ADB: PNG growth to ease to 5.5% in 2013

By MALUM NALU

The Asian Development Bank projects Papua New Guinea’s economic growth to ease to 5.5% in 2013, as the scaling down of LNG project construction reduces construction and transport activity, with spillovers to other sectors such as retail and wholesale trade, according to ADB’s Pacific Economic Monitor released on Monday this week.

The report said moderating prices of key agricultural exports and a strong kina were expected to depress rural incomes and consumption. 

ADB’s PNG country economist Aaron Batten shows off the Pacific Economic Monitor on Monday.-Picture by MALUM NALU

“Continued declines in oil production, due to depletion of reserves in major fields, will likely also weigh down growth in 2013,” it said.

“Increasing mining output will partly offset the declines in other sectors, as production bottlenecks are addressed at key gold and copper mines, and production at the new Ramu nickel and cobalt mine ramps up. 

“The onset of LNG exports in late 2014 will boost mineral output, with overall growth in the sector expected to reach more than 60%.

“ADB projects the economy will grow by 6% in 2014.

“The national budget provides for large budget deficits in 2013 and 2014.

“The government plans significant increases in funding for infrastructure to raise long-term growth.

“However, the extent to which this supports economic activity will hinge on how much private investment is crowded out by government spending. 

“Inflation is projected to reach 6.5% in 2013 and 7.5% in 2014.

“High government expenditures are likely to stoke price growth for domestically produced goods and services.

“Expected depreciation of the kina is likely to lead to resurgent imported inflation.

“Downward pressures on prices will largely come from the winding down of LNG construction as shortages of skilled labor and private sector capacity constraints subside.

“Accompanying declines in capital imports are also likely to ease port congestion. “

The ADB said although large budget deficits are planned for 2013 and 2014, public debt was expected to remain low by historical standards— peaking at around 35% of GDP in 2014.

It said PNG needed to ensure that higher spending did not undermine the fiscal buffers that have allowed the country to withstand recent economic shocks such as the 2008 global financial and economic crisis.

To achieve this, a number of policy actions are suggested:

• ·         Spending must remain within the government’s deficit reduction plan. To keep public debt below 35% of GDP, the 2013 budget plans for zero nominal growth in the public wage bill, and low growth in goods and services spending up to 2017;

• ·         Government will have to manage the growing challenge of financing its deficit spending.

• ·         Government should restructure its debt portfolio to reduce how often it needs to refinance its debt; and

• ·         Fiscal risks created outside the budget process must be better managed.