Papua New Guinea’s real gross domestic product averaged around 2 per cent per annum in 2016 and 2017.
This is a significant step down from the previous two years when growth averaged over 10 per cent thanks mostly to the sizeable liquefied natural gas (LNG) exports. These benefits have now largely faded.
"Papua New Guinea’s longer-term prospects are more encouraging.”
Recently released ANZ research expects growth to remain subdued in 2018 and 2019 as the benefits of the LNG expansion diminishes and as non-mining sectors struggle owing to an overvalued currency and foreign exchange shortages.
Infrastructure investment associated with the upcoming APEC meeting and higher agriculture output should be the main drivers of activity in the short term.
The national budget is in deficit with debt already at 32 per cent of gross domestic product (just 3 per cent below the self-imposed limit of 35 per cent) and the government is limited in its ability to support the economy.
However, PNG’s longer-term prospects are more encouraging as it would appear to be on the cusp of a ‘super cycle’ in resources investment, particularly in gas, gold and copper projects.
The challenge for the government and business is to manage the next upturn so that a boom-bust cycle is minimised.
The challenge for the government and business is to manage the next upturn so that a boom-bust cycle is minimised.
Meanwhile, the Kina remains an overvalued currency and better macro balance could be achieved if faster depreciation occurred.
The currency’s fair value on our estimate is around $US0.23-0.25.
At this level, the Kina would likely remove uncertainty in the foreign exchange market, add liquidity and help clear the backlog of import orders, maximise import substitution and assist Kina-exposed industries including agriculture and mining.
Dr Kishti Sen is an international economist at ANZ
The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.
11 Aug 2015
27 Apr 2015