An overview of Papua New Guinea’s economy, including key industry sectors and GDP growth figures.
Harbour City. Credit: BAI
Papua New Guinea (PNG) is the largest Pacific Island economy. According to the Papua New Guinea Department of Treasury, PNG’s nominal gross domestic product (GDP) in 2019 was US$24.13 billion (K84.55 billion).
According to the World Bank, PNG is the tenth most resource-dependent economy in the world; its economy is dominated by large, capital-intensive and mainly foreign owned resource sector in mining and petroleum.
Since 2013, PNG’s GDP has approximately doubled, although growth rates have been uneven, in part because of large outflows due to debt payments on the PNG LNG project, which has affected the country’s reserves of foreign exchange. The country’s main industries are:
There is activity in such sectors as building and construction, telecommunications, retail/wholesale, tourism and business services. This growth has also been achieved in spite of a gradual decline in foreign aid levels since 1980.
Papua New Guinea is a dual economy. There is a strong trade surplus in goods, and trade is a high proportion of overall economic activity. In 2017, Papua New Guinea had the world’s second highest current account surplus to GDP (25 per cent). The Bank of Papua New Guinea estimates the current account surplus in 2019 to have been K19.99 billion (23.6 per cent of GDP).
But this does not translate into job creation or strong inflows of foreign exchange. One reason is a poor tax return. In 2010, revenue from mining and petroleum corporate taxes constituted 20 per cent of the government’s revenue. By 2019, the contribution was down to about 2 per cent.
Total non-mining GDP is US$17.36 billion (K60.85 billion). About 85 per cent of the population is in the informal sector.
Unlike many other countries classified as ‘developing,’ the country has never defaulted on an overseas debt, mainly because its debts were at concessional rates and owed to multilateral organisations. In 2018, it did its first formal international debt raising with the placement of a US$500 million (K1.75 billion) sovereign bond. The bond was oversubscribed.
The PNG Government has recorded budget deficits since 2013. In 2016 the deficit was K2.11 billion, 3.1 per cent of GDP; in 2017 the deficit was K1.79 billion, or 2.4 per cent of GDP; in 2018 the deficit of K2.04 billion or 2.5 per cent of GDP. In 2019 the Budget was initially forecast to be K1.87 billion, 2.1 per cent of GDP. But a later Supplementary Budget increased that deficit, with the Treasury estimating the deficit to be K4.63 billion, which equates with 5.4 per cent of GDP. After the COVID-19 crisis hit in 2020, the Budget deficit is projected to rise from the budgeted level of K4.63 billion (-5.0 per cent of GDP) to K6.63 billion (-8.1 per cent of GDP).
As of April 2020, Standard & Poor’s lowered its currency sovereign credit rating on PNG to ‘B-‘ from ‘B’. It affirmed its ‘B’ short term sovereign credit. The outlook was considered stable. Moody’s has a B2 rating with a ‘stable’ outlook.
PNG’s GDP by industry sector in 2019
- Agriculture, forestry & fishing 17%
- Oil and gas extraction 17%
- Mining and quarrying. 10%
- Manufacturing 2%
- Construction. 6%
- Wholesale and retail trade. 9%
- Transport, storage and communications 2%
- Accommodation and food services 2%
- Information and communication 2%
- Finance, real estate and business services 3%
- Real estate activities 6%
- Administrative and support services 7%
- Education 3%
- Health and social work activities 2%
- Public administration & defence 5%
- Other 3%
Sources: PNG National Budgets, Devpolicy PNG Budget Database.
PNG’s GDP growth, 2000 to 2019
- 2000 2.5%
- 2001 0.1%
- 2002 0.2%
- 2003 2.2%
- 2004 2.7%
- 2005 3.6%
- 2006 2.6%
- 2007 6.5%
- 2008 7.2%
- 2009 6.2%
- 2010 8%
- 2011 9.5%
- 2012 9.2%
- 2013 4%
- 2014 13.3%
- 2105 9.9%
- 2016 3.1%
- 2017 2.4%
- 2018 2.5%
- 2019 5.4%*
* Treasury estimate.
Sources: PNG Department of Treasury, Bank of PNG
LNG in PNG
PNG’s growth has been dominated by the development of a liquefied natural gas (LNG) industry. The US$19 billion ExxonMobil-led PNG LNG project commenced first shipments of gas in May 2014. Output increased to an annualised rate of 8.8 million tonnes per annum in the second half of 2018, a 46 per cent rise in initial production rates.
A second major project is the proposed US$10 billion Papua LNG, which is under the operator Total SA. It is estimated that Papua LNG will have the capacity to produce 5.4 million tonnes of LNG per year. In 2019 a Memorandum of Understanding was signed between Total and the Government of PNG. The next stage will be front end engineering and design (FEED). Total will hold a 31.1 per cent stake in the venture, with ExxonMobil having 28.7 per cent and Oil Search 17.7 per cent. The remaining 22.5 per cent will be held by state-owned enterprise Kumul Petroleum Holdings, with 2 per cent allocated to landowners.
Another large gas field is the P’nyang field, 130 kilometres northwest of Hides (the main source of gas for the PNG LNG Project). It was proposed that with this field PNG LNG and Papua LNG would share infrastructure, but negotiations with the Marape Government stalled in early 2020 and the Marape government has since indicated the two projects will be treated separately.
If P’nyang and Papua LNG were both to get the green light, it is anticipated that this would double PNG’s production from 2023-2025 onwards.
Another project is PNG’s first offshore gas field operated by Twinza Oil, which is expected to produce 220,000 tonnes of liquefied petroleum gas (LPG) annually, of which 55 per cent will be condensate and 45 per cent will be LPG. The PNG government announced on September 2020 that it had given the go ahead to develop the Pasca A gas-condensate field in the Gulf of Papua and enter into the Front End Engineering and Design (FEED) phase later in 2020.
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