PNG HAS EMERGED as the star performer of the Pacific’s developing economies with 7.1% GDP growth in 2010 compared with 5.5% in 2009. The economy benefited from higher commodity prices as a result of a strong demand for its exports of oil, gold, copper, coffee, cocoa and palm oil.

The economy was also boosted by the commencement of the liquefied natural gas project.

At the same time, PNG recorded the highest inflation rate in the Pacific - 6%, attributed to the global economic recovery together with higher food and commodity prices and increasing domestic demand associated with the LNG project.

In 2010, the kina remained stable against the US dollar while it depreciated by 14% against the Australian dollar. In the first nine months of 2010-11, PNG’s total exports increased by 21% and imports by 26%.

Total government expenditure and lending increased by 23% and revenue is forecast to increase by 24%, with tax revenue contributing more than 92% of this. The government projects a balanced budget in 2010 after a small budget deficit in 2009.

The Bank of PNG has kept its main policy interest rate, the kina facility rate, at 7% since December 2009. The Bank is determined to keep the inflation rate in single digits, and is wary of a rise in inflationary pressures owing to the high level of government spending and the development of the LNG project.

A key challenge for PNG is to manage the resource boom well so rapid economic expansion does not translate into continuously high inflation.

PNG is again expected to lead the Pacific with 8% growth in 2011, boosted by rising commodity prices and growth in domestic demand coupled with acceleration in investment in several mining projects.

The ever-present challenge is for PNG to diversify its economy with agriculture offering great potential for diversification.

Source: ESCAP Economic and Social Survey of Asia and the Pacific 2011