A World Bank commitment of US $ 200 million to help the PNG Government address critical development priorities stands to ameliorate cyclical forex constraints PNG business are faced with.
The World Bank last month committed US$200 million (PGK704 million) to support three sectors: transportation; child nutrition; and enhancing labour mobility.
Banks South Pacific which around the same time reported a hike in forex orders from business houses sees the World Bank assistance as a relief to the present forex market condition.
“Of these projects, we anticipate that the largest foreign exchange (FX) inflows will come from the capital-intensive “Resilient Transport Project”, which focuses on improving and rehabilitating road linkages throughout PNG and will be heavily dependent on local suppliers of materials, equipment, fuel and transport,” CEO Robin Fleming tells PNG Economics Bulletin.
“In support of the government’s Connect PNG initiative, the World Bank has committed US$92.5 million (PGK325.7 million) for transport projects to be implemented between 2022 to 2029, which will likely see a steady stream of FX inflows over the implementation timeframe,’ he predicts.
BSP also expects that the re-opening of the Porgera Mine will be a key priority for the government.
“As reported by local media in June this year, the negotiations are in their final stages and we are optimistic that an agreement will be reached in the near-term.
In addition to the boost this provides to gross domestic product (GDP) and government revenue, we see that capital injections to restart the mine will materially improve FX inflows and ease current shortages. Additionally, mining-adjacent sectors will also benefit from the uplift in activity with some spill-over into retail, wholesale, and accommodation sectors.
The Government has undertaken a massive public infrastructure investment exercise, with support from donor partners like the World Bank and friendly support from neighbouring countries”.
This expenditure on infrastructure projects is expected to be a key driver to stimulate economic activity and provide a foundation on which to capitalize on the upside from resource projects.
With emerging mining projects expected to boost activity in the medium-to-long term, PNG’s existing resource projects and commodity exports have performed well in 2022 with increased FX receipts and a higher contribution to GDP.
“Currently, were are seeing record-high prices for PNG’s major exports with crude oil and LNG prices gaining circa 52% and 60%, respectively since the year began. Gold has also been attractive on the world market since the start of the pandemic with volatility and safe haven demand driving up prices for this key export.
The extractive industry will continue to be the main driver of top line macroeconomic indicators, while improved prices for agriculture commodities is expected to provide stimulus to the grassroots in the short-term,” Fleming said.
