Papua New Guinea’s economy will recover modestly in 2021 and 2022, but financial strains will persist, says Asian Development Bank Asian development outlook for 2021. He is also a strong advocate for the reform of PNG state-owned enterprises.
The Asian Development Bank predicts a weak economic recovery for Papua New Guinea this year, with GDP growth forecast of 2.5% in 2021 and 3.0% in 2022, according to its Asian development outlook for 2021.
The AfDB says, however, that “the economic environment will remain difficult”. After accounting for the effect of inflation, the economy is not expected to return to 2019 levels until 2022.
“Currency shortages are expected to persist as the ‘kina is overvalued, which discourages foreign investment and foreign currency inflows.”
“A poor business and investment climate is likely to persist, given currency shortages, the current government’s strong stance on foreign investment, and the continuing COVID-19 pandemic,” the report said.
The AfDB predicts that inflation will persist, increasing 4.3% in 2021 and 4.4% in 2022, as the kina will continue to depreciate and there will be more quantitative easing from the Bank of Papua New Guinea. Guinea, which will increase the country’s money. supply.
Rising commodity prices
On a positive note, PNG is expected to continue to have a current account surplus this year due to rising commodity prices.
Exports contracted by around 18 percent [in 2020], while imports contracted even more as companies cut investments and trade orders under COVID-19. In 2022, the report says, imports “will pick up with improving economic conditions.”
The outlook is for production from mines and quarries to increase this year and next, “as favorable international prices boost production.” PNG’s agriculture, forestry and fisheries sector is expected to grow 3% in 2021.
“Transportation and storage, hotels and accommodation, and construction are also expected to rebound as conditions improve,” the report said.
Capital spending in the economy is expected to grow 16.9% this year and 9.7% in 2022, boosting the economy as business confidence returns.
However, currency shortages are likely to persist as the “kina is overvalued, which deters foreign investment and foreign currency inflows.”
The AfDB says the government’s budget deficits are large and are expected to remain so. The budget deficit is expected to reach 7.3% of GDP in 2021 and 5.3% in 2022.
“These large deficits reflect the government’s strategy to stimulate the economy. The deficit must be financed by a combination of external and internal sources. The envisaged reforms, if implemented, will allow foreign investors to buy national securities ”.
Reform of public enterprises
Prospects indicate that one sector in urgent need of reform is the state-owned enterprise sector (SOE), which is rated as “poor”.
“Given the important and often monopolistic roles that SOEs play in service delivery, their continued poor performance makes services expensive, inefficient and of poor quality, and the economy less competitive. Poor performing SOEs weigh on the government’s fiscal position, and SOE debt is a contingent liability for the government ”.
The consolidated debt of SOEs was KK 5.8 billion in March 2019, according to the ADB, including KK 2.1 billion of commercial debt.
The ABD notes that the government has signaled its intention to reform the sector, saying “progress is being made”, with efforts to strengthen legislative and regulatory frameworks, improve governance and transparency, and improve financial sustainability.
“Continued progress must be sustained, however, if PNG is to show tangible benefits,” the report said.
Last year, Papua New Guinea’s economy contracted 3.2 percent after growing 5.9 percent in 2019, according to the latest Asian Development Bank report.
Mining and oil extraction, which contributes about a quarter of the country’s gross domestic product (GDP), contracted by more than 2%. Mining and quarrying, which typically contribute around 12 percent of GDP, contracted by around 22 percent, with the closure of the Porgera gold mine having the greatest impact.
The outlook indicates that employment in minerals and oil contracted by 30 percent in the first three quarters of 2020. Oil and gas production increased but exploration and investment activity declined. been significantly affected.
In the non-extractive sector, PNG’s economy contracted by more than 1% in 2020. Construction and real estate, transportation and storage, accommodation and food services, and manufacturing have increased. all been constrained by lockdowns and labor mobility issues.
Meanwhile, inflation accelerated to 4.9% in 2020 due to supply constraints under COVID-19, currency depreciation and the central bank’s quantitative easing program. In particular, healthcare costs soared 21.5% in 2020.