Population 6.826 million
GDP 15.393 US$ billion
@rating
country
Business climate
assessment
| 2010 | 2011 | 2012(e) | 2013(f) | |
|---|---|---|---|---|
|
GDP growth (%)
|
7.4 |
8.9 |
7.5 |
4.5 |
|
Inflation (yearly average) (%)
|
6 |
8.4 |
6.8 |
6.7 |
|
Budget balance (% GDP) *
|
3.1 |
0.5 |
-2.5 |
-2 |
|
Current account balance (% GDP)
|
-25.6 |
-36.4 |
-28.4 |
-20.2 |
|
Public debt (% GDP)
|
25.6 |
25.2 |
23.2 |
21.3 |
| (e) Estimate (f) Forecast * grants excluded | ||||
STRENGTHS
- Abundant natural resources: minerals (copper, gold nickel, cobalt), hydrocarbons (oil, gas), and raw materials (wood, coffee, cocoa, palm oil)
- Construction of a liquefied natural gas production facility
- Foreign investments in raw materials sector
- Financial support of multilateral institutions
WEAKNESSES
- Highly exposed to natural disasters
- Weak infrastructures
- Low literacy rate
- Lack of skilled labour
- Major governance shortcomings
- Private sector external debt rising sharply
Risk assessment
In run-up to completion of works on liquefied natural gas works, growth is slowing
Growth was strong in 2012, spurred by public and foreign investment in the construction of the liquefied natural gas (LNG) exploitation project and mining activity (work at several mines). Growth is expected to slow in 2013 as of a decline in investments with the LNG project entering its final construction phase (production and exports are not due to start before 2014-2015). Moreover, private consumption is likely to be less sustained due to the expected fall in rural household incomes resulting from more moderate prices for agricultural products. On the supply side, non-mining sectors like transport, telecommunications or services will remain lively. In contrast, despite new output from the Ramu Nico mine (nickel and cobalt), the hydrocarbon (oil) and minerals sectors will be adversely affected by a drop in production, with several fields reaching maturity.
Meanwhile, thanks to less sustained domestic demand and the appreciation of the kina, inflation is likely to be relatively contained. Nonetheless, core inflation (excluding products with volatile prices) will remain high, due to persistent bottlenecks like the lack of a skilled workforce and inadequate infrastructures.
Weak financial position while waiting launch of LNG production
In 2012, the LNG exploitation project accounted for the scale of the current account deficit. In 2013, work is expected to enter its final phase, which should result in a marked decline in good and service imports. At the same time, despite nickel and cobalt production, several fields are approaching maturity resulting in weak growth in mining exports (three quarters of exports). Despite the decline in foreign investment (a trend which began last year as the LNG construction peak came to an end), these capital flows are expected to broadly cover the current account deficit. Almost the entirety of these investments is from the private sector, which fuel the strong growth in private external debt (96% of GDP expected in 2013 after 82% in 2011 and 12% in 2008).
Last year the country posted a fiscal deficit due to a sharp increase in social spending and public investment in an electoral context (June 2012 elections). In 2013, continued high levels of public investment and weak fiscal revenues (linked to the downturn in oil and mining output) will most likely explain the ongoing deficit. The situation is likely to improve in the medium term thanks to income from LNG production (with the creation of a sovereign wealth fund for managing the revenues).
Towards greater political stability but social tensions remain
Following his appointment by Parliament to lead the country during 2011 (in connection with 76-year old Prime Minister Sir Michael Somare’s declining health), Peter O’Neill (People’s National Congress party) has had to contend with intense political tensions, including an attempted military mutiny aimed at reinstating Sir Michael Somare in January 2012. During the August 2012 general elections, the PNC won a big victory enabling his appointment as Prime Minister with the real political legitimacy that had till then been lacking. The Prime Minister’s popularity will not prevent ongoing social tension fuelled by inequality and poverty: most of the population lives in the countryside and practises subsistence agriculture. Now that work at the LNG project is nearing an end, tensions could be heightened if the 8000 construction workers fail to find another job.
Meanwhile, the country suffers from major governance shortcomings (like high levels of corruption).
