Country Report Papua New Guinea Papua New Guinea at a glance: 2005-06 OVERVIEW The governing coalition, led by the prime minister, Sir Michael Somare, should have a large enough parliamentary majority to defeat a possible no-confidence motion when parliament resumes. However, the political scene remains unsettled. By contrast, the economic outlook is fairly positive. Inflationary pressures are easing, and improvements in agriculture and mining output should contribute to steady real GDP growth in 2005-06. The current account will swing into deficit in 2005 as weak export revenue combines with higher imports related to mining activity and infrastructure projects. Key changes from last month Political outlook • Although there is a question mark over whether an application for a vote of no confidence will be approved upon parliamentrs return in November, there is clearly a limit to the governmentrs stalling tactics. Sir Michael, however, should be able to secure the simple majority that would be required to defeat a no-confidence motion. Economic policy outlook • The finance minister, Bart Philemon, has said that the budget for 2005, which has yet to be announced, will continue to show fiscal restraint with across-the-board expenditure cuts. Economic forecast • The kina continues to appreciate against the US dollar, and by early October it was trading at around Kina3.12:US$1 compared with Kina3.30:US$1 in January. In 2004 as a whole the kina will average around Kina3.20:US$1, reflecting an appreciation of nearly 12% year on year. October 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 2005-06 7 Political outlook 8 Economic policy outlook 9 Economic forecast 12 The political scene 15 Economic policy 20 The domestic economy 20 Economic trends 21 Oil and gas 23 Mining 24 Agriculture, fisheries and forestry 25 Foreign trade and payments List of tables 8 International assumptions summary 10 Forecast summary 15 Central government finances 16 Public debt outstanding 18 Money supply 19 Quarterly inflation 20 Exchange rates 22 Mineral exports by volume 24 Agricultural exports by volume 25 Exports 26 Balance of payments Country Report October 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 18 Papua New Guinea: interest rates 21 Papua New Guinea: exchange rate, 2004 22 Papua New Guinea: Kutubu oil prices 27 Papua New Guinea: foreign-exchange reserves Country Report October 2004 www.eiu.com © The Economist Intelligence Unit Limited 2004 Papua New Guinea 3 Papua New Guinea October 2004 Summary Outlook for 2005-06 The governing coalition, led by the prime minister, Sir Michael Somare, should have a large enough parliamentary majority to defeat a possible no-confidence motion when parliament resumes. However, the political scene remains unsettled. By contrast, the economic outlook is fairly positive. Inflationary pressures are easing, and improvements in agriculture and mining output should contribute to steady real GDP growth in 2005-06. The current account will swing into deficit in 2005 as weak export revenue combines with higher imports related to mining activity and infrastructure projects. The political scene The National Alliance-led coalition government has been successful in preventing the opposition from launching a motion of no confidence. In addition to adjourning parliament, the government has employed other controversial tactics to frustrate the opposition. The opposition members of parliament (MPs) have boycotted parliamentary sessions to protest against rulings determining where they should sit in the houseat least five political parties have MPs claiming to be on opposite sides of the house. The UN has agreed to a final extension of its mission in Bougainville. The Enhanced Co- operation Programme with Australia has commenced. Economic policy The IMF has commended the government on its progress in stabilising the economy. The governmentrs fiscal position has improved; in the first half of 2004 it recorded a budget surplus. The Bank of Papua New Guinea (the central bank) has eased it monetary policy stance by cutting its leading indicator interest rate. The governmentrs efforts to sell the telecommunications company, Telikom PNG, have proved controversial. The domestic economy The employment level has continued to rise. Inflation has slowed further and the kina has strengthened. Crude oil production and export volume have declined, but prices have reached record highs. The Highlands Gas Project has received a boost from plans by an Australian alumina refinery plant to change from coal to gas fuel. Gold output at the Lihir goldmine has risen, but copper shipments have been curtailed. Coffee and cocoa exporters have enjoyed mixed results. Foreign trade and payments In the first half of 2004 export revenue increased steadily, and the import bill dropped slightly in kina terms. The current account remains in surplus and foreign-exchange reserves have picked up. Editors: Danny Richards (editor); Graham Richardson (consulting editor) Editorial closing date: October 4th 2004 All queries: Tel:(44.20)7830 1007 E-mail:[email protected] Next report: Full schedule on www.eiu.com/schedule Country Report October 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 magistratesr 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); Peoplers Democratic Movement (PDM); Peoplers National Alliance (PNA); United Resources Party (URP); Peoplers Progress Party (PPP); Pangu Pati (PP); PNG Party; Advance PNG Party (APP); Peoplers National Congress (PNC) Main members of the National Prime minister Sir Michael Somare Executive Council Deputy prime minister Vacan t Key ministers