Papua New Guinea Economic Update: PNG Economy Navigating a Fragile Recovery

PORT MORESBY,– A new World Bank report says Papua New Guinea’s economy is projected to grow by four percent in 2022, driven largely by growth in the extractives sector.

Papua New Guinea Economic Update: Navigating a Fragile Recovery looks at key recent developments in PNG’s economy and places these in a longer-term and global context, with the report estimating the economy returned to positive growth of one percent in 2021 after contracting by 3.5 percent in 2020.

In 2022, the extractive sector is projected to be the main driver of GDP growth – an estimated four percent – driven by the planned reopening of the Porgera gold mine. However, the report estimates that the overall medium-term growth in PNG is likely to be impacted by higher global uncertainty.

The new report says that PNG is expected to face considerable challenges from the COVID-19 pandemic, despite PNG’s economic output not being as severely impacted as in many other East Asia and Pacific economies. PNG’s extremely low level of vaccination – one of the lowest rates in the world – means COVID-19 outbreaks put significant strain on an already-stretched public health system, and pose both a risk of higher loss of life and a negative impact on domestic economic activity.

The new report also says that while local agricultural production continued unabated through the pandemic, PNG’s overall GDP growth has lagged behind global and regional averages, with performance further constrained by falling gold and liquefied natural gas (LNG) production.

“The biggest challenge for the PNG economy this year will be navigating a fragile recovery; this is particularly challenging while uncertainty remains high,” said Ruslan Piontkivsky, World Bank Country Economist for Papua New Guinea. “A sound fiscal consolidation strategy – one focused on mobilizing domestic revenue to decrease the medium-term fiscal deficit – is vital for PNG. This will be important to navigate while also prioritizing improvements to the delivery of public services.”

The new report recommends that to safeguard fiscal sustainability, PNG should aim to improve the credibility of the annual budget process, as well as ensure companies operating in the resource sector are contributing revenue back to PNG’s budget. The report also emphasizes that further improvements to the PNG’s tax policy and tax administration will ultimately help to reduce the country’s debt burden.

This PNG Economic Update also includes a special focus on how PNG can resume fiscal consolidation while improving public service delivery, which includes prioritizing improvements to health and education services. The report says that although this may result in higher social sector spending in the short-term, the combined effect should be a decrease in the medium-term fiscal deficit.

“The effect of the pandemic on the world, including PNG, has been immense, and uncertainty remains high,” said Stefano Mocci, World Bank Country Manager for Papua New Guinea. “Yet we are also seeing potential for growth in sectors such as agriculture which, as this report notes, has weathered the pandemic better than others. This relatively strong performance of agriculture reflects additional government financial support to small-medium enterprises during the pandemic.

“We will continue to work closely with the PNG Government to help further develop physical capital – including transport infrastructure to improve access to markets. Combined with improved education and health – this will be essential to creating more opportunities for all Papua New Guineans and realizing the potential of the non-resource sector.”

Papua New Guinea Economic Update: Navigating a Fragile Recovery is available here.

 

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