ADB report predicts growth in PNG economy

THE Pacific's resource-rich economies of Papua New Guinea and Timor-Leste will continue to expand strongly this year as commodity prices remain firm but high inflation rate is a real concern, the Asian Development Bank said in its latest issue of Pacific Economic Monitor, The National reports.

Growth in the rest of the region was set to remain subdued, it said in the report, released on Monday in Manila, the Philippines.

It projected growth in the Pacific region would reach 6.4% this year before moderating to 5.5% next year.

The petroleum exporting economies of PNG and Timor-Leste are expected to grow by 8.5% and 10.0% respectively, boosted by the high international price of petroleum, and increased investment and employment associated with the construction phase of resource extraction.

The ADB predicted growth of 7.5% this year in the Solomon Islands, driven by increased logging and the resumption of gold mining on Guadalcanal.

The other Pacific economies – the Cook Islands, Fiji, Federated States of Micronesia, Kiribati, Nauru, Marshall Islands, Palau, Samoa, Tonga, Tuvalu and Vanuatu – are expected to experience much lower GDP growth, at 1.5% this year and 1.9% next year.

"The long term growth outlook for the Pacific region as a whole is very modest. If this trend continues, the region risks falling further behind the dynamic economies of developing Asia, resulting in a widening gap in incomes in the two regions," said Robert Wihtol, director general of ADB's Pacific department. "To avoid this scenario, Pacific governments need to focus on the core functions of good government – investing in infrastructure, improving education and providing an enabling business environment that will encourage investment."

The report raised inflation projections for this year, due to the sharp rise in commodity prices.

It warned that high inflation rates in PNG, Timor-Leste and Fiji were of particular concern. For the region as a whole, inflation was expected at 8.4% this year, but would ease to 5.9% next year as commodity prices stabilise.

The report noted that the smaller, more remote and heavily import-dependent Pacific economies, such as those in the northern Pacific, were particularly sensitive to rising international food and fuel prices and were expected to be hit hard by inflation.

The depreciation of most regional currencies against the US dollar added to inflationary pressure across the region, it added.