From 1% to 4%

In 2022, the economy of Papua New Guinea (PNG) is predicted to grow by 4%, up from 1% in the previous year, according to the most recent World Bank Economic Update, which was published on September 14, 2022. 

 The Asian Development Bank (ADB) said the country’s fiscal position had deteriorated due to the pandemic and the fall in oil and gas prices, but the government had taken steps to improve the situation. 

 “The government has introduced a number of measures to improve the fiscal situation, including cutting discretionary spending, raising taxes, and increasing borrowing,” the ADB said.

 Following a severe contraction of -3.5 percent in 2020, PNG’s return to growth was mostly fueled by the non-extractive sector’s good performance, with agriculture serving as one of the major drivers of economic recovery. 

Report of Benefiting from High Commodity Prices

 Benefiting from High Commodity Prices examines recent significant economic developments in PNG and places them in a longer-term global and regional context where growth is slowing and inflation is rising in many countries as a result of higher food and energy prices, which are primarily brought on by supply chain disruptions brought on by the Russia-Ukraine war.

 A forecast rebound in the extractive industry, rising commodity prices, and a gradual recovery in economic activity are supporting PNG’s positive economic prognosis despite the difficult external environment. Additionally, local governments’ relaxation of COVID-19 regulations are boosting domestic economic activity. 

 Stefano Mocci, the World Bank’s country manager for Papua New Guinea, remarked, “It is encouraging to see the economy returning to growth after a very challenging few years… Now is the time to consolidate economic reforms that focus on key development challenges for the benefit of all the people in the country.”

 Increased exports of tea, palm oil, and copra were major factors in agriculture’s contribution to the economic recovery that started in 2021. The delays to mining activities also prevented the extractive industry from recovering in 2021. However, increased commodity prices, particularly for natural gas, will probably bring in more money for the nation this year. 

  “International commodity markets have been performing well for PNG, helping the economy to grow, and revenue coming into the national budget has increased.”

Risks and challenges to PNG’s economy

 However, the World Bank’s country economist for Papua New Guinea, Ruslan Piontkivsky, stated that these circumstances are unlikely to last for very long.

 “A reduction in commodity prices, and a lower demand for exports from the decelerating global economy are significant risks, and might result in slower than expected economic growth. Authorities should be prepared for this, in particular by continuing fiscal reforms that include higher revenue mobilization.”

 A specific emphasis on accelerating economic growth is also included in the PNG Economic Update. The paper contends that PNG’s economy can and should expand more quickly given the nation’s numerous geographic and natural resources. 

 Despite these positives, Papua New Guinea’s economy nevertheless faces several difficulties. 

 Even though the economy has grown by more than three times since gaining independence in 1975, the real GDP per capita has only grown by 0.9 percent annually.

 High levels of poverty and unemployment, environmental degradation, and a lack of skills and education are all constraining growth. The government will need to continue with its reforms and invest in education and training if it is to succeed in overcoming these challenges.

 The research urges policymakers to put more emphasis on economic growth, including both the longer-term elements that will effect growth and human welfare as well as the short-term factors that will affect the prognosis for the coming year. In order to do this, PNG should attempt to update its growth strategy in order to solve three interconnected problems: high macroeconomic instability, poor productivity growth, overreliance on natural resources, and inadequate investments in human and institutional capital. 

 The improvement of human capital is essential for PNG’s future prosperity and quality of life, according to Stefano Mocci, the country manager for the World Bank in Papua New Guinea.

  “While PNG’s wealth has been dominated by natural capital, over the decades PNG has made limited progress in improving human capital and it is vital for government and its partners to invest in this area.”

 “We will continue to work closely with the PNG Government to help create opportunities and improved access to markets, education, and health—this will be essential to creating sustainable growth.”

 Did you know that Vietnam is also another country that is an emerging player in the global stage? Its economic growth is largely driven by manufacturing outputs. Read more about it here.

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