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PNG Survey of Recent Developments, 2014-15

36 Pages Posted: 14 Sep 2015  

Michael Cornish

University of Papua New Guinea - Division of Economics, School of Business and Public Policy

Rohan Fox

University of Papua New Guinea - Division of Economics, School of Business and Public Policy

Stephen Howes

Australian National University (ANU) - Development Policy Centre; Australian National University (ANU) - Crawford School of Public Policy

Win Nicholas

University of Papua New Guinea - Division of Economics, School of Business and Public Policy

Albert Prabhakar

University of Papua New Guinea - Division of Economics, School of Business and Public Policy

Ani Rova

University of Papua New Guinea - Division of Economics, School of Business and Public Policy

Date Written: September 13, 2015

Abstract

This paper provides a survey of economic and related developments in Papua New Guinea (PNG) over the last twelve months, roughly from July 2014 to June 2015. The early commencement of the mega PNG LNG project notwithstanding, economic circumstances in PNG are currently difficult. Moody’s has downgraded the country’s outlook (though not its credit rating) from stable to negative. The fall in oil and therefore gas prices has greatly reduced the short-term benefits of the LNG project. The commencement of LNG production has boosted GDP, but in other sectors economic growth seems low. There is extensive rationing of foreign exchange and the exchange rate is overvalued. After several years in which the growth of expenditure greatly outpaced that of revenue, and then a shock to revenue due to the oil price fall, the fiscal deficit is now unsustainable and difficult to finance. If unaddressed, these problems could lead to a further loss of foreign exchange reserves and severe cash rationing within government. There is also a risk of a further slowdown in economic activity, and damage to important government services. The exchange rate is now being gradually depreciated, and expenditure cuts are being implemented, but further currency depreciation, better expenditure prioritization, and a new medium-term fiscal strategy are needed to reduce risks and restore confidence. Given the fiscal stress and the risks to growth and government effectiveness, structural and public sector reforms are particularly important at this time, and are also discussed in the paper.

Keywords: Papua New Guinea, economics, development

Suggested Citation

Cornish, Michael and Fox, Rohan and Howes, Stephen and Nicholas, Win and Prabhakar, Albert and Rova, Ani, PNG Survey of Recent Developments, 2014-15 (September 13, 2015). Development Policy Centre Discussion Paper No. 41. Available at SSRN: https://ssrn.com/abstract=2659987

Michael Cornish

University of Papua New Guinea - Division of Economics, School of Business and Public Policy ( email )

P.O. Box 320, University Post Office
National Capital District
Papua
Guinea

Rohan Fox

University of Papua New Guinea - Division of Economics, School of Business and Public Policy ( email )

P.O. Box 320, University Post Office
National Capital District
Papua
Guinea

Stephen Howes (Contact Author)

Australian National University (ANU) - Development Policy Centre ( email )

7 Liversidge Street (Bld 70)
Lennox Crossing
Canberra, 0200
Australia

Australian National University (ANU) - Crawford School of Public Policy

ANU College of Asia and the Pacific
J.G. Crawford Building, #132, Lennox Crossing
Canberra, Australian Capital Territory 0200
Australia

Win Nicholas

University of Papua New Guinea - Division of Economics, School of Business and Public Policy ( email )

P.O. Box 320, University Post Office
National Capital District
Papua
Guinea

Albert Prabhakar

University of Papua New Guinea - Division of Economics, School of Business and Public Policy ( email )

P.O. Box 320, University Post Office
National Capital District
Papua
Guinea

Ani Rova

University of Papua New Guinea - Division of Economics, School of Business and Public Policy ( email )

P.O. Box 320, University Post Office
National Capital District
Papua
Guinea

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