Presentation to the CIMC National Development Forum ECONOMIC - PowerPoint PPT Presentation

Bank of Papua New Guinea Presentation to the CIMC National Development Forum “ECONOMIC OUTLOOK FOR 2011-2015” by Mr. Loi Bakani Governor, Bank of Papua New Guinea ~ 24 th August 2011 State Function Room, Parliament House, Port Moresby State Function Room, Parliament House, Port Moresby

Bank of Papua New Guinea Outline of Presentation 1. Economic Prospects: 2011-2014 2. Good Economic Management G 3. Combating the ‘Dutch Disease’ 4. Initiatives of the Central Bank 5 5. Conclusion Conclusion

Bank of Papua New Guinea 1) Economic Prospects: 2011 2014 1) Economic Prospects: 2011-2014 Chart 2: Annual Real GDP Growth (percent) 15.0 15.0 10.0 5.0 0.0 2006 act 2007 est 2008 est 2009 est 2010 proj 2011 proj 2012 proj 2013 proj -5.0 -10.0 Non-mineral GDP (real) Mineral GDP (real) Total Real GDP

US Sc/lb 1000 100 200 300 400 500 600 700 800 900 700 900 International Prices of Copper and Gold I t 0 Jan '06 Feb '06 Mar '06 Apr '06 May '06 Bank of Papua New Guinea Jun '06 Jul '06 Aug '06 Sep '06 Oct '06 Nov '06 ti Dec '06 Jan '07 Feb '07 Mar '07 Apr '07 May '07 Jun '07 Gold London (US$ per fine oz) RHS Gold - London (US$ per fine oz) - RHS Copper - London Wire Bars (Usc/lb) - LHS Jul '07 l P i Aug '07 Sep '07 Oct '07 Nov '07 Dec '07 Jan '08 Feb '08 Mar '08 Apr '08 May '08 Jun '08 Jul '08 Aug '08 Sep '08 Oct '08 Nov '08 f C Dec '08 Jan '09 Feb '09 Mar '09 Apr '09 May '09 Jun '09 Jul '09 Aug '09 Sep '09 Oct '09 Nov '09 Dec '09 Jan '10 Feb '10 Mar '10 Apr '10 May '10 Jun '10 Jul '10 Aug '10 d G ld Sep '10 Oct '10 Nov '10 Dec '10 Jan '11 Feb '11 Mar '11 Apr '11 May '11 Jun '11 0 200 400 600 800 1000 1200 1400 1600 1800 US$ pe er fine oz

Bank of Papua New Guinea Fiscal Operations Fiscal Operations Chart 4: Fiscal Operations of the Government (K'm) 10,000 800 9,000 600 8,000 e Exp en d itu re 400 7,000 D eficit / 6,000 200 5,000 5 000 even u e & E Su rp lu s 0 4,000 3,000 -200 R 2,000 -400 1,000 0 -600 2005 2006 2007 2008 2009 2010 Est 2011Proj 2012 Proj 2013 Proj Revenue Expenditure Deficit/Surplus

M-11 D-10 Employment (formal private sector) ) S-10 t J-10 M-10 D-09 t S-09 J-09 i M-09 l D-08 S-08 J-08 Employment (f M-08 Bank of Papua New Guinea D-07 S-07 J-07 M-07 D-06 S-06 J-06 M-06 D-05 12.0 10.0 8.0 8.0 6.0 4.0 2.0 0.0 Percent

Bank of Papua New Guinea Monetary Policy Management • Increase in aggregate demand, Gov’t expenditure, international food and fuel prices expenditure, international food and fuel prices have led to increased prices • Annual inflation is 9 6 percent in the June • Annual inflation is 9.6 percent in the June quarter of 2011 • Trade-off between economic growth and Trade off bet een economic gro th and inflation

Bank of Papua New Guinea Inflation – annual % change f 25 20 15 10 5 0 -5 9 9 0 0 1 1 2 2 3 3 4 4 5 5 6 6 7 7 8 8 9 9 0 0 1 9 9 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 1 1 ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' S ' ' ' ' ' M M M M M M M M M M M M M S S S S S S S S S S S Qtr

Bank of Papua New Guinea Monetary Policy management • BPNG will strive to maintain its price stability objective in the current high inflationary environment, so that inflation does not spiral environment, so that inflation does not spiral out of control • This will require close cooperation and coordination between fiscal (Gov’t) and coordination between fiscal (Gov t) and monetary (BPNG) policies • BPNG will use all available instruments to maintain price stability • Ensure policies do not counteract the objective of economic growth development objective of economic growth, development and improved standard of living

Bank of Papua New Guinea Monetary Policy Management • Close co-ordination and co-operation between the Gov’t and the Central Bank the Gov t and the Central Bank

Bank of Papua New Guinea 2) Good Economic Management • Microeconomic and macroeconomic considerations are important for non- i fl ti inflationary growth th – Gov’t should not compete with LNG developer for the limited productive resources and for the limited productive resources and capacities – Competition would only lead in higher prices, Competition would only lead in higher prices, increased imported inputs (materials, equipment and labour), and misallocation of resources resulting in losses to the nation resulting in losses to the nation

Bank of Papua New Guinea Good Economic Management (cont’d) • Recommendations for economic management during the LNG construction period – Gov’t to refrain from undertaking major infrastructure projects, competing for the limited resources (equipment, j t ti f th li it d ( i t machineries, labour) and other industries fully utilised by the LNG project – Gov’t to concentrate on maintenance, upgrading and complementing the work done by the LNG developer – Gov’t to plan its infrastructure implementation and readiness G ’t t l it i f t t i l t ti d di to implement as and when the LNG project progressively scales down its construction activities. Highly skilled g y workforce trained by the LNG developer will become available.

Bank of Papua New Guinea Good Economic Management (cont’d) • Gov’t should concentrate on the social sectors of education, health and law and order • Keep to a bare minimum investment in existing infrastructure until the LNG project winds down construction • Gov’t to devise a plan on how to use these resources (skilled labour, equipment, machineries) when they become available machineries) when they become available

Bank of Papua New Guinea 3) Combating the ‘Dutch Disease’ • The LNG project threatens to price out the traditional export sectors, the so- p , called ‘Dutch Disease’ • Developing a competitive traditional Developing a competitive traditional export sector is one of the most effective ways of combating the ‘Dutch effective ways of combating the Dutch Disease’

Bank of Papua New Guinea ‘D t h Di ‘Dutch Disease’ (cont’d) ’ ( t’d) • PNG has fertile land abundant water PNG has fertile land, abundant water resources, and available labour • Can develop a competitive advanced Can develop a competitive advanced agricultural sector • With world wide food shortage and rising With world wide food shortage and rising food prices, Gov’t should invest in the agricultural sector to make PNG a food g supplier to itself and the world • Set up a Special Purpose Account at BPNG p p p with all the excess revenue for this purpose

Bank of Papua New Guinea 4) Initiatives of the Central Bank • Financial inclusion – enabling every Papua New Guineans wherever they live access to banking and financial services. This includes microfinance and mobile banking products and services • Payment system – enhance and y y improvement the National and International payment systems and make them modern, p y y low cost and efficient

Bank of Papua New Guinea 5) Conclusion • Gov’t, through fiscal policy can redistribute effectively the windfall revenue by investing in the social sectors and agriculture to combat Dutch social sectors and agriculture to combat Dutch disease and achieve balanced growth • Gov’t not to compete with limited resources during Gov t not to compete with limited resources during construction phase of the LNG project • Closer co-ordination need between fiscal and monetary policy to contain inflation so it does not spiral out of control during this period of high economic growth economic growth

Thank you Bank of Papua New Guinea