Country Report Papua New Guinea Papua New Guinea at a glance: 2004-05 OVERVIEW The governing coalition, led by the prime minister, Sir Michael Somare, should have a large enough parliamentary majority to defeat a no-confidence motion, if such a motion eventuates. However, the political scene remains unsettled, and the government’s effectiveness will be limited. The economic outlook is fairly positive for 2004-05. Inflationary pressures are easing, and improvements in agriculture, mining and oil activity should contribute to a pick-up in real GDP growth of more than 2% a year in 2004-05. The current account will remain in surplus in 2004, but will shift into deficit in 2005 as export revenue slips. Key changes from last month Political outlook • The opposition applied for a motion of no confidence in early July, but its application was rejected on “technical grounds”. If Sir Michael is eventually subjected to a motion of no confidence, he should have sufficient support in parliament to defeat it, barring extraordinary circumstances. Economic policy outlook • In the first quarter the government spent only 2% of its development budget. Therefore, there will be pressure on ministries and government agencies to speed up spending, particularly counterpart spending to facilitate the disbursement of international aid. Economic forecast • The kina continues to appreciate against the US dollar. By early July the kina had strengthened by around 6% compared with its value at end-2003. Stronger import demand will put some downward pressure on the kina during the remainder of the 2004. July 2004 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 Papua New Guinea 3 Summary 4 Political structure 5 Economic structure 5 Annual indicators 6 Quarterly indicators 7 Outlook for 2004-05 7 Political outlook 8 Economic policy outlook 9 Economic forecast 12 The political scene 16 Economic policy 20 The domestic economy 20 Economic trends 22 Oil and gas 23 Mining 24 Agriculture, fisheries and forestry 25 Infrastructure 26 Foreign trade and payments List of tables 9 International assumptions summary 11 Forecast summary 17 Central government finances 20 Money supply 21 Quarterly inflation 21 Exchange rates 23 Mineral exports by volume 24 Agricultural exports by volume 27 Exports 28 Balance of payments Country Report July 2004 www.eiu.com © The Economist Intelligence Unit Limited 2004 2 Papua New Guinea List of figures 12 Papua New Guinea: gross domestic product 12 Papua New Guinea: consumer price inflation 17 Papua New Guinea: public debt outstanding 19 Papua New Guinea: interest rates 28 Papua New Guinea: foreign-exchange reserves Country Report July 2004 www.eiu.com © The Economist Intelligence Unit Limited 2004 Papua New Guinea 3 Papua New Guinea July 2004 Summary Outlook for 2004-05 The governing coalition, led by the prime minister, Sir Michael Somare, should have a large enough parliamentary majority to defeat a no-confidence motion, if such a motion is proposed. However, the political scene remains unsettled, and the government’s effectiveness will be limited. The economic outlook is fairly positive for 2004-05. Inflationary pressures are easing, and improvements in agriculture, mining and oil activity should contribute to a pick-up in real GDP growth to more than 2% a year in 2004-05. The current account will remain in surplus in 2004, but will shift into deficit in 2005 as export revenue slips and the import bill is kept up by the demand generated by mining activity and infrastructure projects. The political scene The opposition has tried to launch a motion of no confidence in Sir Michael now that his grace period has ended, but he has so far thwarted their attempts. After having its application for a no-confidence motion initially rejected, the opposition referred its application to the Supreme Court. Sir Michael has reshuffled his coalition government in an effort to bolster his support in parliament. The long-running saga to elect a governor-general has come to an end with Sir Paulius Matane being sworn into office on June 29th. The Economic Co-operation Programme with Australia has finally been signed. Economic policy The government recorded a small budget surplus in the first quarter of 2004, and public debt has remained stable. The sale of the state-owned telecommunications company, Telikom PNG, has been agreed and awaits the cabinet’s approval. Agricultural sector tax incentives have been welcomed. Monetary policy has been eased further. The domestic economy The government has been fairly upbeat about economic conditions and still expects GDP to grow by 2.8% in 2004. Employment indicators have generally improved. Year-on-year inflation has slowed markedly. Crude oil production and exports have fallen and goldmines have experienced mixed fortunes. Most agricultural export commodities have recorded improved performances. Foreign trade and payments Export revenue dipped in the first quarter, but the import bill contracted at a faster pace and was at its lowest level since early 2002. The current account has remained in surplus, thereby contributing to the buoyant international reserves position. Editors: Danny Richards (editor); Graham Richardson (consulting editor) Editorial closing date: July 12th 2004 All queries: Tel: (44.20) 7830 1007 E-mail: [email protected] Next report: Full schedule on www.eiu.com/schedule Country Report July 2004 www.eiu.com © The Economist Intelligence Unit Limited 2004 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. Sir Silas Atopare vacated the position in October 2003, and Sir Paulius Matane was sworn in on June 29th The executive The National Executive Council, presided over by the prime minister, has executive powers; the prime minister is proposed by parliament and appointed by the head of state National legislature Unicameral national parliament of 109 members elected for a period of five years (currently comprises 103 members, with elections having been declared void in six seats); of the total, 89 members represent "open" constituencies, and the remainder represent 19 provincial constituencies and the capital district Provincial government Each of the 19 provinces has its own government, which 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-July 2002; the next elections will be in 2007 National government Sir Michael Somare, the leader of the National Alliance (NA), was elected prime minister by parliament in August 2002 Main political organisations National Alliance (NA); People's Democratic Movement (PDM); People's National Alliance (PNA); United Resources Party (URP); People's Progress Party (PPP); Pangu Pati (PP); PNG Party; Advance PNG Party (APP); People's National Congress (PNC) Main members of the National Prime minister Sir Michael Somare Executive Council Deputy prime minister Vacan t Key ministers Agriculture Mathew Siune Defence Mathew Gubag Education