World Bank’s positive outlook for PNG’s economy

News that matters in Papua New Guinea

World Bank’s positive outlook for PNG’s economy

PORT MORESBY: Papua New Guinea (PNG)’s 8th prime minister James Marape says the people and country are heading for exciting (economic) times in the 2020s because his Government is giving priority to spurring business growth.

He said this at the 2nd Speaker’s Investment Summit on June 19, 2019.

Marape’s vision and focus for growing PNG’s economy appear to be in tandem with the World Bank’s 2019 report on PNG’s economic outlook.

The report said boosting the development of the private sector will be essential to meeting the employment needs of the growing working-age population and ensuring more inclusive economic growth.

It also stressed that close collaboration with local and foreign firms (as well as potential new partners) will be crucial in helping authorities identify the most significant constraints and opportunities, and thus where reform efforts should be targeted to achieve the greatest impact.

PNG Cyber Monitor reproduces below details of PNG’s economic focus and outlook as published by The National:

Marape: Exciting times next year for people and country

June 26, 2019The NationalMain Stories

 Article Views: 2

Prime Minister James Marape says Papua New Guinea (PNG) is heading for “exciting (economic) times in the 2020s.
The National’s MALUM NALU was at the 2nd Speaker’s Investment Summit last Wednesday to check out the details.

PRIME Minister James Marape says PNG is heading for exciting (economic) times in the 2020s because his Government’s task is to spur business growth to benefit both people and businesses.
He said fiscal measures and policies would be implemented to ensure that the task was achieved competently and efficiently in a corrupt-free economic environment.
“My Government will be committed to deliver what is required to spur economic growth and activities. The private sector need to respond positively to play their part for PNG,” he said at the 2nd Speaker’s Investment Summit.
The summit, at the Stanley Hotel and Suites in Port Moresby, was attended by Members of Parliament (MPs), including Opposition Leader Patrick Pruaitch, members of the diplomatic corps, the business community and guests.
Themed “Legislating PNG’s Prosperity”, the summit is an initiative by Speaker Job Pomat, the Business Council of PNG and the Investment Promotion Authority.
The annual event is aimed at bringing MPs and the business community together to share and update information and feedback for a better understanding in efforts to grow PNG’s economy and business activities.
The summit was expanded with the inclusion of the 35th Australia-PNG Business Forum and Trade Expo, PNG- European Union Business Conference and the 15th UN ESCAP Asia Pacific Business Forum.
Marape says everyone must benefit from PNG’s economic growth.
“No one must be left out of a wealthy PNG. The private sector cannot expect to be prosperous and wealthy but Papua New Guineans are left out,” he added.
“The benefits cannot be one-way. The people, too, must benefit from business activities, investments and employment,” Marape said at the summit.
“And, this is why I urge the private sector to embrace my vision to make PNG the richest black nation in the world.
“Chasing away investors is never in my mind. My vision is to see both Papua New Guineans and investors benefitting mutually from a fast growing and wealthy PNG.
“My vision is not about race, religion and arrogance. It is about inclusive economic growth and development,” he added.
Marape urged Papua New Guineans to “believe in themselves that they can succeed in their endeavours” and thus uphold national pride.
“Most of you (businessmen and investors) had contributed much to the country’s economic activities and growth, surpassing many citizens who are lazing away.
“This is why my vision is aimed at stimulating Papua New Guineans to share my dream for them so that PNG’s economic growth can be raised to a higher and faster level of growth.
“The dream of making our country wealthy, healthy and prosperous must be the effort of everyone. Contributing to nation-building, be it indirectly or directly, involves all,” he added.
Marape said transforming PNG into a robust economy could be achieved with everyone wanting to be engaged in business.
“PNG Business Council members will enjoy revenue growth because Small Medium Enterprises (SMEs) and smaller businesses will thrive with enhanced activities from the people.
“This Government and country would not be what they are today without business contributions that sustain socio-economic growth. My greatest respects to all businessmen in PNG,” he said.
“The development of the private sector is also essential to resolving the employment needs of PNG’s working-age population and ensuring more inclusive economic growth,” he added.
Marape said: “This annual summit provides the opportunity for lawmakers and the business community to interact and understand one another.
“My Government will most certainly play its role to use fiscal measures and policies to stimulate PNG’s economy. Businesses must then respond positively, seize every opportunity to venture and grow the economy with the people.
“This partnership (Government and private sector) must be consolidated for a sustainable and prosperous future.
“You need to know what we are all about, and we need to appreciate what you are all about.
“This will ensure that we do not stand in your way and allow the private sector to flourish and grow.
“When we have a private sector that is flourishing and robust, our country of a thousand opportunities in the land of a thousand tribes can also be mutually beneficial to everyone,” Marape said.

Pruaitch … PNG in “deep economic crisis”
PNG is in a “deep economic crisis” which the new Marape Government needs to address and heal, says Opposition Leader Patrick Pruaitch.
“It is a legacy of economic burden from the previous Peter O’Neill Government. Since the election of Marape, there has been an outpouring of public support.
“However, people will make their final judgement after assessing the outcome the promises by them (Marape and his supporting MPs).
“Can PNG’s financial and economic woes be addressed and turned around quickly enough? I am hopeful and optimistic Marape has acknowledged the importance= of constructive criticisms in paving the way for his goal of making PNG the richest black Christian nation where no child is left behind,” he added.
“As a former Treasurer in the O’Neill PNC (People’s National Congress)-led Government, national debt had been rising since 2014.
“As Marape knows, we were running huge budget deficits at that time.
“Prior to getting sacked from Cabinet, I raised the issue of economic mismanagement by the PNC-led\ Government.
“According to the 2018 Final Budget Outcome Review, released just a few weeks ago, Government revenue and grants last year hit an all-time record of K14.1 billion.
“So how can we, in the Opposition, believe the nation is facing an economic crisis when Government revenue was K1.3 billion more than projected revenues in the 2018 Budget?
“That was K2.5 billion more than it was in 2017. Rather than a crisis, these figures suggest a booming economy, with record levels of tax coming from a vibrant private sector.
“When the former government took office in 2012, it managed a record K9.7 billion National Budget.
Virtually in the intervening years, up to 2019, revenue to Government increased by an amazing 45%.
“Any country in the world would have been over the moon to have enjoyed such a huge revenue increase.
The heart of this crisis is very simple: the former Government was incapable of living within its means.
“It squandered record revenues and borrowed and borrowed and spent an additional K17.1 billion, that in 2018, a record K25.6 billion debt rising from K8.5 billion in 2012.”
“In the past month, crude oil prices have fallen by US$11 per barrel.
Domestic debt servicing costs are one of the burdens that the 2020 Budget will have to address.
“Regardless of Government actions, there will be no economic recovery, unless the private sector is enabled to invest in all resource sectors such as agriculture and SMEs.
“The time for change is now. We do not have the luxury that the previous Government had,” he added.

More on Focus Section. Link: https://www.thenational.com.pg/what-the-world-bank-says-about-pngs-economy/

Prime Minister James Marape’s key points.
The inflation rate (IR) in PNG was recorded at 4.5% in the first quarter of 2019. PNG’s IR averaged 6.99%
from 1978 to 2019, reaching an all-time high of 23.16% in the third quarter of 1995 and a record low of
-1.61% in the third quarter of 2007. – TRADINGECONOMICS

• PNG-LNG’s benefit to Papua New Guineans and country will peak in 2025 when the Government fully retires project bank loans;
• PAPUA-LNG to deliver maiden returns in the mid-2020s;
• WAFI-GOLPU mine in Morobe should be in the mid 2020s;
• OK Tedi will continue to be mined in an environmentally- friendly technology;
• FRIEDA River mine in West Sepik should begin operations pending environmental issues;
• LIHIR mine in New Ireland will continue to be mined in a more transparent manner;
• ALL fisheries catches must be processed incountry at earliest;
• THERE will be no more exports of round logs in the forestry sector with domestic downstream
  processing;
• IMPEDIMENTS to businesses will be removed;
• AN electronic case management system for the judiciary will be implemented;
• THE Independent Commision Against Corruption (ICAC) will be set up as a matter of urgency;
• THE economy will be safe from abuse, theft, mismanagement, corruption and complacency;
• BUSINESES will operate in an environment that is safe and less susceptible to corruption, bribery and lawlessness;
• PNG is plagued with a huge debt burden with the Government struggling to maintain and sustain economic growth;
• THE sovereign bond negotiated last year by former Treasurer Charles Abel was an indication of the confidence of the international community in PNG;
• TREASURER Sam Basil to present Cabinet on June 24 (Monday) PNG’s debt level and the state of the economy;
• NATIONAL Planning and Treasury intends to look into areas where overseas grants can be easily accessed;
• A FORENSIC audit of PNG’s tax system will be carried out to rope in tax evaders;
• UPCOMING resource projects will be renegotiated with a view to benefit people and country more;
• ALL revenue generated overseas must be brought back to benefit shareholders;
• GOVERNMENT to ensure that there is clearer dividend returns in State Owned Enterprises (SOEs);
• THE Sovereign Wealth Fund (SWF) will be fuelled with dividends from SOEs;
• TAX incentives and special support grants or a loan scheme will be given to SMEs to help facilitate economic growth;
• ALL projects open for public tender will be conducted transparently, including Works Department;
• GOVERNMENT to review maps to transform PNG into economic zones for competent and efficient allocations of funding and resources got infrastructure development; and
• MANUS to be declared as PNG’s first corporate tax free zone.

What the World Bank says about PNG’s economy

June 26, 2019The NationalFocus

 Article Views: 72

THE February 2018 earthquake had a devastating impact on the economy and the population of PNG.
The 7.5 magnitude earthquake led to a temporary disruption in the production of Liquefied Natural Gas (LNG) and other mining activities concentrated in the highlands area, leading to a contraction in the extractive sector which almost fully offset the expansion of the non-extractive economy.
Preliminary estimates suggest that real Gross Domestic Product (GDP) growth slowed from 2.8% in 2017 to 0.3% in 2018. This latest estimate stands in contrast with a pre-earthquake growth projection of 2.5% for 2018.
The earthquake also had far-reaching effects on many communities in the highlands area. The disaster is estimated to have claimed more than 100 lives, affected more than 500,000 people, and caused extensive damage to basic infrastructure.

Macroeconomic Policy
RECOGNISING the economy’s dependence on the resource sector, the government has refocused its development vision on broad-based growth. 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, the authorities have taken decisive action to promote greater diversification of the economy. First, in October 2018 the government adopted its new fiveyear MediumTerm Development Plan for 2018–22 (MTDP III), focusing on inclusive and sustainable growth. Second, in November 2018 the government announced the 2019 National Budget with a focus on supporting the implementation of MTDP III and building a broader-based economy.
Following the MTDP III plans, government spending in the 2019 National Budget will increase and will represent a deviation from the earlier-adopted fiscal consolidation path. Nevertheless, the 2020–23 indicative budget remains consistent with the Medium-Term Fiscal Strategy for 2018–22 which targets a substantial reduction of the fiscal deficit.
The government successfully tapped the international bond market to address the shortage of foreign exchange and finance its new development vision under the MTDP III. Following a roadshow to promote its debut sovereign bond, PNG raised a 10-year US$500 million sovereign bond (which was oversubscribed by seven times) in September 2018. Due to high demand, the bond interest rate was set at 8.375%, closer to the lower bound of a targeted range.
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 shortage of foreign exchange (FX), 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 central bank.

Ilimo ice-cream and Enga strawberries served at the Integrated Agro Industry summit booth.

Economic Outlook
PNG’s medium-term economic outlook is optimistic, underpinned by further large-scale resource projects.
Real GDP growth is forecast to rebound to about 5% in 2019, primarily driven by a return to full annual production in the extractives sector.
In the years after, growth is estimated to ease to three to four 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.

Special Focus: Catalysing the Private Sector for Inclusive Development
BOOSTING the development of the private sector will be essential to meeting the employment needs of the growing working-age population and ensuring more inclusive economic growth.
Dominated by foreign firms, the resource sector—which comprises the bulk of the country’s exports and has attracted crucial foreign direct investment—has been a strong performer since independence.
However, owing to the high capital intensity of these activities, their prospects for significant job creation are limited.
In contrast, performance in the non-resource economy – where the majority of businesses operate and where most people earn their living – has been less impressive. These enterprises tend to be small in size, informal, and inward-looking.
Setting the non-resource economy on a more robust growth trajectory will be essential to creating enough good jobs to absorb the large number of young job-seekers entering the labour force in the coming decades.
Coordinated, cross-sectoral solutions that improve access to infrastructure, foreign exchange, finance, land, and skilled labour are required to ease constraints on private sector development.
Such actions could have substantial payoffs in terms of inclusive growth, economic diversification and job creation – especially in the agriculture, fisheries, and tourism sectors, which that are also highly inclusive of women and young people.
Attention should focus on alleviating key constraints to higher productivity and investment, including through regulatory reforms that remove real impediments to business activity.
Care also needs to be taken to avoid reforms that inadvertently raise policy uncertainty and risks for investors.
Close collaboration with local and foreign firms (as well as potential new entrants) will be crucial in helping authorities identify the most significant constraints and opportunities, and thus where reform efforts should be targeted to achieve the greatest impact.