THE PNG economy grew 11.1% in 2011, one of the fastest rates anywhere in the world. It was buoyed by PNG LNG project spending as well as increased government expenditures in the midst of political turmoil and the lead-up to the 2012 national election.
Treasury is predicting something of a slowdown in the current year, as is the World Bank, IMF and Asian Development Bank.
None of the estimates can be treated as very credible.
As with many projections by economists, there is something of a herd instinct that partly explains why these august institutions were unable to warn of major impending events, such as the 2008 global financial crisis, or the Asian crisis a decade earlier.
In the case of PNG there is one further reason for estimates and projections to be wide off the mark.
As in Australia and most other countries, national accounts are prepared by the National Statistical Office.
Elsewhere there is a lag of three to four months for data collection so reasonably accurate GDP estimates for 2011 for most countries should be available by the end of the first quarter this year.
In PNG’s case the NSO has not updated national account figures since 2006.
Treasury and the Central Bank (BPNG) have to rely on incomplete data in order to make their projections.
The closest one comes to such forecasts are from the Central Bank through its half-yearly Monetary Policy Statement and from Treasury through annual budget and mid-term economic reviews.
In its December 2010 quarterly, issued on April 28 last year, the Central Bank forecast that GDP growth in 2010 should be around 8%.
Treasury, however, in its 2011 national budget seven months later projected 2010 GDP growth at 7.1%. Actual growth, according to Treasury, came in at 7.6%.
BPNG forecast at the time GDP would grow by 9.5% in 2011, while Treasury put it at 8% against a final outcome of 11.1%.
Both BPNG and Treasury were wide off the mark.
The IMF’s Article IV Consultation Report in May 2012 placed last year’s growth at 8.9%, apparently drawing from the estimate made by the PNG Treasury in the 2012 budget released in November 2011.
Anyhow all agencies appear pretty sure there will be a further slowdown in the current year which is understandable given the incredible spurt in 2011.
The 2012 budget (Treasury) placed likely growth this year at 7.8% compared with its 2011 budget projection of 5.1% and its 2010 projection of 2.9%. Obviously things have been getting better along the way.
Treasury has been notoriously conservative in its GDP projections, as shown by the above examples.
One of the reasons appears to be linked to a determination to talk down or minimise the likely impact of the LNG project on grounds that much of the spending is on overseas equipment and labour.
With the anticipated slowdown in LNG construction activities – the focus next year will be on completion of the Hides gas conditioning plant and the LNG plant in Port Moresby – Treasury has been forecasting next year’s growth will slow to 3.8% (2012 budget) compared to its previous budget of a miniscule 1.6%.
Unless there is another crash of the proportion of that which took place in September 2008, this is a most unlikely scenario and growth is likely to be around the 6% mark or better.
Treasury had previously been bearish about 2013 because it anticipated closure of the Ok Tedi mine in that year and it is reluctant to take into consideration any project that has not formally hit the starting block. This is partly why so many projections are way off the mark.
Ok Tedi has now announced mining will continue until 2015 by which time, given government and community approvals, it expects to undertake a new development phase that would add 10 or more years to its mine life.
Other factors that will come into play include the completion of the million ounce upgrade at the somewhat problematic Lihir gold mine and the expectation that Ramu Nickel should attain full production by mid-2013.
It probably will be too much to expect, given the continuing uncertainties that full construction would have commenced on either the Solwara 1 deep sea mining venture of Nautilus Minerals or the LNG project of InterOil.
However, construction may well start in 2013 on the Stanley condensate export and power project, providing further impetus to economic growth.
The big imponderables at this time are whether two mega mining projects may get the green light with the completion of their feasibility studies – Marengo Mining’s Yandera copper-molybdenum project and Xstrata-Highland Pacific’s Frieda River project.
For the moment much of this may appear somewhat academic but the PNG economy overall will surge to a new level once exports commence from the PNG LNG project, with Treasury anticipating that, with a full year of LNG exports to consider, GDP will experience a 21.1% growth spurt in 2015.
But that dash of usual Treasury conservatism has placed its GDP growth projection for 2016 back at a mere 5.1% in 2016 which also seems too much of a deceleration even if construction of the third LNG train isn’t kicking in.
SOURCE: PNG Industry News.net
