Country Risk Service Papua New Guinea April 2013 Updater

Country Risk Service Papua New Guinea April 2013 Updater

Overview

Political stability in Papua New Guinea (PNG) is likely to improve in 2013-17. Last year's general election ended the impasse between the prime minister, Peter O'Neill, and his predecessor, Sir Michael Somare. Moreover, the government is protected from no-confidence votes for the first 30 months of its term. The lay-off of around 8,000 workers at the ExxonMobil-led liquefied natural gas (LNG) project as construction finishes in 2013 could pose risks to political stability if alternative jobs are not found for them. The government will face a number of economic policy challenges in 2013-17, largely related to the impact of the LNG project, which the Economist Intelligence Unit expects to start production on time in 2014. Real GDP growth will moderate significantly in 2013, to 2.8%, from an estimated 7.4% in 2012, as the construction phase of the LNG project ends. Inflationary pressures will persist, owing to strong domestic demand.

Key changes from last month

Political outlook

Around 30 petitions questioning the results of the 2012 parliamentary election remain unresolved. There is a slim chance that disgruntlement over the conduct of the poll could coalesce into a movement that threatens political stability.

Economic policy outlook

After running a budget deficit equivalent to 1% of GDP in 2012, the government is aiming to widen this considerably in 2013, to 7.2% of GDP, with huge increases in spending on education, health and infrastructure. We are sceptical about the government's ability to disburse its budget and so expect a narrower deficit, equivalent to 3.9% of GDP.

Economic forecast

On an annual average basis the kina will strengthen in 2013-14 against most major currencies, including the US and Australian dollars, on the back of healthy inflows of foreign direct investment and rising exports. We expect the kina's value to rise to an average of Kina2.06:US$1 in 2013 and to Kina2.03:US$1 in 2014, from Kina2.08:US$1 in 2012.

Due to the nature of this product there is no table of contents.