Country Report April 2004 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 the no-confidence motion for which the opposition is likely to call when parliament resumes on April 20th. Economic developments are expected to be fairly positive in 2004-05. Inflationary pressures are easing, and improvements in the outlook for the agriculture, mining and oil sectors will contribute to a slow pick-up in economic growth. However, the current account will remain barely in surplus in 2004, as modest export growth will be offset by a stronger increase in imports related to mining activity and infrastructure projects. Key changes from last month Political outlook • Facing intense pressure to recall parliament, Sir Michael announced on April 5th that parliament would resume on April 20th after a near three- month adjournment. The prime minister's decision followed the Supreme Court ruling on March 31st that the election of Sir Pato Kakaraya as governor- general was null and void. Economic policy outlook • The government has hinted that it will attempt to tap the international bond market for the first time in order to raise funds, possibly up to US$100m. However, its success in such a venture is likely to be limited. Economic forecast • The merchandise trade account recorded a surplus of around US$970m in 2003. In line with fluctuations in prices for key commodities in 2004-05, the merchandise trade surplus will rise to around US$1.1bn in 2004, before falling back to around US$840m in 2005. April 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 15 Economic policy 19 The domestic economy 19 Economic trends 20 Oil and gas 21 Mining 22 Agriculture, forestry and fisheries 24 Foreign trade and payments List of tables 9 International assumptions summary 11 Forecast summary 18 Central government finances 20 Quarterly inflation 22 Mineral exports by volume 23 Agricultural exports by volume 24 Exports 25 Balance of payments 26 Exchange rates List of figures 12 Gross domestic product 12 Consumer price inflation 17 Public debt outstanding 19 Interest rates 24 Mineral exports 26 Foreign-exchange reserves Country Report April 2004 www.eiu.com © The Economist Intelligence Unit Limited 2004 Papua New Guinea 3 Papua New Guinea April 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 the no-confidence motion that the opposition is likely to call for when parliament resumes on April 20th. Economic developments are expected to be fairly positive in 2004- 05. Inflationary pressures are easing, and improvements in the outlook for the agriculture, mining and oil sectors will contribute to a slow pick-up in economic growth. However, the current account will remain barely in surplus in 2004 as modest export growth will be offset by a stronger increase in imports related to mining activity and infrastructure projects. The political scene The government has announced that parliament will resume on April 20th after almost a three-month adjournment. This decision followed the Supreme Court's ruling that the election of the governor-general was null and void. Sir Michael's controversial plan to amend the constitution to extend the period during which no-confidence motions are not permitted has yet to be passed. Some coalition parties remain divided. The constitution for an autonomous Bougainville has made progress. More improvements have been sought for the defence and police forces. Legal immunity issues have hampered a PNG- Australian co-operation programme, but relations with China have improved. Economic policy The government has announced that it may seek to raise funds overseas, and it appears keen to delay key privatisations. Some of the state's assets have been transferred from the Independent Public Business Corporation. No changes to tariff policy are planned. The budget deficit fell in 2003, with dividends from mineral companies boosting revenue. Monetary policy continues to be eased. The domestic economy The central bank has estimated that real GDP expanded by 2% in 2003. Employment levels have jumped and inflation has slowed. Crude oil exports have been weak. Canada's InterOil has expanded its operations in PNG, and PNG-based Oil Search has been keen to push ahead with the much delayed Highlands Gas Project. Gold output from the Porgera mine has been impressive. The prospects for progress in the development of the Ramu nickel-cobalt project have been boosted by the signing of a deal with China Metallurgical and Construction Company. Most agricultural export volumes have improved. Foreign trade and payments Export values rose by 22% in kina terms in 2003, with strong showings by the oil and mining sectors. The kina appreciated against the US dollar by 9.4%. The current account posted a small surplus, but international reserves have fallen. Editors: Danny Richards (editor); Kilbinder Dosanjh (consulting editor) Editorial closing date: April 7th 2004 All queries: Tel: (44.20) 7830 1007 E-mail: [email protected] Next report: Full schedule on www.eiu.com/schedule Country Report April 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 parliament has yet to appoint a successor 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); Advance PNG Party (APP); People's National Congress (PNC) Main members of the National Prime minister Sir Michael Somare Executive