Economy
From The Report: Papua New Guinea 2014
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Buoyed by high commodity export revenues and, since 2009 the development of the Papua New Guinea Liquefied Natural Gas project, GDP growth has remained above 6% since 2007, reaching 8.9% in 2011 and 8.1% in 2012. A heavyweight among the Pacific Island states, PNG, together with Fiji, accounted for 80% of regional GDP in 2013, as per UN figures. Agriculture, fisheries and forestry made up the largest part of the economy at 29% in 2012, while the construction sector accounted for 20% of GDP and the mining, oil and extractive industries were responsible for 15%. For investors, any project worth more than $50m could qualify for a public-private partnership (PPP) structure; however, the government has been emphasising the potential for PPPs in the power generation and transport sectors. While attracting private investment will depend on the successful implementation of public sector reforms, the authorities will need to strike a balance between encouraging investment and the need to protect domestic enterprise. This chapter contains interviews with James Marape, Minister of Finance; Charles Abel, Minister for National Planning; Wasantha Kumarasiri, Managing Director, Independent Public Business Corporation; and Geoff Cundle, Managing Director, Steamships Trading Company.

Articles from this Chapter

Overview

Creating the foundations for broader-based economic development
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Although economic expansion slowed in 2013 as construction on ExxonMobil’s $19bn Papua New Guinea liquefied natural gas (LNG) project wound down – albeit from 9.1% in 2012 to a still healthy 5.2% in 2013, according to the Bank of PNG (BPNG) – the country stands on the cusp of rapid resource-led growth. Despite ranking as the world’s 115th-largest economy with GDP of PGK34.6bn ($14.1bn) in 2013, according to the Department of Treasury, the economy has achieved 5.8% real annual growth in the…

Interview

OBG talks to James Marape, Minister of Finance
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Interview:James Marape What were the factors behind Papua New Guinea’s better than expected economic performance in 2013? JAMES MARAPE: One of our greatest achievements has been to achieve macroeconomic stability over the last 10 years. It was no small task for a country like PNG, which is still over-reliant on imports and exposed to commodity price fluctuations on the international market. Yet when you look at the numbers, there are reasons to be optimistic. Our foreign exchange reserves…

Analysis

Ups and downs: The kina has experienced notable volatility of late
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Following three years of sharp appreciation, Papua New Guinea’s currency, the kina, reversed course from late 2012 as construction on the PNG liquefied natural gas (LNG) project began to taper and commodity export revenues contracted. Fiscal spending, largely financed in kina, continued to drive demand for imports and compounded the currency’s fall in 2013. The Bank of PNG (BPNG) has used open-market operations to cushion the fall, although its impact on imported inflation is expected to trickle…

Interview

OBG talks to Charles Abel, Minister for National Planning
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Interview:Charles Abel What is being done to help spur economic growth? CHARLES ABEL: One of the most important decisions in 2013 was the introduction of a deficit budget in order to stimulate the economy, as we predicted an economic slowdown due to the completion of the liquefied natural gas project. It was also a deliberate choice to set an investment path for the next five years, with further investments in infrastructure, health and education. Luckily the economy grew faster than we had…

Interview

OBG talks to Wasantha Kumarasiri, Managing Director, Independent Public Business Corporation (IPBC)
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Interview:Wasantha Kumarasiri What will be the IPBC’s position within the restructuring of state-owned assets in Papua New Guinea through the Kumul corporatisations? WASANTHA KUMARASIRI: Whereas mining and petroleum assets will go under the respective Kumul trusts, the other state-owned assets – such as PNG Power, PNG Ports and Air Niugini – will come under the IPBC, which will change its name to Kumul Consolidated Holdings. This transition needs further refinement and won’t be implemented…

Analysis

Preserving stability and financing the deficit
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By using an expansionary fiscal policy to sustain aggregate demand amid tapering of the Papua New Guinea liquefied natural gas (LNG) construction phase, the government is relying on public markets to finance its deficit. On the central bank’s advice, the Department of Treasury has rebalanced its borrowing profile towards local-currency Treasury bill (T-bill) and inscribed stock (government bonds) in recent years. While the medium-term debt strategy (MTDS) provides a fiscal anchor for the next…

Interview

OBG talks to Geoff Cundle, Managing Director, Steamships Trading Company
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Interview:Geoff Cundle Is it time for diversified conglomerates in Papua New Guinea (PNG) to expand or consolidate? GEOFF CUNDLE: Over the next couple of years, we expect a deceleration in most economic activities as the country feels the pinch from completion of the PNG liquefied natural gas (LNG) construction phase. The export of both hard and soft commodities, which has been growing on the back of China’s exceptional demand, is also expected to slow. The corporate landscape will, in…

Analysis

Avoiding the Dutch disease and directing funds towards long-term goals
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On the cusp of a major resource windfall over the next decade, the government is establishing the means to manage such inflows in Papua New Guinea’s small and open economy. Like 58 other countries, PNG is in the process of establishing a sovereign wealth fund (SWF) just as liquefied natural gas (LNG) exports begin to flow from the PNG LNG project. Although state revenues from LNG will be lower during the cost-recovery period, both the Bank of PNG (BPNG) and the Treasury are eager to establish a…

Analysis

Towards timely execution: Improving spending of budgeted allocations
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While rapid increases in government spending come at the right time in Papua New Guinea’s economic cycle, the key will be the timely execution of budgeted projects. Affected by low disbursement levels, particularly for its capital expenditure, the government is enacting key reforms to streamline projects and strengthen revenue collection. As the Asian Development Bank (ADB) noted in December 2013, “The real challenge for the next year will be one of implementation and delivery.” Expansion…

Analysis

The security industry is changing to address the threats to business
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The Pacific Islands’ largest economy, PNG also poses the largest security challenges to doing business. Security firms operating locally estimate the cost of doing business in PNG is some 30% higher than neighbouring markets, excluding property, but the economic cost of insecurity is far higher. “A significant improvement in law and order (…) would help create a vibrant private sector and more job opportunities, driven by the expansion of small and medium-sized enterprises (SMEs),” the IMF…