Country Report Papua New Guinea October 2012

Country Report Papua New Guinea October 2012

Outlook for 2013-17

• Political stability in Papua New Guinea (PNG) is likely to improve in 2013-17, as the recent general election has ended the year-long impasse between the prime minister, Peter O'Neill, and his opponents.
• The new government is protected from no-confidence votes for the first year of its term, but Mr O'Neill's decision to leave his former deputy, Belden Namah, out of his cabinet could be a source of growing tension.
• The lay-off of some 8,000 employees from the ExxonMobil-led liquefied natural gas (LNG) project as construction finishes in 2013 could pose risks to stability if alternative job opportunities are not provided.
• The government will face a number of economic policy challenges in 2013-17, largely related to the impact of the ExxonMobil-led LNG project, which the Economist Intelligence Unit now expects to start production on time in 2014.
• Real GDP growth will moderate to 5.5% in 2013, from an estimated 6.8% in 2012. Growth will pick up significantly in 2015, when LNG production reaches full capacity.
• Economic growth could be even faster if a second LNG project, in Gulf province, is approved and construction work on the scheme starts in the next five years.
• Inflationary pressures will persist in the forecast period, owing to strong growth in domestic demand. We expect inflation to average 6.3% a year in 2013-17.

Review

• Mr O'Neill has said that his government will seek to extend to two and a half years (from 18 months currently) the period during which a new government is protected from no-confidence motions, in order to aid political stability.
• The government is seeking changes to its agreement with a Canadian and UK-listed deep-sea mining company, Nautilus Minerals, which wants to develop the world's first sea-floor copper and gold project.
• Consumer prices rose by 1.9% year on year in the second quarter of 2012, down from 4% in the first quarter, owing to declining global prices for food and oil, lower betelnut prices, and kina appreciation against the US dollar.
• In September the Bank of Papua New Guinea (the central bank) cut interest rates for the first time since mid-2011, taking its main policy rate to 6.75%.
• According to the central bank, the current account recorded a deficit of K1.4bn (US$654m) in the first half of 2012, compared with a surplus of K330m (US$159m) in the year-earlier period.

Please Note: Due to the Nature of This Report The Toc is Not Available