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Papua New Guinea at a Glance: 2001-02

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COUNTRY REPORT Papua New Guinea At a glance: 2001-02 OVERVIEW The government has been making progress in implementing its economic reform programme. However, economic activity in all sectors has been fairly subdued in 2000. The EIU estimates real GDP growth of 2.9% in 2000 and forecasts 3.8% in 2001 and 7.0% in 2002. Economic activity will pick up in the next few years with the development of major minerals and gas projects. Growth will also be driven by stronger domestic demand as interest rates fall. Inflation remained high in 2000 but should fall in 2001 and 2002 as price stability becomes the primary focus of the Bank of Papua New Guinea (the central bank). The current account will remain in surplus in 2001 but will fall into deficit as imports of capital equipment for these projects rise significantly in 2002. The kina is steadily depreciating but should remain in an acceptably narrow trading range in 2001 and 2002 as capital inflows counterbalance the increasing demand for imports. Key changes from last month Political outlook • Sir Mekere Morauta has reshuffled his cabinet again in an attempt to rid the government of disloyal members. The former prime minister, Sir Michael Somare, was the latest casualty. He was dismissed for not voting with the government on the integrity bill. The bill was eventually passed by a vote of 84-0. Economic policy outlook • Changes to the tax regime for gas, oil and mining, announced in the 2001 budget should encourage new exploration and development in these areas. Economic forecast • We have revised downwards our estimate for GDP growth in 2000 from 4.1% to 2.9% following a decline in economic activity in all sectors. We still expect an improvement in 2001 and 2002, however this will be less impressive than our previous forecast, at 3.8% and 7.0% respectively. January 2001 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 our digital portfolio, where our latest analysis is updated daily; through printed subscription products ranging from newsletters to annual reference works; through research reports; and by organising conferences and roundtables. The firm is a member of The Economist Group. London New York Hong Kong The Economist Intelligence Unit The Economist Intelligence Unit The Economist Intelligence Unit 15 Regent St The Economist Building 25/F, Dah Sing Financial Centre London 111 West 57th Street 108 Gloucester Road SW1Y 4LR New York Wanchai United Kingdom NY 10019, US Hong Kong Tel: (44.20) 7830 1007 Tel: (1.212) 554 0600 Tel: (852) 2802 7288 Fax: (44.20) 7499 9767 Fax: (1.212) 586 1181/2 Fax: (852) 2802 7638 E-mail: [email protected] E-mail: [email protected] E-mail: [email protected] Website: http://www.eiu.com Electronic delivery This publication can be viewed by subscribing online at http://store.eiu.com Reports are also available in various other electronic formats, such as CD-ROM, Lotus Notes, online databases and as direct feeds to corporate intranets. For further information, please contact your nearest Economist Intelligence Unit office London: Jan Frost Tel: (44.20) 7830 1183 Fax: (44.20) 7830 1023 New York: Dante Cantu Tel: (1.212) 554 0643 Fax: (1.212) 586 1181 Hong Kong: Amy Ha Tel: (852) 2802 7288/2585 3888 Fax: (852) 2802 7720/7638 Copyright © 2001 The Economist Intelligence Unit Limited. All rights reserved. Neither this publication nor any part of it may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of The Economist Intelligence Unit Limited. All information in this report is verified to the best of the author's and the publisher's ability. However, the EIU does not accept responsibility for any loss arising from reliance on it. 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 5 Annual indicators 6 Quarterly indicators 7 Outlook for 2001-02 7 Political outlook 8 Economic policy outlook 9 Economic forecast 12 The political scene 15 Economic policy 21 The domestic economy 21 Economic trends 23 Oil and gas 24 Mining 25 Agriculture 26 Foreign trade and payments List of tables 9 International assumptions summary 10 Forecast summary 12 World commodity price forecasts 18 Central government budget 22 Quarterly inflation 23 Money supply 25 Mineral exports, by volume 26 Agricultural exports, by volume 26 Agricultural export prices 27 Balance of payments 28 Exports 28 Exchange rates 29 Public debt outstanding EIU Country Report January 2001 © The Economist Intelligence Unit Limited 2001 2 Papua New Guinea List of figures 12 Gross domestic product 12 Kina real exchange rates 20 Interest rates 23 Kutubu oil price 24 Mineral exports 28 Exchange rates 29 External debt EIU Country Report January 2001 © The Economist Intelligence Unit Limited 2001 Papua New Guinea 3 Summary January 2001 Outlook for 2001-02 The government has been making progress in implementing its economic reform programme. However, economic activity in all sectors has been fairly subdued in 2000. The EIU estimates real GDP growth at 2.9% in 2000 and forecasts 3.8% in 2001 and 7% in 2002. Economic activity will pick up in the next few years with the development of major minerals and gas projects. Growth will also be driven by stronger domestic demand as interest rates fall. Inflation remained in 2000, but should fall in 2001 and 2002 as price stability becomes the primary focus of the Bank of Papua New Guinea (the central bank). The current account will remain in surplus in 2001 but will fall into deficit as imports of capital equipment for these projects rise significantly in 2002. The kina is steadily depreciating but should remain in an acceptably narrow trading range in 2001 and 2002 as capital inflows counterbalance the increasing demand for imports. The political scene The prime minister, Sir Mekere Morauta, will remain in office until the next election in June 2002. The integrity bill has finally been approved with the main body of the law coming into force early in 2002. There have been a number of cabinet reshuffles as Sir Mekere demands loyalty from all members of the government. There is renewed hope for the Bougainville peace talks. Tension has risen between national and provincial governments. Economic policy The 2001 “recovery to reconstruction” budget was passed in November. It is a balanced budget, if arrears are excluded, with a tax reform favouring the poor and providing incentives for mining, gas and oil exploration. Higher government revenue and a lower budget deficit are expected for 2000. The IMF released the second tranche of the stand-by arrangement in November. The central bank continues to focus on price stability with tight monetary policy. Privatisation plans are in motion. The domestic economy The government has lowered its GDP growth estimate for 2000 from 4.7% to 0.8%. Inflation is down over the quarter and the year. Interest rates continue to fall. The government is seeking financial assistance for the gas pipeline. Oil exports continue on a downward path. A binding agreement has been signed for the Ramu cobalt-nickel project but there is no third investor yet. Falling agricultural export prices have continued to hurt producers. Foreign trade and The third quarter was disappointing for foreign trade. There has been little payments respite for the falling kina. External public debt is up slightly over the third quarter. Editors: Danny Richards (editor); Graham Richardson (consulting editor) Editorial closing date: January 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 2001 © The Economist Intelligence Unit Limited 2001 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 Series of regional and magistrates’ courts leading to a Supreme Court at the apex National elections June 1997; next election due 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
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