Country Report Papua New Guinea October 2009

Outlook for 2010-11

• The prime minister, Sir Michael Somare, is unlikely to complete a second successive term in office. If he is not ousted from power, it is probable that he will retire from politics before his term ends in 2012.
• Relations between Papua New Guinea (PNG) and Australia are improving, but commercial ties with China could come under strain.
• The fiscal position will improve steadily in 2010-11, as mining and petroleum revenue rises. Meanwhile, the government will spend the funds that it saved in trust accounts during the years of high commodity prices.
• The Bank of Papua New Guinea (BPNG, the central bank) will be concerned about the potential inflationary impact of the government's spending plans. This means that it is unlikely to make any major changes to its policy stance.
• The Economist Intelligence Unit forecasts that the rate of economic growth will accelerate in 2010-11, as several mining projects come on stream.
• Consumer price inflation will moderate in 2010-11, averaging around 4%. This primarily reflects the relative stability in global food and fuel prices.
• The current-account deficit will narrow steadily in the next two years, primarily owing to the general improvement in prices for the country's main export commodities.

Monthly review

• Although parliament has been adjourned until November, debate on the issue of reserving parliamentary seats for women has continued. The UN has given its support to the modest targets that have been set in PNG.
• The government managed to post a healthy budget surplus in the first half of the year, but there are concerns over the strength of its fiscal position.
• There appears to be a lack of consensus among leading government officials? over the best way to proceed with plans for two liquefied natural gas (LNG) projects.
• In a media release accompanying its Quarterly Economic Bulletin for the second quarter of 2009, the BPNG noted that growth in the domestic economy had slowed.
• Amid the apparent slowdown in the economy, and in part as a result of the? drop in global prices for fuel, consumer price inflation has continued to? decelerate.
• Exporters have suffered a sharp decline in revenue amid the global economic recession and a drop in prices for many of its export commodities. The value of PNG's exports in the second quarter contracted by 43% year on year.

Source: Country Report