Greg Pawson, the recently appointed Chief Executive of Kina Securities, believes the world economy is showing signs of recovery, which will have a positive effect on Papua New Guinea. But he believes that the country still faces big structural challenges.
‘The global economic upswing that started in 2016, and has been much publicised, has continued to strengthen in 2017,’ Pawson told the Prime Minister’s Back to Business breakfast in Port Moresby last week.
He said last November 120 economies, representing three-quarters of the world’s GDP, indicated they had improved growth in 2017.
‘The IMF this month marginally improved its prediction of global growth to 3.9 per cent., following the much publicised tax cuts by the US Trump administration.
‘This also follows a positive growth outlook for China and a relatively stable outlook for Europe.’
Pawson said the more positive outlook is not without its risks. ‘We have seen heightened geo-political tensions particularly in North Korea, the Middle East and the South China Sea – as well as the rise of economic nationalism in many parts of the world.
‘These will obviously present challenges for the global outlook as world leaders attempt to balance these risks with their domestic objectives to drive growth and investment.’
‘PNG has ‘had some difficult fiscal challenges over the last three years with the decline of commodity prices.’
Pawson cited ADB forecasts that developing Asia will grow this year ‘at a very modest 5.7 per cent’ underpinned by increasing consumption from China and India.
Pawson commented that ‘while PNG has ‘had some difficult fiscal challenges over the last three years with the decline of commodity prices’, they are similar to the problems faced by other developing commodity-producing nations, such as Venezuela, Brazil and Nigeria.
‘We see a common theme here. [These] governments are facing difficult choices with declining revenues and balance of payments issues potentially leading to currency depreciation and inflation.’
‘Inflation is being kept reasonably in check at 5.9 per cent.’
The PNG economy, he said, had seen relatively flat growth over the last 12 months. ‘We expect that these conditions will continue over 2018.’
The currency, he observed, ‘has been relatively stable,’ but he noted that the backlog in foreign exchange is ‘still a significant structural issue’.
Pawson said the lack of sufficient foreign currency is ‘having downstream impacts on the level of activity’ and is compromising future growth potential.
‘It goes without saying that businesses have been doing it tough and we are certainly seeing signs of stress.
‘The government is continuing to take a relatively cautious approach to fiscal management for 2018, keeping the fiscal deficit to ratio to 2.5 per cent.
‘Inflation is being kept reasonably in check at 5.9 per cent and forecast to go to 6.1 per cent over the course of this year.’ Import demand has slowed because of weakening demand.
Pawson did detect some positive signs, however.
‘With the potential for higher commodity prices, and the potential increased LNG flows later in 2018, this should serve as a catalyst to make further progress on clearing the backlog on import currency orders.’
Diversification a challenge
Pawson revealed Kina Bank’s ‘ house figure’ for GDP growth in 2018 is 2.4 per cent. He said the key challenge of the country remains the diversification of the economy ‘to ensure economic and job opportunities for the bulk of the population and buffer the economy against volatility in the markets.
‘The economy is very narrow and has limited resilience to shocks. Pleasingly, though, non-mineral GDP growth is expected to pick up this year from 1.9 per cent to 3.5 per cent.
‘This is very encouraging for the development of new industries in the formal sector to drive jobs growth.’
Pawson added that the burgeoning relationship with India offers some good prospects.
‘The Indian economy presents some interesting opportunities for us here in PNG as that country tackles difficult internal reforms and looks to strengthen its position in the region and globally.’
Image Source: http://www.pm.gov.pg