The Papua New Guinea economy is forecast to expand by four percent in 2022, up from one percent in the previous year, according to the latest World Bank Economic Update, released last week.
This return to growth following a sharp contraction of -3.5 percent in 2020 mostly driven by strong performance in the non-extractive sector, with agriculture being among the key contributors to economic recovery.
The report, Benefiting from High Commodity Prices, looks at recent key developments in PNG’s economy, and places these in the longer-term global and regional context where growth is decelerating, and inflation is surging in many countries due to rising food and energy prices, largely caused by disruptions in the supply chain triggered by the Russia-Ukraine war.
Despite the challenging external environment, the economic outlook in PNG remains positive, underpinned by a projected recovery in the extractive sector, higher commodity prices, and gradual recovery in economic activity. On top of this, the easing of COVID-19 policies by local authorities is increasing domestic economic activity.
“It is encouraging to see the economy returning to growth after a very challenging few years,” Stefano Mocci, World Bank Country Manager for Papua New Guinea, said.
“Now is the time to consolidate economic reforms that focus on key development challenges for the benefit of all the people in the country,” the country manager said.
The extractive sector did not rebound in 2021 also due to disruptions to mining operations. Nonetheless, elevated prices for commodities – in particular natural gas – will likely provide the country with additional revenue this year.
“International commodity markets have been performing well for PNG, helping the economy to grow, and revenue coming into the national budget has increased. However, these conditions are not likely to remain for long,” Ruslan Piontkivsky, World Bank Country Economist for Papua New Guinea,” said.
“A reduction in commodity prices, and a lower demand for exports from the decelerating global economy are significant risks, and might result in slower than expected economic growth. Authorities should be prepared for this, in particular by continuing fiscal reforms that include higher revenue mobilization.”
The PNG Economic Update also includes a special focus on Boosting Economic Growth. Given the country’s abundant geographic and natural resources, the report argues that PNG’s economy can – and should – grow faster. Although the economy has more than tripled in size since independence in 1975, real GDP per capita has increased by only 0.9 percent per year; a low growth rate compared to peer countries.
The report recommends a renewed policy focus on economic growth, not only on the short-term factors affecting the outlook for the next year, but also on the longer-term drivers of the growth and welfare of the people. To achieve this, PNG should aim to renew its growth strategy to address three interrelated challenges: excessive macroeconomic volatility, low productivity growth, as well as excessive reliance on natural capital and not enough investment in human and institutional capital.
“With a growing young population, PNG’s future growth and quality of life hinge on improving human capital,” said Stefano Mocci, World Bank Country Manager for Papua New Guinea. “While PNG’s wealth has been dominated by natural capital, over the decades PNG has made limited progress in improving human capital and it is vital for government and its partners to invest in this area.”
“We will continue to work closely with the PNG Government to help create opportunities and improved access to markets, education, and health– this will be essential to creating sustainable growth.” the country manager concluded.