Papua New Guinea
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COUNTRY REPORT Papua New Guinea The full publishing schedule for Country Reports is now available on our website at http://www.eiu.com/schedule. 4th quarter 1999 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. For over 50 years it has been a source of information on business developments, economic and political trends, government regulations and corporate practice worldwide. The EIU delivers its information in four ways: through subscription products ranging from newsletters to annual reference works; through specific research reports, whether for general release or for particular clients; through electronic publishing; and by organising conferences and roundtables. The firm is a member of The Economist Group. 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ISSN 1366-4085 Symbols for tables “n/a” means not available; “–” means not applicable Printed and distributed by Redhouse Press Ltd, Unit 151, Dartford Trade Park, Dartford, Kent DA1 1QB, UK Papua New Guinea 1 Contents 3 Summary 4 Political structure 5 Economic structure 6 Outlook for 2000-2001 12 The political scene 16 Economic policy 20 The economy 20 Economic trends 22 Oil and gas 24 Mining 26 Agriculture 27 Foreign trade and payments 31 Quarterly indicators and trade data List of tables 6 Forecast summary 10 Global assumptions summary 12 World commodity price forecasts 19 Central government budget 21 Inflation 22 Money supply 24 Mineral exports 26 Export prices 26 Agricultural exports by volume 27 Agricultural exports by value 28 Exports 28 Balance of payments 29 Exchange rates 30 Public debt outstanding 31 Quarterly indicators of economic activity 32 Direction of trade 32 Domestic exports EIU Country Report 4th quarter 1999 © The Economist Intelligence Unit Limited 1999 2 Papua New Guinea List of figures 11 Gross domestic product 11 Kina real exchange rates 18 Budget deficit 23 Kutubu oil price 1999 28 Minerals exports 29 International reserves EIU Country Report 4th quarter 1999 © The Economist Intelligence Unit Limited 1999 Papua New Guinea 3 October 1st 1999 Summary 4th quarter 1999 Outlook for 2000-01 The new government of Sir Mekere Morauta has made a good start in restoring PNG's credibility with international donors. The swift introduction of a supplementary budget to correct some of the previous government's excesses should help to secure funding from the IMF. The change in economic policy will improve PNG's growth outlook, but little improvement in the exchange rate or domestic interest rates can be expected until external funding arrives. The political scene The government’s new 24-member cabinet includes the return of Sir Michael Somare as minister for foreign affairs and Bougainville. Francis Ona, the founding father of the Bougainville Revolutionary Army, has finally backed the peace process on the island. Major-General Jerry Singirok, commander of the PNGDF, has been suspended. The government of the National Capital District is under suspension following allegations of corruption and malpractice. PNG has scored badly in the latest UNDP report on human development. Economic policy The “mini-budget”, which covers the government's fiscal operations for the remainder of 1999, aims to raise revenue by Kina72m and cut expenditure by Kina140m. Although the budget has been broadly welcomed, concerns remain over the availability of external financing. The government has pledged to speed up the privatisation programme, with the proceeds going to help pay off the national debt. The domestic economy • The economy grew by an estimated 2.1% in 1998, and probably grew in the first quarter of 1999. Inflation and interest rates remain in double digits. The kina hit a record low in June, but has recovered slightly since the new government took office. • A decision on the future of the Ok Tedi copper and gold mine awaits the outcome of a World Bank study. • The value of oil exports has risen due to higher world prices and increased production from the Gobe oil wells. The signing up of additional customers increases the chances of the PNG-Queensland gas pipeline going forward. The year-on-year value of agricultural exports increased in the first quarter by 36%. Foreign trade and The current account recorded a deficit of Kina141m in the first quarter of 1999, payments up from a deficit of K85m in the same period in 1998. This year’s economic and political instability has had a detrimental impact on the exchange rate and the level of foreign reserves. Editor: Leo Abruzzese All queries: Tel: (44.20) 7830 1007 Fax: (44.20) 7830 1023 Next report: Our next Country Report will be published in January EIU Country Report 4th quarter 1999 © The Economist Intelligence Unit Limited 1999 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 which may levy taxes to supplement grants received from the national government Legal system Series of regional and magistrates’ courts leading to a Supreme Court at the apex National elections June 1997; next election due by 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. He leads a coalition government consisting principally of the PDM and the Advance PNG party Main political organisations People’s Democratic Movement (PDM); Papua New Guinea First (PNGF); Advance PNG; People’s National Congress; People’s Progress Party (PPP); Pangu Pati; United Resource Party Main members of the National Prime minister & minister for finance, Executive Council health & information Sir Mekere Morauta Deputy prime minister & minister for home affairs John Pundari Key ministers Agriculture & livestock Ted Diro Corporatisation & privatisation Vincent Auali Defence Alfred Pogo Education John Waiko Fisheries Ron Ganarafo Foreign affairs & Bougainville affairs Sir Michael Somare Forestry Michael Ogio Housing John Kamb Justice Kilroy Genia Labour, employment & tourism Herowa Agiwa Mining Sir John Kaputin Petroleum & energy Tommy Tomscoll Public service Philemon Embel Trade & industry Michael Nali Transport & civil aviation Bart Philemon Works Mao Zeming Central bank governor Wilson Kamit EIU Country Report 4th quarter 1999 © The Economist Intelligence Unit Limited 1999 Papua New Guinea 5 Economic structure Latest available figures Economic indicators 1994 1995 1996 1997 1998a GDP at market prices (Kina bn) 5.3 6.3 6.9 6.8 7.7 GDP ($ bn) 5.2 4.9 5.2 4.7 3.7 Real GDP growthb (%) 5.2 –3.6 3.5 –4.6 2.1 Consumer price inflation (av; %) 2.9 17.3 11.6 3.9 13.6c Population (m) 4.0 4.1 4.4 4.2 4.3 Merchandise exports fob ($ m) 2,632 2,657 2,512 2,160 1,788c Merchandise imports fob ($ m) 1,325 1,262 1,513 1,483 1,076c Current-account balance ($ m) 402 492 189 –192 62c Reserves excl gold ($ m) 96 261 584 363 193c Total external debt ($ bn) 2.8 2.5 2.4 2.3 2.4 Debt-service ratio, paid (%) 30.8 20.8 12.7 14.4 18.0 Exchange rate (av; Kina:$) 1.011 1.280 1.319 1.438 2.074c October 1st 1999 Kina2.89:$1 Origins of gross domestic product 1998a % of