WB: Economy seen to increase by 10%

Business, Normal

The National, Wednesday 23rd November 2011

THE World Bank says PNG’s economic growth is expected to increase by almost 10%, but Central Bank Governor Loi Bakani told a recent meeting in the US that it was likely to hit a lower end of the double-digit mark.
While the growth may look good, that comes with risks like high inflation, it said.
With PNG “well off track” with the millennium development goals, there was likelihood of increase crime, adding extra cost-burdens on businesses.
The continued uncertainty on the global economic scene could reverse price of commodities and resource projects planned for development in the near future could be delayed. (See story in Nation news pages).
 “Papua New Guinea’s economy strengthened further over the first-half of this year, buoyed by a sequence of positive external developments adding to the momentum in the domestic economy.
“Expectations for GDP growth this year have been raised to near 10%.
“This will be the eighth consecutive year of expansion, the longest period of economic growth in PNG’s history as an independent nation,” the report said.
Titled Navigating Turbulance, Sustaining Growth, the report said PNG’s new government’s presentation focused on improving the quality of governance and use of public resources, raising the government’s effectiveness at providing public services and ensuring all Papua New Guineans benefit from the country’s current resources boom.
It said the new government’s headline policy announcement was tuition-fee free education through to year 10, starting next year.
The government has also affirmed its commitment to maintaining macro-fiscal stability, through the introduction of an Organic Law (constitutional amendment) establishing a sovereign wealth fund to manage the government’s growing natural resource revenues.
Three factors underlined the strength of PNG’s economy:
l    Foreign-investment funded construction projects;
l    Record prices for PNG’s exports, and strong government; and
l    Spending financed by higher-than-expected revenues.
The current foreign direct investment-funded construction projects were approaching their peak of activity, although others are in the pipeline.
These investment projects were adding to the country’s supply capacity, in sectors ranging from accommodation, through IT and transport and telecommunications to catering.
Meanwhile, up to the third quarter of this year, prices of PNG’s cash crop exports like coffee, copra and palm oil returned to or exceeded the highs of mid-2008.
“Exceptional global gold and copper prices lifted the value of PNG’s minerals exports, with the strength in prices enough to make up for ongoing delays or production problems at various mines,” it said.
The sectors of the economy most directly impacted by these factors – particularly construction, road, air and sea transport, storage and communications –  were expected to expand by as much as 20% this year.
“This strength is spilling into other sectors in the economy (for instance, retail trade), thus creating a broaderdynamic.
“Even agriculture and fishery production are expected to grow by more than 4% this year as producers respond to higher cash crop prices.
“It is also raising demand for workers, with growth in employment in the formal sector accelerating to over 7% in the year to second half of this year,” the WB said, quoting Bank of PNG’s Business Liaison Survey.
 “The strength in export values and turnover in the economy has raised government revenues.
“Government revenues are anticipated to exceed the budgeted amount by around 6.5%, which would imply an increase of about 20% over the estimated actuals for last year.
“Most of the unexpected strength, in fact, reflects the conservative assumptions for minerals prices in the 2011 budget, which have been exceeded,” it said.
The report said the new government had used its additional revenues to fund its supplementary budget for this year.
“The largest new spending item was funding for the tuition-fee free education commitment.
“More resources were also allocated to road reconstruction and health,” the report said.