Optimistic outlook for PNG economy

Papua New Guinea’s economy has been a talking point for a lot of people in the last five years now. Business reporter NATHAN WOTI put together several responses from all the financial institutions that shared their thoughts on the current depreciation in kina value, Foreign Exchange, investor confidence, and the worrisome effect on overpopulation.

Bank of PNG
PNG’s real Gross Domestic Product (GDP) is estimated by BPNG to have grown by only 1.4 per cent in 2023. In 2024, growth in the domestic economy is now projected to increase by around 3.0 per cent, mainly reflecting the resumption of production at Porgera gold mine since its closure in 2020 and the resilience of global growth. The looting and burning down of shops has resulted in substantial losses to business houses, combined with disruption of fuel supply, a continued shortfall of foreign exchange (FX) in the market, and the exchange rate adjustment will have a bearing on growth, as well as domestic prices, in 2024.
The gross foreign reserves are projected to decline in 2024, driven by increased monthly interventions by the Bank and Government payments to service its external debt. BPNG is mindful of the IMF programme benchmark limit on BPNG’s foreign reserves and will ensure that it will be achieved consistently. Taking into consideration the pick-up in domestic inflation and the price pressures mainly emanating from the exchange rate adjustment, the Bank will tighten its monetary policy stance in the next six months. This is necessary to support price stability and a successful adjustment downwards in the real effective exchange rate. Restoring an effective functioning foreign exchange market, while keeping inflation in check, will provide the sort of macroeconomic environment most conducive for growth and employment over the medium-term.
Since PNG heavily depends on trade for foreign currency and national income through exports of primary commodities, and imports for consumer and producer goods, it is susceptible to developments in the global economy, which can potentially impact domestic activity and prices. Imported items are subject to foreign inflation and exchange rate movements, while PNG’s exports are mostly commodities whose prices are sensitive to the world economic cycle.

World Bank
Growth is estimated to have slowed from 5.2 per cent in 2022 to 2.7 per cent in 2023 and the country remains below its pre-Covid growth trajectory.
Inflationary pressure remained low in 2023 but built slowly since the third quarter. Headline inflation fell steadily from 6.3 per cent in 2022 Q3 to 1.4 per cent in 2023 Q2, year-on-year. By the end of 2023 inflation had increased again to 3.9 per cent. Since May 2023, the Bank of PNG has also allowed a moderate depreciation of the kina to address foreign exchange issues. Economic growth is projected to accelerate to 4.8 percent in 2024, mostly due to the reopening of the Porgera gold mine. Growth could have increased even faster, but the violence and looting in January 2024 placed a toll on the economy. Medium-term growth is expected to settle at three percent.
Slower-than-expected economic growth could occur through lower demand for PNG’s exports, a more pronounced decline in commodity prices, and the impact of droughts and other climate-related events.
On the other hand, stronger growth may be recorded because of new resource mega-projects, like Papua LNG.

IMF resident representative Sohrab Rafiq
Inflation has been at a historical low despite the adjustment in the kina.
BPNG has begun the adjustment with the new crawling peg exchange rate regime. This is necessary to help boost trade especially exports to alleviate foreign exchange. It is necessary because it is reflective of the market value at present.
Kina has only depreciated against the US Dollars, against other currencies, Kina is picking up or appreciated in value.
The reopening of Porgera mine will boost the country exports and bring in more FX needed while waiting for other resource projects such as Wafi-Golpu, Papua LNG, etc to come on board.
The IMF programme is also helping to deal with FX back log, as the amount of FX going into the market as jumped from U$60 million to U$125 million. Reforms are taking place and they are being done gradually so that the business community can adjust, and it’s not going to be a shock to the economy.
Every other issues like overpopulation, unemployment, law and order, corruption, and unemployment can be solved once we fix the FX issues and that could be done only through the devaluation of kina to a certain standard where it balances out inflation.

Bank South Pacific Financial Group Limited (BSP) chief executive officer Mark Robinson
INFLATION is stable but remains elevated and on a slightly upward trajectory in all Pacific markets.
Imported inflation through consumer goods and high-priced fuel imports contributed to the consumer price index (CPI) increases across the South Pacific.
CPI increases are largely attributed to the increased cost of imported goods, including food items, household goods, and fuel.
Robinson explained that most monetary authorities in the Pacific markets were responding to inflation concerns by taking a contractionary monetary stance and increasing interest rates.
“This has the intended effect of tightening money supply to control spending and consumption in the economy, thereby cooling down inflation.
“These measures, however, also have the adverse effect of restricting access to credit and may hinder economic activity if prolonged.”
However, the increasing visitor arrivals to the South Pacific as well as high prices for key agriculture exports will help bolster activity at the grassroots level despite the monetary tightening to address inflation.

Australia New Zealand Bank economist Kishti Sen
The depreciation in the Kina is adding to the cost of living pressure through the high prices of imported food especially rice and mixed foodstuff.
What we have seen is people switching from discretionary consumables such as soft drinks to maintain volume purchases of food staples.
So the depreciation is hurting overall consumer demand. And when consumer spending is soft, retailers are likely to absorb part of the rise in costs. This puts them in a slightly worse tax paying position.
The Kina depreciation has not delivered enough foreign currency inflows to alleviate the problem of foreign currency rationing in the country.
The depreciation, albeit controlled, has brought more negatives than positives for PNG.
Kina fell an average of 20 basis points (bps) every month since May 2023, ending the year at equivalent to US$0.2683.
It was around 5.5 percent lower than the previous year.
This year the kina fell 12bps in January, 11 bsp in February, 9 per cent in March and 22 per cent in April. It is currently trading at USD 0.2627, which is 2.1 per cent lower than its Dec 2023 value.

Asian Development Bank country director Said Zaidansyah
PNG is a resource-dependent lower-middle income country with annual GDP growth averaging only 1.5 per cent from 2019 to 2023.
That growth was held back by several factors such as a series of global shocks including the Covid-19 pandemic;
A non-diversified economy that is overly reliant on the natural resources extractive sector;
Structural impediments, including a large infrastructure gap, a poor and unstable law and order environment manifested in continued internal unrest and violence, and complexities associated with accessing land for investment; and
Weaknesses in macroeconomic management of boom-bust cycles that has resulted in persistent exchange rate overvaluation and restrictions on the access to foreign currency since 2015.
PNG has the potential for a positive, sustainable inclusive growth trajectory. Future growth could be driven by, among others, agriculture, fisheries, and tourism in addition to the extraction of natural resources.
Although this trajectory is certain, events such as the Jan 10 and a poor business environment could potentially cloud the prediction of the economy.
Plus, energy reforms such as tariff adjustments are urgently needed to improve economic prospect of the country.

Prime Minister James Marape
The weaknesses in the progress made by the Government and key economic sectors highlighted by World Bank experts were critical.
The insights provided by the World Bank experts should be a wake-up call.
I want to call on our public officials, both elected and appointed, to get out of our offices and see the hard life our rural people are facing. We have the transport and freight subsidy in the agriculture sector, the national agriculture plan. We have funding for education.
We have clearly mapped our medium-term development plan and other programmes mentioned by the World Bank officials, but have been complacent and lacked the willpower to implement them for our people. Concerns raised by the business community and the World Bank on the ease of doing business in PNG, stressing that these concerns should be heeded to attract foreign direct investment.

PNG Stock Market chairman David Lawrence
AS the PNG Kina depreciates, the stock market can appear more attractive to foreign investors because their stronger currencies can buy more shares for less money, according to the PNG Stock Exchange (PNGX).
Also, as the currency reaches a natural level, FX should become more available, reducing the concerns about investors being able to get their funds out of the country.
A positive aspect of the Kina depreciation was that PNG’s exports would become cheaper and more attractive on the international market.

Health expert Dr Glen Mola
PNG’s increasing population of about 300,000 people each year is a “time bomb” that is affecting the development of the country.
There are many signs of demographic entrapment in our society today such as the number of street kids, beggars, environmental degradation, crime, corruption, aid dependency and many other issues in the country.
National Research Institute director Dr Osborne Sanida said the increase in population, from an economic standpoint, would be seen as an opportunity to increase the country’s labour force but only minimal employment opportunities were available.
If there are no readily available employment opportunities or when there are only minimal opportunities, population growth will only contribute to an increase in the dependent population that depends on the few that have jobs.
Population and development is a very important issue that all sections of our society and economy must take note of and address the inherent challenges or issues.