Westpac PNG Economic Bulletin
Global economy remains fragile with a dampened outlook for 2023. Nonetheless, PNG continues to make strides towards recovery.
Author: Krishal Prasad, Senior Economist, Westpac Fiji. Level 1, 1 Thomson Street, Suva, Fiji
Phone: +679 9995184, Email: krishalprasad@westpac.com.au
Read full report: Westpac PNG Economic Bulletin
- Global economy remains fragile with a dampened outlook for 2023.
- Nonetheless, PNG economy continues to make strides towards recovery.
- The progressive dynamics in 2021 and 2022 have set the tone and momentum for further optimistic outcomes in 2023.
- Real GDP is projected at around 5.1% for 2023 following an estimated firm growth in 2022.
- Excess liquidity in the banking system remains high and financial sector is stable.
The war in Ukraine is impacting PNG through higher commodity prices and higher inflation, with the former leading to a stronger balance of payments and fiscal revenues, given that PNG is a large commodity producer. Foreign reserves remain comfortable. Inflation is currently high but is expected to moderate in 2023.
Risks to the growth outlook remain.
The global fight against inflation, Russia’s war in Ukraine, and a resurgence of COVID-19 in China weighed on global economic activity in 2022, and the first two factors will continue to do so in 2023. The rise in central bank rates to fight inflation and Russia’s war in Ukraine continue to weigh on economic activity. The rapid spread of COVID-19 in China dampened growth in 2022, but the recent reopening has paved the way for a faster-than-expected recovery.
Taking the above into account, the International Monetary Fund (IMF) in its latest World Economic Outlook (WEO) project global growth to fall from an estimated 3.4 percent in 2022 to 2.9 percent in 2023, then rise to 3.1 percent in 2024. Global inflation is expected to fall from 8.8 percent in 2022 to 6.6 percent in 2023 and 4.3 percent in 2024, still above pre-pandemic (2017–19) levels of about 3.5 percent.
While its already looking like another challenging year for the global economy, the Papua New Guinea (PNG) economy seems to be well placed for continued recovery in 2023. The improvement in COVID-19 situation and the successful general elections in PNG has given an uplift to economic activity in the country. Domestically, PNG economy has made good progress in business activity supported by strong performance of the non-extractive sector (agriculture), pointing towards resilience despite growing inflationary pressures.
After making a rebound in 2021, the PNG economy is estimated to have grown further in 2022 with an estimated real GDP growth of around 4.0 percent, largely driven by increases in international prices, emanating from the Russia-Ukraine war, and higher production of both mineral and non-mineral commodities.
The projected increase in activity in the manufacturing, wholesale, retail, transportation, and hotels and accommodation sectors following the impact of COVID-19 and higher spending by the Government will also supported growth. Additionally, supporting this outcome is the labour market which noted improvement in 2022 as total employment in the private sector increased by 2.3 percent in the first half of the year and estimated to have growth further in the second half of the year post the general elections, reopening effect and further ease in COVID environment.
Leading on from the progressive dynamics in 2021 and 2022 have set the tone and momentum for further optimistic outcomes in 2023. Despite the challenging external environment, the economic outlook in PNG remains positive, underpinned by an ongoing projected recovery in the extractive sector, higher commodity prices, and gradual recovery in economic activity. Agriculture will remain among the key contributors to the economic recovery in 2023. The other major sectors to drive growth in 2023 include manufacturing, wholesale, retail, transportation, construction, real estate and hotels & accommodation sectors. As such, the real GDP for the PNG economy is expected at around 5.1 percent for 2023. The extractive sector continued weak performance driven by disruptions to mining operations. The ongoing shutdown of the Porgera mine was a key driver of this result, along with disruptions to production in the Lihir, OK Tedi, and Simberi mines. Porgera mine is expected to reopen in 2023.
Fiscal response has played a crucial role in the recovery of the PNG economy through the last two years.
The preliminary fiscal operations of the National Government over the six months to June 2022 show a deficit of K2,078.1 million, compared to a deficit of K2,690.5 million in the corresponding period of 2021. The lower deficit reflected improvement in revenue. Total revenue and grants was K7,988.9 million over the six months to June, 45.1 percent higher than in the corresponding period of 2021 and represents 49.3 percent of the 2022 Budget amount. The outcome reflected higher tax revenue. Total expenditure was K10,067.0 million over the six months to June 2022, 22.8 percent higher than in the corresponding period of 2021 and represents 45.4 percent of the 2022 Budget. This was due to higher recurrent expenditure and interest cost.
The developments in the revenue and expenditure in the June quarter resulted in a deficit of K2,078.1 million. The deficit was financed mainly from domestic sources totalling K2,264.0 million, which more than offset the net external loan repayment of K185.9 million. Net domestic financing comprised of K2.4 million, K1,139.6 million, K4.9 million, along with disruptions to production in the Lihir, OK Tedi, and Simberi mines. Porgera mine is expected to reopen in 2023 with subsequent impact on growth in 2023.
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