Although no fiscal cliff here
Fiscal pressures bug PNG economy
Papua New Guinea wont’t be able duplicate in 2013 the feat it attained this year as being one of the fastest-growing economies in the Asia-Pacific, the latest edition of the Pacific Economic Monitor has predicted.
The Asian Development Bank (ADB) publication noted that a number of factors point to a more challenging economic environment for the country next year.
In particular, US$6.5 billion national budget would be accompanied by a significant slowdown in government revenue growth over the medium term because declining mining and oil output would offset modest growth in consumption, income, and company taxes.
“Preliminary GDP figures released by government show growth of 9.9% in 2012, against an original ADB forecast of 7.5%,” ADB country economist Aaron Batten said in his article.
“While there were some declines in the international prices of PNG’s exports, commencement of production at a new nickel and cobalt mine boosted output in the mining sector, even as petroleum output continued to fall due to declining oil reserves.
“All sectors of the non-mineral economy also performed strongly, led by construction and transport, as building of a new liquefied natural gas (LNG) pipeline reached its peak, and as a result of higher than expected government expenditure.
“The main engine of near-term growth in the PNG economy will shift from foreign direct investment and related infrastructure spending toward the resource export sector.”
The report also noted that the economy is also benefitting from lower inflation this year and the introduction of the government’s free education policy, which set the price of education in the Consumer Price Index basket to zero, also contributed to lower-than-expected inflation.
It said although the economy remained strong, a number of factors pointed to a more challenging economic environment next year.
“Maturing mining and oil operations, and the scaling down of LNG construction, are expected to contribute to slowing economic growth (forecast at 4.5%),” Batten said.