Economy bleak, says ADB
THE country’s economic picture deteriorated because of political distraction and the deferral of large investment projects, according to the Asian Development Bank (ADB).
It said in its 2020 outlook report the country’s inflation trended lower, yet an over-valued local currency and associated foreign exchange shortages continued to hold back economic activity as well.
As fiscal balance worsened, the Government would face important challenges in managing public debt, including arrears, contingent liabilities, and state-owned enterprise debt.
Growth last year was driven by a rebound in extractive industries following the 2018 earthquake.
Liquefied natural gas (LNG) bounced back to grow by about 16 per cent last year, and crude oil production also jumped.
Mining and quarrying, which provide around 10 per cent of gross domestic product, also rebounded, notably on account of increased production at the Porgera gold mine and, to a lesser extent, the Ok Tedi gold and copper mine.
The Lihir gold mine, which was not affected by the earthquake, saw volumes fall.
Combined, these three mines contribute most mining production.
Capital expenditure at a number of mining sites, including advanced exploration works, also stimulated growth. Meanwhile, though, a legal dispute caused advanced works to be scaled down at the Wafi Golpu site last year.
The ADB report also said growth apart from minerals was weak.
“The change of the prime minister last May prompted a complete change in coalition government and leadership,” it said.
“This caused some loss of economic momentum, with people distracted by politics and the altered government taking time to become established.
“While the economic policy of new leadership did not significantly differ from the old, there were some important differences, in particular new priorities on reforming state-owned enterprises and increasing domestic ownership of mining and petroleum assets.
“In accordance with the second of these goals, new leadership sought to renegotiate two new LNG investment projects, Papua LNG and the PNG LNG expansion project in the P’nyang gas field.
“Together, these two projects were set to drive the economy with projected capital expenditure of over $10 billion (K33.61bn).
“However, negotiations were stalled, causing the projects to be deferred and dampening business confidence.”