Bank of Papua New Guinea’s quarterly report indicates economy patchy

The Bank of Papua New Guinea’s latest Quarterly Economic Bulletin points to a ‘slight improvement’ in the economy in the September quarter driven by higher government expenditure and a marginal increase in private sector lending. It records an improvement in exports and commodity prices and a slowing in the increase of inflation, but lower employment levels.

The Bank of Papua New Guinea building in Port Moresby. Credit: BAI

The report shows that, by the middle of 2017, the economy was showing some signs of improvement, although the performance was patchy.

‘Economic indicators available to the Bank of Papua New Guinea point to a slight improvement in domestic economic activity in the September quarter of 2017,’ the report said.

The Bulletin projects total GDP growth for 2017 of 2.7 per cent and the same for this year.

Non-mineral GDP growth in 2017 is projected to be 3 per cent, and 3.5 per cent this year.

Change in foreign exchange reserves Source: Bank of PNG

But the report says the improvement in the economy was heavily dependent on the extractive industries.

‘The total level of employment in the formal private sector declined by 0.7 per cent.’

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‘Excluding the mineral sector, sales fell by 4.1 per cent, compared with an increase of 1.5 per cent in the previous quarter.’

Lower employment

The BPNG report says the total level of employment in the formal private sector declined by 0.7 per cent in the September quarter of 2017, compared with a decline of 1.3 per cent in the June quarter of 2017.

‘Excluding the mineral sector, the level of employment fell by 1.2 per cent in the quarter, compared with a decline of 1.5 per cent in the June quarter.’

Employment decreased in the construction, manufacturing, agriculture/forestry/fisheries, transportation, retail and financial/business and other services sectors. It went up in the mining and wholesale sectors.

Employment declined in the Southern, NCD and Islands regions, but increased in the Highlands, Morobe and Momase (excluding Morobe) regions.

‘All urban centres experienced price increases.’

The Consumer Price Index (CPI), increased by 1.0 per cent in the September quarter of 2017, compared with an increase of 1.2 per cent in the June quarter.

The only sectors that did not record price increases were transport, communication and education, all of which recorded no change.

All urban centres experienced price increases. Annual headline inflation was 5.1 per cent over the year to September quarter 2017, compared with 5.8 per cent over the year to June quarter of 2017.

Current account, financial account and international reserves 2013-2019 (projected). Source: Bank of PNG

Accounts

The trade account and current account both continue to be strong, but the financial account remains a burden on the financial system.

‘There was an overall surplus of K327 million in the balance of payments for the nine months to September 2017, compared with a surplus of K241 million in the corresponding period of 2016,’ the report says.

‘A surplus in the current account more than offset a deficit in the capital and financial account.’

The current account improved, recording a surplus of K13,935 billion for the nine months to September 2017, compared with a surplus of K11,229 billion in the previous corresponding period.

‘The outcome was due to net outflows in direct, portfolio and other investments reflecting withdrawal of equity and investments.’

The stress on the financial system remained, however, with the deficit in the capital and financial account worsening.

It recorded a deficit of K13,639 billion in the nine months to September 2017, compared with a deficit of K10,971 million in the previous corresponding period.

This was due, the report said, ‘to net outflows in direct, portfolio and other investments reflecting withdrawal of equity and investments in short term money market instruments, and build up in offshore foreign currency account balances of resident mineral companies.’

‘Total tax revenue was up 9.4 per cent on the previous corresponding period to K6278.0 million.’

The level of gross foreign exchange reserves at the end of September 2017 was K5.57 billion; ‘sufficient for 5.6 months of total and 9.0 months of non-mineral import cover.’

Months of import cover 2013-2019. Source: Bank of PNG

Tax revenue

Government’s finances remain under pressure, according to the report.

‘The fiscal operations of the National Government over the nine months to September 2017 show a deficit of K894.6 million, compared with the deficit of K542.5 million in the corresponding period of 2016. This represents 1.2 per cent of nominal GDP.’

This was despite the total tax revenue being up 9.4 per cent on the previous corresponding period to K6278.0 million.

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