Papua New Guinea

The economy of Papua New Guinea maintains strong growth driven by the construction of a $16 billion liquefied natural gas (LNG) project and high government spending. As the LNG project entered its peak development phase in 2012, the economy is seen growing by 7.5%, as forecast earlier. Commodity exports are expected to remain robust as global prices for gold, copper, and a number of agricultural products are high despite declines this year.
Growth is expected to moderate to 4.5% in 2013 as LNG facility construction winds down and on the expectation that crude oil production will fall by 17% next year. These developments will dampen government revenue and spending, as slowing mining and oil operations are expected to drive domestic government revenue, adjusted for inflation, down by 8% between now and 2014. Income from LNG exports will raise government revenues beginning in 2015, but overall revenue growth is nevertheless expected to remain slow over the medium term.

Economic Indicators 2011 - Papua New Guinea
GDP growth (% change per year)	8.9
CPI (% change per year)	8.7
Fiscal balance (% of GDP)	(0.3)
Export growth (% change per year)	27.8
Import growth (% change per year)	84.6
Current account balance (% of GDP)	(36.8)

( ) = negative, CPI = consumer price index, GDP = gross domestic product
Sources: ADB. 2012. Asian Development Outlook 2012. Manila; ADB staff estimates; World Bank. 2012. World Development Indicators Online.
Inflation eased to 4.0% year on year in the first quarter of 2012, from 6.9% in the fourth quarter of 2011. For the year as a whole, inflation is now projected to average 6.5%, decelerating more sharply than was projected in the Asian Development Outlook (ADO) 2012 and driven by the kina’s appreciation against the Australian dollar by 31%, and against the US dollar by 27%, since the beginning of 2011. The stronger kina has helped lower prices of imported goods, while monetary policy tightening by the Bank of Papua New Guinea has helped tame domestic inflationary pressures. Next year, inflation is expected to slow further, to 6.0%, as the winding down of construction on the LNG project further reduces demand pressures.
As construction is completed, 8,000 local workers employed on the LNG project will be laid off. Groups representing communities near project construction sites have highlighted the potential for social unrest in the absence of alternative employment. In addition, continued kina appreciation could depress incomes for the large rural population dependent on growing cash crops for export. Tax concessions offered to resource extraction projects reduce government revenue and constrain funding to address the country’s large infrastructure and public service investment shortfalls. These developments carry serious implications for inclusive economic growth.
Official data show a current account deficit equivalent to 1.3% of GDP in the first quarter of 2012. Official figures largely exclude imports of capital equipment for new resource projects. Taking these imports into account, the current account is projected, as in the ADO 2012, to record deficits of about 30% of GDP in 2012 and 2013. Gross foreign exchange reserves have remained equivalent to 11 months of import cover. While current account deficits are generally viewed as indicating unsustainable macroeconomic balances, countries such as Papua New Guinea with substantial overseas liabilities have significant net factor payments, and historical experience shows large current account deficits being sustained with little harm to economic performance.
Source: ADB. 2012. Asian Development Outlook 2012 Update. Manila.