PNG economic outlook remains positive
By DENNIS ORERE
The medium term economic outlook for Papua New Guinea remains positive, supported by the extractive sector, the World Bank says.
Country economist, based in Port Moresby, Ilyas Sarsenov presented an economic update for PNG on Thursday this week, saying economic growth is forecast to recover from 2019 to 2021, after bottoming out in 2018 when output in the extractive sector was affected by the earthquake in the Highlands area.
“Real GDP growth is projected to jump to about 5.6 percent in 2019 and then hover between 3.1 and 3.5 percent from 2020 to 2021,” said Mr Sarsenov during a press briefing at the World Bank office in Port Moresby.
This update was made in light of the World Bank’s Economic Update for East Asia and Pacific Region, which was presented on the same day via conference call from Bangkok in Thailand. Various media organisations were given the opportunity to ask questions through selected World Bank offices around the world, including PNG.
Mr Sarsenov said PNG’s medium-term macroeconomic outcomes remain, subject to downside risks. Although domestic GDP growth will resume, the growth rate may be volatile owing to external and domestic factors.
“This growth volatility is subject to the challenging external environment and an uncertain performance of the major (existing and new) resource projects in the country. Commodity-price and natural-disaster shocks may continue to impact extractive sector performance, with negative implications for the rest of the economy. Potential delays in the implementation of new resource projects may also impact macroeconomic outcomes, affecting the current underlying assumptions of the baseline scenario,” said Mr Sarsenov, who is the senior economist for World Bank in PNG.
The latest World Bank’s East Asia and Pacific Economic Update reveals that growth in developing East Asian and Pacific economies is expected to slow from 6.3 percent in 2018 to 5.8 percent in 2019 and to 5.7 and 5.6 percent in 2020 and 2021 respectively, reflecting a broad-based decline in export growth and manufacturing activity.
Weathering Growing Risks, the October 2019 edition of the World Bank’s East Asia and Pacific Economic Update, shows that weakening global demand, including from China, and heightened uncertainty around ongoing US-China trade tensions has led to a decline in exports and investment growth, testing the resilience of the region.
In the Update, World Bank Vice President for East Asia and the Pacific Victoria Kwakwa said: “As growth slows, so does the rate of poverty reduction. We now estimate that almost a quarter of the population of developing East Asia and the Pacific lives below the upper-middle-income poverty line of US$5.50 (K18.71) a day. This includes nearly 7 million more people than we projected in April, when regional growth was looking more robust.”
The regional report shows that increasing trade tensions pose a long-term threat to regional growth. While some countries have hoped to benefit from a reconfiguration of the global trade landscape, the inflexibility of global value chains limits the upside for countries in the region in the near term.
“While companies are searching for ways to avoid tariffs, it will be difficult for countries in developing East Asia and the Pacific to replace China’s role in global value chains in the short-term due to inadequate infrastructure and small scales of production,” said Andrew Mason, World Bank lead economist for East Asia and the Pacific.
The report warns that downside risks to the region’s growth prospects have intensified. Prolonged trade tensions between China and the United States would continue to hurt investment growth, given high levels of uncertainty. A faster-than-expected slowdown in China, the Euro Area and the United States, as well as a disorderly Brexit, could further weaken the external demand for the region’s exports.
To weather growing risks, the report recommends that countries with sufficient policy space use fiscal and/or monetary measures to help stimulate their economies, while guarding fiscal and debt sustainability. Countries in the region will also benefit from staying the course on trade openness and by deepening regional trade integration.
Back on the PNG front, Mr Sarsenov said: “To mitigate downside risks and strengthen economic resilience for absorbing shocks, the Government should focus on its diversification agenda. The recently-adopted Medium Term Development Plan for 2018-2022 (MTDP III) sets the stage for more inclusive and sustainable national development.”