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Short term gloom, long term boom: mixed message on economy

Kishti Sen - PNG has significant short term economic problems but beyond that a resources comeback makes future looks good


NOOSA – Kishti Sen, an economist with the ANZ Banking Group, has offered a mixed message about Papua New Guinea’s economic prospects.

At a recent business conference in Brisbane he warned companies in PNG to “run a tight ship, have lean operations and survive two to three years.”

But he reassured them, saying “there will be significant returns to be had once the mining recovery starts.”

Sen said PNG’s growth rate was forecast to be 2% both this year and in 2019, “well below PNG’s long-term average.

“If you look back 27 years, you get long average growth of about 4% a year. So 2% is well below and it means you can’t absorb the increase in the labour force to keep unemployment steady.”

But he was more optimistic about the medium term future.

“For the next decade, PNG is setting itself up for very strong growth. It is a good opportunity for the government to secure a broad-based economy once the boom ends.

“The government wants to live within its means, it has a debt-to-GDP ratio it wants to adhere to. It has to think about the credit rating agencies as well.

“There are reports of cash flow problems. It is something that needs a solution.

“But they know this is not the time for austerity. They have to come in and give some stimulus to move the economy along but they are limited in what they can do.

“That leaves the economy in the doldrums until the next mining boom happens,” he said, adding that importers are “struggling” but there are limits on what the government can do about the economic slowdown.

“There are reports of cash flow problems,” Sen said. “It is something that needs a solution.

“Investors are willing to invest in PNG if they can’t get their profits out of the country.

“The kina is overvalued and it needs to get to its fair value as quickly as possible because, once it gets to its fair value, it will help exporters immensely.

“It will bring more kina into the country, which will help in making business planning decisions, investment. It can kick start the economy, and help exporters.”

Sen said PNG has a “narrow commodity-based economy” and the challenge for the government is to broaden the economy caused by investment booms and busts by paying more attention to tourism and agriculture.

Overall, though, Sen is optimistic: “The recovery is thankfully not far away,” he said. “Something big is going to happen in terms of new projects.”


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