PNG heading for recession, say forecasts
08 May 2020
| Business Advantage PNG | Edited extracts
PORT MORESBY - Economists are forecasting a recession in Papua New Guinea in 2020 as the country struggles to deal with the global crisis caused by the outbreak of the COVID-19 virus.
The ratings agency Standard & Poor’s has also downgraded the country’s debt.
A report by ANZ Bank predicts that the PNG economy will be in recession in 2020, contracting by 2.6%.
It says government expenditure will increase to ‘an all time high’ of K19.3 billion, while revenue will fall by K2.5 billion.
“The PNG government will have a shortfall of K1 billion in petroleum taxes and dividends, which, in turn, is due to a collapse in oil prices,” the report said.
“We believe another K1.5 billion of projected overall tax revenue won’t be realised due to a lacklustre economy.
“The shutdown of the Porgera gold mine while the operator, Barrick Niugini, pursues a legal challenge to the government’s decision not to extend its special mining lease, along with disruptions at the Kainantu gold mine due to landowner disputes, will impact revenue.
The ANZ report says the government is planning to fund the K7.7 billion budget deficit by borrowing from multilateral agencies and issuing debt in the domestic market, selling mainly to banks and super funds.
Another report by Fitch Solutions’ Country Risk Research has said economic growth in PNG in 2020, will “come in at close to zero”.
The report says the biggest impact of the pandemic a slump in exports, triggered by a combination of supply-chain disruptions, weakening external demand and plunging commodity prices.
“Aside from the shock to growth, this is also expected to put increased strain on public finances, with Treasurer Ian Ling-Stuckey recently warning that the government could lose up to K2 billion in revenues this year,” the report says.
“We believe more rescue spending may be required in the coming months.”
The ratings agency Standard & Poor’s has lowered its long-term foreign and local currency sovereign credit ratings for PNG from B to B minus.
But it has affirmed its B short-term rating on the country and has said that the outlook is stable.
S&P says “increasing debt levels and limited fiscal manoeuvrability” leave PNG vulnerable to a volatile global backdrop.
“The COVID-19 pandemic is expected to further increase the country’s vulnerability because of volatile global conditions.”
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