Publication: Papua New Guinea Economic Update, January 2021: Dealing with a Triple Crisis
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2021-01-31
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2021-01-31
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In 2020, Papua New Guinea faced three crises: the COVID-19 health emergency, an economic contraction, and political turmoil. The economy contracted by 3.8 percent in 2020 and will rebound by 3.5 percent in 2021. Considering that the economy entered the COVID-19 crisis with a poor record of resilience to external shocks, strengthening macroeconomic management and accelerating structural reforms will be vital. Strengthening public institutions that deliver basic public services, especially during crises, is also important.
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“World Bank. 2021. Papua New Guinea Economic Update, January 2021: Dealing with a Triple Crisis. © World Bank. http://hdl.handle.net/10986/35194 License: CC BY 3.0 IGO.”
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Publication Papua New Guinea Economic Update, January 2020(World Bank, Washington, DC, 2020-01-31)Papua New Guinea’s economy continues to face economic headwinds resulting from global and domestic economic uncertainties. PNG’s real GDP, despite rebounding to 5.6 percent in 2019, is expected to fall and hover at around 3 percent on average between 2020¬ and 2022, posing many negative risks, including exposure to unexpected external shocks or potential domestic political and economic turbulence. Projected GDP growth rates are lower than our previous forecasts, mainly due to delays in finalizing agreements and launching implementation of large new resource projects. The other major factor that impacted the downgrade in the growth outlook include heightened global uncertainty due to (i) a partial nature of the recent trade deal between the United States and China and (ii) a fresh emergence of new risks to Chinese and global growth, including a novel coronavirus. The report also provides an in-depth examination of the relationship between inclusiveness of growth and human capital (the health, knowledge, skills and resilience people accumulate). The report evaluates the implications of recent trends and policy reforms alongside the government’s stated development objectives, emphasizing that increased investment in human capital will be a critical prerequisite to achieving quality and inclusive growth in PNG.Publication Papua New Guinea Economic Update, January 2019(World Bank, Washington, DC, 2019-01-31)The PNG economy has become increasingly concentrated in petroleum-and-gas-related activities since 2014, raising its vulnerability to external shocks, including commodity-price shocks and natural disasters. In recent months, however, the authorities have taken decisive action to promote greater diversification of the economy. Ongoing reforms to strengthen the monetary and exchange rate policy and framework are expected to improve business confidence and increase private investment and growth in the non-resource economy. Measures include addressing the FX shortage, managing the liquidity effects of the use of FX to clear the FX orders backlog, working on greater exchange rate flexibility, considering options for strengthening the interest-rate transmission mechanism, and enhancing modeling capacity in the Bank of Papua New Guinea (BPNG). In this context, the government and the BPNG will need to ensure regular, transparent, and consistent communication with all stakeholders to minimize the risk of confusion and market disruption. Papua New Guinea’s medium-term economic outlook is relatively sanguine, underpinned by further large-scale resource projects. Real GDP growth is forecast to rebound to about 5 percent in 2019, primarily driven by a return to full annual production in the extractive sector. In the years after, growth is estimated to ease to its current potential of 3-4 percent a year, until planned investments in LNG and mining projects kick in. Future large-scale investment in the resource sector appears likely, with plans to double LNG production and develop new gold, copper, and silver reserves. With increased FX inflows into the economy, the current pressure on the exchange rate may reverse, adversely affecting the competitiveness of the non-resource economy. To facilitate broad-based, inclusive, and sustainable development, the government will need to focus more on investing in human capital and strengthening the business environment to spur private sector development, as elaborated in the World Bank’s Systematic Country Diagnostic and summarized in the special focus section of this report.Publication Papua New Guinea Economic Update, July 2019(World Bank, Washington, DC, 2019-07-01)Papua New Guinea’s (PNG) economy has started recovering from a series of external shocks, but its growth outlook remains fragile due to rising uncertainties. The recovery is being observed in the resource sector, mainly in its extractive segment dominated by liquefied natural gas (LNG), while growth in the non-resource economy remains subdued due to sluggish domestic demand. A longer-term government agenda of building an inclusive and sustainable economy will require a focus on structural reforms. It also looks at sector-specific issues and identifies a set of implementation actions for each priority sector. Agriculture is one of the priority sectors due to its large share of the economy and the vast population living in rural areas that is involved in subsistence and cash income agriculture. To realize the potential of agriculture as a source of income and job creation, the authorities should consider policy options and responses that will secure sustainable rural livelihoods in food and agriculture, as discussed in the report.Publication Papua New Guinea Economic Update, July 2020(World Bank, Washington, DC, 2020-07)Papua New Guinea’s economy has been hit hard by the COVID-19 crisis due to weaker demand and less favorable terms of trade. Pandemic-related global and national movement restrictions have weakened external and domestic demand and affected commodity prices, which will lead to an economic contraction, wider financing gaps in the external and fiscal accounts, and higher unemployment and poverty than previously anticipated in 2020. The authorities reacted swiftly to the emerging external shock by developing a package of emergency health and economic relief measures. While the focus of the authorities is currently on crisis mitigation measures, they should also look beyond the current year at a more robust and resilient recovery over the medium term. In addition to the economic analysis, the report contains additional sections dedicated to physical infrastructure development in PNG. The infrastructure section suggests that the provision of more equitable access to quality infrastructure will be crucial once the country moves to the recovery and resilience phase of COVID-19 response. While improving the quality of infrastructure in PNG faces serious constraints, the country’s abundance of natural resources is a potential source for financing the work and government’s stated vision and strategy can provide necessary policy guidance.Publication Papua New Guinea Economic Update, September 2022(Washington, DC, 2022-09)The Special Focus for this issue is on long-term growth, emphasizing the challenges PNG is facing. The chapter identifies the underlying challenges of low and volatile growth in the country and aims at starting a public discussion to better understand the problems and, thus, contribute to finding solutions. The modest headline economic growth in PNG has translated into meager per capita income growth in the past four decades. While the economy expanded by 3.2 percent on average during 1980-2021, per capita GDP recorded an average annual growth rate of only 0.9 percent. The gap in per capita income level compared to peer countries has typically widened. Despite being at a similar level of development in the 1970s and some progress gained in the early 1990s, PNG’s income level is diverging away from the EAP region. This calls for a renewed policy focus on boosting economic growth. A new growth strategy would need to address the three interrelated growth challenges that the economy is facing: (i) excessive macroeconomic volatility; (ii) low productivity growth; and (iii) excessive reliance on natural capital and not enough on human and institutional capital.
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