Inflation knocks stuffing out of the kina
14 November 2024
ALLAN BIRD MP
| Academia Nomad
Papua New Guinea's annual real (orange) GDP and nominal (blue) GDP, 2017-2023
WEWAK - This graph, recently released by National Statistics Office, shows clearly that Papua New Guinea’s real gross domestic product (the orange line) has remained fairly stagnant over the past five years.
Real GDP is the money value, adjusted for inflation, of all goods and services produced within PNG, typically over a year.
Nominal GDP (the blue line) is like real GDP but not adjusted to take into account price changes resulting from inflation.
In PNG, the gap between real GDP and nominal GDP shows how, in an inflationary environment, people’s money lost its real value, that is, the same amount of money could buy significantly fewer goods and services.
Record government budgets and record government borrowing also contributed to the inflation shown in the blue line.
The inflation also led to a small increase in jobs together with reduced foreign investment, exports and productivity in PNG.
So, when politicians say GDP grew by 40 billion kina between 2017 and 2023, they are referring to nominal GDP (the blue line), which makes PNG look more economically sound than it is.
It is the orange line (real GDP), which tells a very different and less attractive story.
And Papua New Guineans have felt the impact of the lack of growth revealed in the real GDP.
Economists call this a loss in buying power of the kina.
Over the six years between 2017 and 2023, PNG lost about 36% of its buying power.
That is the challenge facing prime minister James Marape and any future national leader.
An important issue is whether the Marape government will make the situation better or worse for our people.
Allan Bird MP is the Governor of East Sepik Province
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