The World Bank released its February 2019 edition of the PNG Economic Update: Slower Growth, Better Prospects which outlined Papua New Guinea’s economic situation and medium-term development prospects.
|PNG on way to economic recovery post 2018 earthquake|
|The February 2018 earthquake adversely affected production in the extractive sector, dragging down economic growth in 2018|
The report stated that the country’s medium-term economic are approved, and that real GDP growth was forecast to rebound this year as major mineral and petroleum export projects return to full production following the 2018 earthquake.
The report further found that jobs in the extractives sector continued to grow in 2018, while overall employment in other sectors fell.
The report, second in a series, was launched in Port Moresby, providing an in-depth analysis of PNG’s economy, together with a special focus on developing PNG’s private sector as an engine of inclusive growth and jobs creation.
“Papua New Guinea has dealt with numerous challenges over the past year, not least the February 2018 earthquake that had a devastating impact on so many lives and the economy,” said Patricia Veevers-Carter, World Bank Country Manager for Papua New Guinea.
“To reduce the vulnerability of the economy to natural disasters and commodity price shocks, the government should continue to facilitate broad-based, inclusive, and sustainable development by focusing on building PNG’s human capital – through quality education and health investments – and strengthening the business environment to drive increased private sector development.”
Preliminary estimates suggest that real GDP growth slowed from 2.8 per cent in 2017 to 0.3 per cent in 2018, following a contraction in the extractive sector due to the February 2018 earthquake. This stands in contrast with the growth projection of 2.5 per cent for 2018 made prior to the earthquake.
Real GDP growth is forecast to rebound to 5.1 per cent in 2019, primarily driven by an expected return to full annual production in the extractives sector. Non-extractive sector activity is expected to continue expanding, with better investor confidence supported by improved access to foreign exchange (FX). In the coming years, growth is estimated to hover at about three to four percent per year, until planned investments in new gas and mining projects kick in and improve PNG’s growth potential.
Ongoing reforms to strengthen PNG’s monetary and exchange rate policies are expected to improve business confidence and increase private investment and growth in PNG’s non-resource economy. Measures include addressing the shortage of FX, managing the liquidity effects of the use of FX to clear a backlog of orders, working on greater exchange rate flexibility, considering options for strengthening the interest-rate transmission mechanism, and enhancing modelling capacity in the central bank.
The Papua New Guinea Economic Update also includes an in-depth analysis on the need for more private sector development to meet the employment needs of PNG’s rapidly-growing working-age population, and ensuring more inclusive economic growth, including through more employment opportunities for women.
“Reforms aimed at improving access to infrastructure, foreign exchange, finance, land and skilled labor are required to ease constraints on PNG’s private sector development,” said Ilyas Sarsenov, World Bank Senior Country Economist for Papua New Guinea.
“Setting the non-resource sector on a more robust trajectory will be essential to creating enough good jobs to absorb the large number of young job-seekers entering the labor force in the coming decades, particularly in the agriculture, fisheries, and tourism sectors.”
As quoted in local media, Chamber Vice President Mr Richard Kassman OBE said the World Bank’s forecast of a rebound in the PNG’s economy was welcome news for the country and the business sector, particularly at a time when the country continues to face challenges with its foreign reserve.
“The World Bank Report demonstrates that the mining and petroleum sector remain absolutely critical for PNG jobs, the economy, and all the social benefits that flow from this,” he said.
“Timely approval of the proposed major new projects is essential to getting these projects up and running, and the benefits flowing to the people.”
The PNG Government is currently considering a number of projects, including the Papua LNG and P’nyang gas development, which jointly will more than double current liquefied natural gas (LNG) production capacity to around 18 million tonnes annually in the next five years; production and export of condensate and liquefied petroleum gas (LPG) is projected to commence in 2021 from the Pasca field, PNG’s first ofshore development in the Gulf of Papua; and the world-class Wafi-Golpu copper-gold project in Morobe Province which, if approved, an initial capital investment is expected of approximately K9.1 billion, with total capital expenditure expected to be around K17.4 billion (US$5.4 billion) over the estimated 28-year life of the mine.
*Article published in the July-September 2019 issue of The Asia Miner