The Overall Economic Outlook
The Bank of Papua New Guinea (BPNG) has predicted a rebound in real GDP growth in 2024, primarily driven by a strong performance in the mineral sector of PNG. The country’s economy is expected to grow by around 3.0 percent in 2024, driven by the resumption of production at the Porgera gold mine and higher output of gold, copper, and silver from the broader mining sector.
The positive flow-on effects from the commencement of operations at New Porgera and increased government spending are also expected to provide opportunities for the non-mineral sector. The mineral sector is expected to be the primary driver of growth in 2024, as Barrick Gold resumes production at the Porgera gold mine after a two-year hiatus.
The Porgera mine is expected to produce around 3,200 tonnes of gold per year, making it one of the largest gold mines in the country. The resumption of production at Porgera is expected to boost gold production and support the current account surplus, which has been a key driver of economic growth in PNG. In addition, the country’s copper and silver mines are expected to increase production, driven by higher demand and higher prices.
The increased production is expected to boost exports and support the current account surplus. The non-mineral sector is also expected to benefit from the positive flow-on effects of the commencement of operations at New Porgera and increased government spending. The government has announced plans to increase spending on infrastructure projects, including roads, bridges, and hospitals, which is expected to boost economic activity and create employment opportunities. The increased government spending is also expected to support the country’s medium-term fiscal sustainability, which has been a key concern.
Business Environment Analysis
The business environment in Papua New Guinea (PNG) is expected to remain challenging in 2024, with a decline in business confidence as indicated by the Business Sentiment Survey conducted in February 2024. The decline is expected to persist due to the lingering effects of January’s civil unrest, resulting in continued pressure on business revenues and employment levels in the non-mineral private sector in the first half of 2024.
The civil unrest, which occurred in January 2024, has had a significant impact on the business environment in PNG. The unrest, which was sparked by a dispute between the government and the opposition, resulted in the destruction of property and infrastructure, as well as the displacement of thousands of people.
The impact of the unrest on the business environment is expected to be felt for several months, with many businesses experiencing a decline in revenues and employment levels. The decline in business confidence is also expected to be driven by the ongoing challenges facing the non-mineral private sector in PNG. The sector has been struggling with high operating costs, limited access to finance, and a lack of skilled labor.
These challenges are expected to continue in 2024, making it difficult for businesses to operate profitably and creating a challenging environment for investment. The business environment in PNG is also expected to be affected by the country’s infrastructure challenges.
The country’s roads, bridges, and ports are in need of repair and upgrading, which is expected to continue to pose a challenge for businesses in 2024. The infrastructure challenges are expected to be particularly pronounced in the non-mineral private sector, which relies heavily on the country’s transportation infrastructure to operate.
The Inflation and Balance of Payments
Inflation
The inflation in PNG is expected to increase in 2024 due to the continued depreciation of the Kina against the US Dollar, with the CPI projected to reach 5 percent and remain elevated throughout 2025 before easing in 2026.
The country has experienced significant current account surpluses driven by the mineral sector and LNG, copper, and gold exports. However, structural issues persist, including a deficit of foreign currency inflows into the domestic FX market
Balance of Payments
The balance of payments in PNG has been a major concern in recent years, with the country experiencing a persistent shortage of foreign currency. The shortage has been attributed to various factors, including the decline in the country’s exports, the increase in imports, and the impact of external shocks such as the COVID-19 pandemic.
The balance of payments crisis has led to a significant decline in the country’s foreign exchange reserves, making it difficult for the country to finance its imports and pay its debts
Implications
The high inflation rate and balance of payments crisis in PNG have significant implications for the country’s economy. The high inflation rate can lead to a decline in the purchasing power of the Kina, making it difficult for consumers to afford essential goods and services.
The balance of payments crisis can lead to a decline in the country’s foreign exchange reserves, making it difficult for the country to finance its imports and pay its debts
Growth Drivers and Outlook for Papua New Guinea
Papua New Guinea’s (PNG) economic growth is expected to be driven by major infrastructure projects in the coming years. The country’s medium-term outlook remains positive, with forecasts indicating further expansion in 2025.
Infrastructure-Led Growth
The country’s growth is expected to be driven by infrastructure projects, notably the “Connect PNG” program and the Papua LNG production site. The “Connect PNG” program is a government initiative aimed at improving the country’s transportation and connectivity infrastructure, including the construction and rehabilitation of roads, bridges, and ports. The Papua LNG project, on the other hand, is a major liquefied natural gas (LNG) development that is expected to boost economic activity in the country.
Investment and Employment Opportunities
These infrastructure projects are expected to drive both public and private investment in the country. The investments in these projects will boost economic activity and create employment opportunities for the local population. The increased economic activity and job creation are expected to have a positive ripple effect on the broader economy.
Positive Medium-Term Outlook
The country’s medium-term outlook remains positive, with growth in 2025 forecast to further expand to 4.6 percent. This positive outlook is driven by the continued investment in infrastructure projects, as well as the expected growth in the country’s LNG and mineral sectors.
Challenges and Risks in Papua New Guinea
Despite the positive outlook for Papua New Guinea’s (PNG) economy, there are several challenges and risks that the country faces. These challenges and risks have the potential to impact the country’s economic growth and stability.
Foreign Exchange Restrictions
One of the major challenges facing PNG is the country’s foreign exchange restrictions. The restrictions, which were implemented to manage the country’s foreign exchange reserves, have had a negative impact on the country’s economy. The restrictions have made it difficult for businesses to access foreign currency, which has led to a decline in economic activity.
Power Disruptions
Another challenge facing PNG is the frequent power disruptions that occur in the country. The power disruptions, which are often caused by technical issues or natural disasters, have a significant impact on the country’s economy. The disruptions have led to a decline in economic activity, as businesses are unable to operate effectively. Business leaders continue to call for the government to step in to address the never-ending power disruption but no solution so far.
Debt Distress
PNG also faces a high risk of debt distress. The country’s external and overall public debt is sustainable only if the authorities implement their plans for further fiscal consolidation and conservative financing strategies. Debt distress is a major concern for the country, as it has the potential to impact the country’s economic stability and growth.
Conclusion
PNG’s economic outlook for 2024 is positive, driven by the reopening of the Porgera gold mine and sustained LNG exports. The country’s mineral sector is expected to continue its resurgence, boosting gold production and supporting the current account surplus. However, inflation concerns remain a key challenge for the country, and the impact of monetary policy tightening on the economy remains to be seen. Despite these challenges, the outlook for the country’s economy is positive, driven by the continued strong performance of the mining sector and infrastructure development.
References
https://www.pngbusinessnews.com/articles/2024/4/png-s-economic-outlook-positive-for-2024-bpng-2024-mps-reports
https://www.coface.com/news-economy-and-insights/business-risk-dashboard/country-risk-files/papua-new-guinea
https://www.adb.org/news/growth-3-3-expected-papua-new-guinea-2024-4-6-2025-adb
https://www.imf.org/en/Countries/PNG
https://knowledge4policy.ec.europa.eu/publication/papua-new-guinea-economic-update-may-2024_en
