ADB: PNG economy strong, but fiscal pressures growing

Asian Development Bank

PORT MORESBY, PAPUA NEW GUINEA (10 December, 2012)–In 2012, PNG maintained its position as one of the fastest growing economies in Asia and the Pacific,according to the latest edition of the Pacific Economic Monitor, issued today by the Asian Development Bank (ADB).

The ADB report says preliminary GDP figures show growth of 9.2% in 2012, on the back of 11.1% growth in 2011. By June 2012 the number of private sector jobs in the economy had risen by 5%, building on a doubling of employment opportunities over the last decade.

The Monitor notes thata number of factors point to a more challenging economic environment in PNG in 2013. In particular the 2013$US6.5 billion national budget will be accompanied by a significant slowdown in government revenue growth over the medium term, as revenue from declining mining and oil output will offset modest growth in consumption, income, and company taxes.

 “As fiscal pressures emerge, it will be critical for the government to follow through with its 2013 Budget plan to wind back expenditure growth in 2014 and 2015 to maintain macroeconomic stability over the medium term,” said Aaron Batten, Country Economist in ADB’s Papua New Guinea Resident Mission.

PNG’s 2013 Budget plans for a 23% increase in nominal expenditure, raising the size of the expected Budget deficit to 7.2% of GDP.This significant economic stimulus is well timed to counter falling domestic demand as LNG construction begins to wind down next year; however the Monitor forecasts that the real challenge will be in implementation, and converting lofty expenditure plans into tangible improvements in public services.

While the large increase in funding to provincial and local government will more directly transfer funds to rural areas, it will strain the capacity of the provinces to effectively implement the government’s ambitious service delivery agenda.

ADB, based in Manila, is dedicated to reducing poverty in Asia and the Pacific through inclusive economic growth, environmentally sustainable growth and regional integration. Established in 1966, it is owned by 67 members – 48 from the region. In 2011, ADB approvals including cofinancing totaled $21.7 billion.