Slower growth, Better prospects for PNG economy
7 February, 2019, 4:08 pm
PORT MORESBY, 07 FEBRUARY 2019 (WORLD BANK) – To facilitate broad-based and inclusive growth in Papua New Guinea (PNG), increasing the quality of human capital through better education and health services, and strengthening the business environment to spur private sector development will be key, according to a report released by the World Bank today.
The World Bank’s Papua New Guinea Economic Update: Slower Growth, Better Prospects, is the second in a series, and was today launched in Port Moresby, providing an in-depth analysis of PNG’s economy, together with a special focus on developing PNG’s private sector as an engine of inclusive growth and jobs creation.
“Papua New Guinea has dealt with numerous challenges over the past year, not least the February 2018 earthquake that had a devastating impact on so many lives and the economy,” said Patricia Veevers-Carter, World Bank Country Manager for Papua New Guinea. “To reduce the vulnerability of the economy to natural disasters and commodity price shocks, the government should continue to facilitate broad-based, inclusive and sustainable development by focusing on building PNG’s human capital – through quality education and health investments – and strengthening the business environment to drive increased private sector development.”
Preliminary estimates suggest that real GDP growth slowed from 2.8 percent in 2017 to 0.3 percent in 2018, following a contraction in the extractive sector due to the February 2018 earthquake. This stands in contrast with the growth projection of 2.5 percent for 2018 made prior to the earthquake. Real GDP growth is forecast to rebound to 5.1 percent in 2019, primarily driven by an expected return to full annual production in the extractives sector. Non-extractive sector activity is expected to continue expanding, with better investor confidence supported by improved access to foreign exchange (FX). In the coming years, growth is estimated to hover at about three to four percent per year, until planned investments in new gas and mining projects kick in and improve PNG’s growth potential.
Ongoing reforms to strengthen PNG’s monetary and exchange rate policies are expected to improve business confidence and increase private investment and growth in PNG’s non-resource economy. Measures include addressing the shortage of FX, managing the liquidity effects of the use of FX to clear a backlog of orders, working on greater exchange rate flexibility, considering options for strengthening the interest-rate transmission mechanism, and enhancing modeling capacity in the central bank.
The Papua New Guinea Economic Update also includes an in-depth analysis on the need for more private sector development to meet the employment needs of PNG’s rapidly-growing working-age population, and ensuring more inclusive economic growth, including through more employment opportunities for women.
“Reforms aimed at improving access to infrastructure, foreign exchange, finance, land and skilled labor are required to ease constraints on PNG’s private sector development,” said Ilyas Sarsenov, World Bank Senior Country Economist for Papua New Guinea. “Setting the non-resource sector on a more robust trajectory will be essential to creating enough good jobs to absorb the large number of young job-seekers entering the labor force in the coming decades, particularly in the agriculture, fisheries, and tourism sectors.”