down to completion.”
Bakani has continuously warned the government not to compete with the private sector during the construction phase of the LNG project because it would result in high prices, but to plan for major development and infrastructure projects to be implemented after the end of the construction phase.
“That would allow the government to engage the surplus labour and machineries released by the LNG project at lower prices,” he said.