(CPV) - Against a backdrop of slowing world economic growth, eurozone instability, and declining commodity demand from the People’s Republic of China, Papua New Guinea’s (PNG) economy remains strong, with growth projected at 7.5% for 2012, according the latest edition of the Pacific Economic Monitor, issued on July 25th by the Asian Development Bank (ADB).
The Pacific Economic Monitor, a review of the 14 economies of the Pacific prepared three times a year, says business conditions are also being boosted by a recent decline in price growth for the PNG economy, with the high value of the Kina exchange rate helping to bring down inflation to 4% on an annualized basis in the March quarter of 2012.
The ADB report says that although business confidence and conditions remain solid, global instability is beginning to have an impact on commodity prices and government finances, with the next few years likely to be a more austere period for PNG. Prices of PNG’s two largest export and government revenue earners -- gold and copper -- fell below 2012 budget projections during the first half of the year, placing increasing pressure on the government budget.
The Pacific Economic Monitor also notes that international prices of agriculture products, such as logs, cocoa, coffee, palm oil, and copra, which together comprise 20% of PNG’s exports, also fell during the first half of 2012. Lower prices for these commodities, along with the high value of the Kina exchange rate, will have a significant impact on incomes for PNG’s largely rural population.
“To help manage these fiscal pressures, medium-term expenditures will need to focus on rehabilitating existing service delivery infrastructure, rather than creating new assets that may further undermine the country’s ability to fund recurrent maintenance,” said Aaron Batten, Country Economist in ADB’s Papua New Guinea Resident Mission. “Strengthening revenue compliance and reviewing resource sector taxation arrangements would help boost fiscal stability over the longer term.”