Publication: Papua New Guinea Economic Update, January 2021: Dealing with a Triple Crisis
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2021-01-31
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2021-02-26
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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. 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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. 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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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