Papua New Guinea Papua New Guinea at a Glance: 2002-03
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COUNTRY REPORT Papua New Guinea Papua New Guinea at a glance: 2002-03 OVERVIEW The prime minister of Papua New Guinea, Sir Mekere Morauta, will face a stern test of his leadership in the run-up to the next election in June 2002. The government will press ahead with its contentious economic reform programme, supported by the IMF and the World Bank, although this will progress more slowly as the election nears. Opposition groups will seek to capitalise on public resentment towards the government, and domestic protests are likely to become more common. Economic activity will pick up in 2002-03 as two major resources projects finally get under way. Inflation will be relatively restrained in 2002-03. Key changes from last month Political outlook • The difficulty in getting a quorum is a sure sign that this parliament is coming to an end. It is to be hoped that it can still deliver the first vote for Bougainville autonomy by the end of 2001. Economic policy outlook • The government delivered the budget for 2002 on November 27th 2001. It carries a deficit equivalent to 2% of GDP, and is in effect a six month budget—a supplementary budget will be proposed in July 2002 after the election. Opposition MPs have vowed not to support the budget alleging that it is designed purely to get the government votes. Economic forecast • The exchange rate remains weak and consumer prices rose in the third quarter by 10% year on year. Interest rates may have to follow. Electoral spending in the first half of 2002 will exacerbate these adverse trends. January 2002 The Economist Intelligence Unit 15 Regent St, London SW1Y 4LR United Kingdom The Economist Intelligence Unit The Economist Intelligence Unit is a specialist publisher serving companies establishing and managing operations across national borders. 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Papua New Guinea 1 Contents 3 Summary 4 Political structure 5 Economic structure 5 Annual indicators 6 Quarterly indicators 7 Outlook for 2002-03 7 Political outlook 8 Economic policy outlook 9 Economic forecast 12 The political scene 15 Economic policy 19 The domestic economy 19 Economic trends 21 Oil and gas 22 Mining 23 Agriculture and fisheries 24 Infrastructure 25 Financial and other services 25 Foreign trade and payments List of tables 10 International assumptions 11 Forecast summary 16 Central government budget 20 Quarterly inflation 20 Money supply 22 Mineral exports, by volume 24 Agricultural exports, by volume 24 World commodity price forecasts 26 Balance of payments 27 Exports 27 Exchange rates 28 Public debt outstanding EIU Country Report January 2002 © The Economist Intelligence Unit Limited 2002 2 Papua New Guinea List of figures 12 Gross domestic product 12 Kina real exchange rates 21 Consumer prices 21 Kutubu oil prices 22 Mineral exports 27 Exchange rates 28 Public debt outstanding EIU Country Report January 2002 © The Economist Intelligence Unit Limited 2002 Papua New Guinea 3 Summary January 2002 Outlook for 2002-03 The prime minister of Papua New Guinea (PNG), Sir Mekere Morauta, will face a stern test of his leadership in the run-up to the next election in June 2002. The government will press ahead with its contentious economic reform programme, supported by the IMF and the World Bank, although this will progress more slowly as the election nears. Opposition groups will seek to capitalise on public resentment towards the government, and domestic protests are likely to become more common. Economic activity will pick up in 2002-03 as two major resources projects finally get under way. Inflation will be relatively restrained in 2002-03. The political scene Parliament has been debating the future of Bougainville. The weapons disposal programme has started. The government has opposed a lawsuit against the resources company, Rio Tinto. It has also agreed to process asylum seekers bound for Australia. Provincial governmental grants may be written off. The Supreme Court has ruled in favour of provincial governments. The electoral roll still needs to be updated. Sir Michael Somare is now officially leader of the opposition. PNG and Indonesia have agreed to a repatriation plan. Economic policy The IMF’s support programme has reached completion. A budget deficit of 2% of GDP has officially been projected for 2002. An expenditure shortfall in the third quarter of 2001 contributed to a budget surplus in that period. Privatisation proceeds will be applied to debt relief. A tax credit scheme has been applied to agriculture. The budget assumptions are optimistic, and the progress of the privatisation programme has been mixed. The Bank of South Pacific has acquired the Papua New Guinea Banking Corporation. The domestic economy A small fall has been recorded in private-sector employment. Inflation is running at 10% year on year in late 2001. Reserve money has expanded. Fiscal- stability legislation has offered hope for the future of the PNG-Queensland gas pipeline. Other projects have boosted the pipeline’s prospects. Oil production has declined. There has been renewed interest in an agricultural price- stabilisation scheme. Coffee production has increased. Foreign trade and A trade surplus offset an invisibles deficit in the third quarter of 2001. Mineral payments and oil exports receipts were up by over 20% year on year in the same period. Key commodity exports have suffered from low prices. Mining capital expenditure has lifted the import bill. The central bank has tried to slow the pace of depreciation of the kina. The currency depreciation has pushed up the kina value of public debt. Editors: Danny Richards (editor); Graham Richardson (consulting editor) Editorial closing date: December 12th 2001 All queries: Tel: (44.20) 7830 1007 E-mail: [email protected] Next report: Full schedule on www.eiu.com/schedule EIU Country Report January 2002 © The Economist Intelligence Unit Limited 2002 4 Papua New Guinea Political structure Official name Independent State of Papua New Guinea Form of state Constitutional monarchy Head of state Queen Elizabeth II, represented by the governor-general, who is nominated by the national parliament The executive The National Executive Council, presided over by the prime minister, has executive powers; the prime minister is appointed by the head of state on the proposal of parliament National legislature Unicameral national parliament; its 109 members (currently 104 are sitting, with five vacancies) are elected for a period of five years, 89 representing “open” constituencies and the rest representing 19 provincial constituencies and the capital district Provincial government Each of the 19 provinces has its own government that may levy taxes to supplement grants received from the national government Legal system A series of regional and magistrates’ courts leading to a Supreme Court at the apex National elections June 1997; next general election due in June 2002 National government Sir Mekere Morauta, the leader of the People’s Democratic Movement (PDM), was elected prime minister by parliament on a vote of 99:5 on July 14th 1999 Main political organisations People’s Democratic Movement (PDM); National Alliance (NA); People’s National Alliance (PNA); United Resources Party (URP); People’s Progress Party (PPP); Pangu Pati (PP); Advance PNG Party (APP); People’s National Congress (PNC) Main members of the National Prime minister & minister for finance Sir Mekere Morauta Executive Council Deputy prime minister & minister for forestry Michael Ogio Key ministers Agriculture