PRESENTATION ON THE STATE OF THE PNG ECONOMY BY GOVERNOR OF BANK - PowerPoint PPT Presentation

PRESENTATION ON THE STATE OF THE PNG ECONOMY BY GOVERNOR OF BANK OF PNG MR LOI M. BAKANI, CMG

PNG Economy  PNG is a small open economy, rich in natural resources  Early years was dominated by agriculture exports  Since 1990s, mineral has become the dominant export sector  PNG is now a major exporter of LNG following the commencement of production and export in 2014  Mineral sector accounts for about 80.0% of total exports and 25% of total GDP

Diversified Economic Structure 2010 In 2010 • Dominant sectors are: mining and oil, 19.6 22.6 agriculture/forestry/fisheries, commerce and construction 3.8 11.2 • Others include transport, manufacturing, education, health 16.6 9.4 7.1 6.1 3.6 Agriculture/Forestry/Fishing Commerce Construction Admin & Support 2017 Real Estate Finance & Insurance Mining & Quarrying Oil & Gas Extraction Others 17.1 26.5 10 By 2017 • Third full year of LNG 13.6 7.1 production and export - mining, oil & gas sector’s share 6.4 2.3 11.1 5.9 increased to 25% • Other traditional sectors – Agriculture/Forestry/Fishing Commerce agriculture/forestry/fisheries, Construction Admin & Support Real Estate Finance & Insurance commerce and construction Mining & Quarrying Oil & Gas Extraction remain dominant Others

GDP Growth Total and Non-Mineral Real GDP (%) 14.0 Real GDP 12.0 Real non-mineral GDP 10.0 8.0 6.0 4.0 2.0 0.0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 -2.0 ▪ Economy experienced positive growth for more than a decade since 2003 mainly driven by the resource sector ▪ Recent years have been challenging due to low commodity prices but future outlook is positive with new resource projects coming on stream

Balance of Payments ▪ Following start of LNG production and export in 2014, the surplus in the Current Account (CA) increased significantly to 2017. ▪ Mineral exports receipts are held abroad to meet external obligations. Capital account surplus after debt and accelerated depreciation in few years.

Composition of Exports in 2017 8.9% 4.2% 2.8% 3.8% 33.1% 36.0% 6.2% 4.0% Agriculture Fisheries and Marine Resources Forestry Refined Petroleum Products Mining Crude Oil Condensate LNG Exports prior to production of LNG was dominated by the mining and ▪ oil sectors comprising of 73.1% of total exports. With LNG export, mining and oil share have declined to 40.0% while ▪ LNG is at 33.1%.

Composition of Imports in 2017 Mining Oil 35.7% General 57.5% 6.8% Composition of imports in 2017 ▪ mining was 35.7% ▪ general (non-mineral) was 57.5% ▪ oil was 6.8%

Imports by Standard International Trade Classification 12.7% 13.3% 9.9% 2.0% 32.4% 13.7% 16.0% Food and live animals Mineral fuels, lubricants & related materials Chemicals and related products, n.e.s. Manufactured goods classified chiefly by material Machinery and transport equipment Miscellaneous manufactured articles Other

Composition of T otal Service Trade in 2017 21.1% 22.2% 8.9% 6.9% 3.5% 4.1% 2.5% 2.9% 28.0% Transportation Education Insurance Other Financial services Other Business Services Government services n.i.e. Construction Services Refining and Smelting Other Service Note: T otal is the sum of export and import of service

FISCAL OPERATIONS OF THE GOVERNMENT (K’MILLION) 16,000 1,000 500 14,000 0 Revenue/Expenditure 12,000 -500 Surplus/Deficit 10,000 -1,000 8,000 -1,500 6,000 -2,000 4,000 -2,500 2,000 -3,000 0 -3,500 2007 2009 2011 2013 2015 2017 2019 Proj Expenditure Revenue Deficit/Surplus (RHS) ▪ Government has been pursuing an expansionary fiscal policy since 2013 with fiscal deficit below 3% of GDP ▪ Debt-to-GDP increased but remained at 30-32% of GDP and compares favourably to similar countries

Public Debt by Composition (K’ million) 20,000 18,000 16,000 Domestic 14,000 External 12,000 10,000 8,000 6,000 4,000 2,000 0 2009 2010 2011 2012 2013 2014 2015 2016 2017

Government Domestic Debt by Creditor in 2017 1.5% 7.9% BPNG 19.4% Other Depository Corporation 22.1% Other Financial Corporation Public Non Financial Corporation 49.1% Other residents

Exchange Rate & Trade Weighted Index (TWI) 0.60 40.00 35.00 0.50 30.00 0.40 25.00 20.00 0.30 15.00 0.20 10.00 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 AUD USD TWI (RHS) ▪ Gradual depreciation of the kina since 2012 due to low international commodity prices. ▪ LNG exports since 2014 had little impact as export receipts are held offshore.

INFLATION (%) 12.0 10.0 Head Line Trimmed Mean Exclusion Based 8.0 6.0 4.0 2.0 0.0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 (Proj.) -2.0 -4.0 Inflation over the last 10 years averaged around 6.0% mainly influenced by ▪ imported inflation, depreciation of kina exchange rate and domestic prices. In 2017, headline inflation was 4.7% due to lower seasonal and imported ▪ prices.

FINANCIAL SYSTEM INDICATORS Total Assets K36.0 (USD11.1) billion Total Liabilities K27.6 (USD8.5) billion Ratio of Non-Performing Loans 1.0 % of total assets Ratio of Non-Performing Loans 2.1% of total loans Capital Adequacy ratio 38.1% Net Profit/Loss to Total Assets 1.3 % Net Profit/Loss to Total Loans 2.6 % Key performance indicators show that the Financial System is sound.

Financial system • Very stable financial system with high capital base, well above the 12% capital requirement by the Central Bank • Overall total financial assets are very low compared to developed countries • Low non-performing loans of the financial system

GOVT PRIORITY AREAS TOWARDS INCLUSIVE & SUSTAINABLE GROWTH  Development of Micro Small & Medium Enterprises (MSMEs)  Agriculture/Forestry/Fisheries  T ourism (niche areas of comparative adv)  Manufacturing (small industrial products)  Service (Transport, Energy & Communication)

Infrastructure In Place • Political Stability • Appropriate Development Policies • New Payments System KATS (RTGS) • T elecommunication Network • Wharf, Roads but more needed in Energy • Others

Summary of Economy  Low economic growth in 2016 and 2017, after very high growth in 2014 and 2015, following the LNG commencement of Production,  Very high Current Account Surpluses that will translate to balance of payment surpluses, once the Accelerated Depreciation will end,  Plan to achieve Potential Growth of 6% to 7%, by developing the plan of the Traditional Sectors of the economy, and moving toward Self Sufficiency in food production where thousands of subsistence farmers will move into the Formal Economy,  Developing Tourism and SME'S and other services sector.  The planned developments of the Wafi Golpu mine, PNG LNG expansion, Papua LNG and the P'Nyang gas fields will be bonus to economy

End of Presentation Thank you!