Papua New Guinea investment climate deteriorates

Subject

Political and economic outlook for Papua New Guinea.

Significance

Papua New Guinea (PNG) has benefitted from over a decade of buoyant economic growth, culminating in a forecast GDP growth rate of 15% in 2015. However, the outlook for PNG's major commodity exports (natural gas and gold) is now declining as aggregate demand for resources falls in China and elsewhere in the region. This will lead to a fall in the growth of overall government revenues.

Impacts

• The price for spot market liquefied natural gas exports to Asia is likely to decline.
• The government will extend its overall fiscal deficit despite announced intentions to reduce debt under the medium-term fiscal strategy.
• The much-publicised sovereign wealth fund, announced several times but still not implemented, will continue to languish.
• Diversifying agriculture and fisheries to provide more options for disadvantaged rural populations and SME development will be slow.
• Foreign investment in PNG will slow down, particularly in gold, copper and other areas of mining.