Papua New Guinea Economic Update, January 2019 : Slower Growth, Better Prospects
The PNG economy has become increasingly concentrated in petroleum-and-gas-related activities since 2014, raising its vulnerability to external shocks, including commodity-price shocks and natural disasters. In recent months, however, the authoritie...
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| Format: | Report |
| Language: | English |
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World Bank, Washington, DC
2019
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| Online Access: | http://documents.worldbank.org/curated/en/597161549016416469/Papua-New-Guinea-Economic-Update-Slower-Growth-Better-Prospects http://hdl.handle.net/10986/31245 |
| Summary: | The PNG economy has become increasingly
concentrated in petroleum-and-gas-related activities since
2014, raising its vulnerability to external shocks,
including commodity-price shocks and natural disasters. In
recent months, however, the authorities have taken decisive
action to promote greater diversification of the economy.
Ongoing reforms to strengthen the monetary and exchange rate
policy and framework are expected to improve business
confidence and increase private investment and growth in the
non-resource economy. Measures include addressing the FX
shortage, managing the liquidity effects of the use of FX to
clear the FX orders backlog, working on greater exchange
rate flexibility, considering options for strengthening the
interest-rate transmission mechanism, and enhancing modeling
capacity in the Bank of Papua New Guinea (BPNG). In this
context, the government and the BPNG will need to ensure
regular, transparent, and consistent communication with all
stakeholders to minimize the risk of confusion and market
disruption. Papua New Guinea’s medium-term economic outlook
is relatively sanguine, underpinned by further large-scale
resource projects. Real GDP growth is forecast to rebound to
about 5 percent in 2019, primarily driven by a return to
full annual production in the extractive sector. In the
years after, growth is estimated to ease to its current
potential of 3-4 percent a year, until planned investments
in LNG and mining projects kick in. Future large-scale
investment in the resource sector appears likely, with plans
to double LNG production and develop new gold, copper, and
silver reserves. With increased FX inflows into the economy,
the current pressure on the exchange rate may reverse,
adversely affecting the competitiveness of the non-resource
economy. To facilitate broad-based, inclusive, and
sustainable development, the government will need to focus
more on investing in human capital and strengthening the
business environment to spur private sector development, as
elaborated in the World Bank’s Systematic Country Diagnostic
and summarized in the special focus section of this report. |
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