PNG 2012 budget to be affected by global demand for commodities

By MALUM NALU

Papua New Guinea’s budget revenue forecast in 2012 and the medium term is expected to be affected by global demand for primary commodities, according to Bank of PNG’s quarterly economic bulletin.

Governor LoiBakani said global demand for primary commodities was expected to decline in 2012 and in the medium term, in response to a weak global demand and improvement in supply conditions.

“However, oil price is expected to remain elevated as a result of supply constraints associated with the geopolitical tensions in the Middle East and North Africa,” he said.

“This is likely to affect PNG’s budget revenue forecast in 2012 and the medium term. 

“As of March 23, 2012, the prices of gold fell to US$1,654.10 per ounce after a high of US$1,718.28 at the beginning of the month, while the price of oil continues to remain volatile and traded at US$105 per barrel.

“The International Monetary Fund (IMF) projects inflation in the advanced economies and some of the emerging economies to ease further towards the end of 2012 as a result of the low global demand and expectations for low inflation.

“According to the FAO Food Price Index (FFPI), international food prices have started to pick up again to an average point of 215.3 in February 2012, after dropping to its lowest level of 210.8 points in December 2011.”

 Bakani said inflationary pressures in the domestic economy would come mainly from domestic demand pressures associated with high inflows and spin-off activities relating to the construction of the LNG project and increased government spending.

“The upside risks to domestic inflation will stem from: the volatility in import prices; a fall in prices of export commodities; depreciation of the kina exchange rate; and higher than budgeted government expenditure,” he said.

“The government must be disciplined in its spending, particularly during the national election period, to keep within the 2012 budget.”