Presentation to the Members of Parliament 19 September 2007 State - PowerPoint PPT Presentation

Presentation to the Members of Parliament 19 September 2007 State of the Economy 2002 -2007 Secretary for Treasury Simon Tosali

Presentation Outline � Structure of the Economy � Budget operations � Summary Economic Forecast � Challenges

GDP growth Per cent Per cent 6 6 Average GDP growth 1997-2001 Average GDP growth 2002-2007 3 3 0 0 GDP Non-mining GDP -3 -3 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Contributions to growth in Real Gross Domestic Product (Percentage points) 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Actual Prelim. Prelim. Est Est Proj Proj Proj Proj Proj Proj Agriculture, Forestry and Fishing -1.6 1.8 1.7 0.7 0.3 1.6 1.8 1.6 1.2 1.3 1.7 Oil and Gas Extraction -2.0 -0.1 -0.3 0.4 0.0 0.0 -0.2 -0.3 -0.3 -0.2 -0.2 Mining and Quarrying -0.3 0.4 0.3 0.2 -0.7 0.6 1.5 0.5 1.5 0.7 -0.5 Manufacturing -0.4 0.4 0.2 0.7 0.4 0.3 0.3 0.3 0.3 0.3 0.3 Electricity, gas and water 0.0 0.2 0.1 0.0 0.0 0.0 0.1 0.1 0.1 0.1 0.1 Construction 2.6 0.6 0.3 0.5 1.3 1.3 1.0 0.7 0.8 0.8 0.5 Wholesale and retail trade 1.3 0.2 0.2 0.3 0.4 0.4 0.3 0.2 0.2 0.2 0.2 Transport, storage and communication -0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 Finance, real estate and business services -0.2 -0.1 -0.1 0.2 0.3 0.2 0.2 0.2 0.2 0.2 0.2 Community, social and personal services 0.4 -0.5 -0.3 0.2 0.3 0.5 0.3 0.3 0.3 0.2 0.2 TOTAL GDP -0.2 2.2 2.7 3.4 2.6 5.2 5.4 3.9 4.5 3.8 2.8 Total Non-mining GDP 2.5 2.1 3.1 3.1 3.8 5.2 4.7 4.3 3.8 3.8 4.0

Drivers of GDP growth Volume of key commodities at constant (2007) prices Oil Copper and Gold 000, barrels 30 30 000, tonnes tonnes 450 100 Copper(LHS) 20 20 400 75 10 10 Gold(RHS) 0 0 350 50 2000 2002 2004 2006 2008 2010 2012 2000 2002 2004 2006 2008 2010 2012 Agriculture (Formal) Other sectors Km, Gross Value Added Km, Gross Value Added Km, Gross Value Added Km, Gross Value Added 6000 6000 1100 1100 1000 1000 5000 5000 900 900 800 800 4000 4000 700 700 600 600 3000 3000 500 500 2000 2000 400 400 2000 2002 2004 2006 2008 2010 2012 2000 2002 2004 2006 2008 2010 2012

Agriculture/Forestry/Fishing sector Km, Gross Value Added Km, Gross Value Added 1100 1100 1000 1000 900 900 800 800 700 700 600 600 500 500 400 400 2000 2002 2004 2006 2008 2010 2012

Main Agriculture Exports 000,tonnes 000, tonnes PALM OIL 700 700 600 600 500 500 400 400 300 300 200 200 100 100 0 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Coffee 000, tonnes 000, tonnes COFFEE 90 90 80 80 70 70 60 60 50 50 40 40 30 30 20 20 10 10 0 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Cocoa 000, tonnes 000,tonnes COCOA 70 70 60 60 50 50 40 40 30 30 20 20 10 10 0 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Copra Oil and Copra 000, tonnes 000, tonnes COPRA COPRA OIL 000, tonnes 40 40 000, tonnes 90 90 35 35 80 80 30 30 70 70 25 25 60 60 20 20 50 50 15 15 40 40 30 30 10 10 20 20 5 5 10 10 0 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 0 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Logs 000,m3 000,m3 LOGS 3000 3000 2500 2500 2000 2000 1500 1500 1000 1000 500 500 0 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Growth and revenues boosted by commodity boom Commodity Prices Mineral & non- mineral Revenue Index: 100=2002 600 600 K Billion K Billion 6 7 Forcast 500 500 Mineral revenue 6 5 Copper Non-Mineral revenue 5 400 400 4 4 300 300 3 3 200 200 2 2 Gold 100 100 1 1 Oil 0 0 0 0 Jun-87 Jun-92 Jun-97 Jun-02 Jun-07 1998 1999 2000 2001 2002 2003 2004 2005 2006

Budget Operations 2002 Revenue 2007 Revenue Mining & Petroleum Tax, 7.9% Others, 17.4% Mining & Others, 26.5% Petroleum Personal Tax, 30.9% Income Tax, 21.1% Donor Grants, 13.3% Non-Tax Company Tax , Revenue, 9.5% 7.1% Personal Donor Grants, Income Tax, 21.0% GST, 8.8% GST, 7.3% 14.7% Non-Tax Company Tax Revenue, 5.2% , 9.3%

Revenue profile 2002 to 2007 (Kina,Million) 2002 2003 2004 2005 2006 2007 Actual Actual Actual Actual Actual Proj TAX REVENUE 2,369.9 2,677.9 3,220.1 3,744.0 4,944.8 5,240.7 TAX ON INCOME AND PROFITS 1,491.1 1,786.6 2,223.4 2,770.8 3,823.5 4,004.7 DOM. TAXES ON GOODS AND SERVICES 575.7 596.0 620.8 657.3 784.3 850.4 TAXES ON INTERNATIONAL TRADE 303.2 295.3 375.9 315.9 337.0 385.6 NON TAX REVENUE 169.9 239.2 245.1 279.3 428.8 473.1 INFRASTRUCTURE TAX CREDITS 55.2 40.0 34.7 20.3 23.3 35.6 GRANTS 691.4 693.0 849.7 1,283.1 914.6 879.1 TOTAL REVENUE AND GRANTS 3,286.4 3,650.1 4,349.6 5,326.8 6,311.6 6,628.5 % of GDP 28.2 29.0 34.4 34.9 37.0 35.9

Composition of Expenditure 2002 Expenditure 2007 Expenditure Others Others 13% 5% Interest National 12% National Interest 38% 36% 7% Dev't 32% Dev't 29% Provincial Provincial 15% 13%

Expenditure profile 2002 to 2007 (Kina,Million) 2002 2003 2004 2005 2006 2007 Actual Actual Actual Actual Actual Proj NATIONAL DEPARTMENTS 1357.1 1192.4 1555.1 2233.1 2347.9 2032.1 Personal Emoluments (a) 574.3 618.0 682.2 690.5 698.0 848.2 Goods and Services 782.8 574.4 872.9 1142.6 967.9 1183.9 Gas Acquisition 400.0 Supplementary Budget 682.0 PROVINCIAL DEPARTMENTS 562.9 563.3 656.0 632.5 765.1 696.6 Personal Emoluments 467.2 482.9 580.2 543.4 662.5 576.0 Goods and Other Services 45.7 53.4 54.0 54.6 65.1 63.4 Conditional Grants 50.0 26.9 21.8 34.5 37.5 57.2 AUTONOMOUS BOUGAINVILLE GOVERNMENT 25.0 31.3 35.0 45.3 46.5 50.9 TRANSFERS TO STAT. INS. 164.9 178.4 207.9 206.7 234.3 221.6 INTEREST PAYMENTS AND FEES 436.4 739.6 377.0 332.8 307.0 387.9 NET LENDING TO CSAs -4.8 -9.6 -10.4 -2.7 -4.2 -4.0 TOTAL RECURRENT 2541.5 2695.5 2820.4 3447.6 3696.7 3385.1 TOTAL DEVELOPMENT (PIP) 1195.0 1079.0 1327.4 1871.5 1559.5 1586.8 Government Funded Projects 524.5 386.0 477.6 588.4 644.9 707.7 Domestic Funds 236.8 207.3 331.6 431.8 471.2 509.1 Infrastructure Tax Credit 55.2 40.0 34.7 20.3 23.3 35.6 Concessional loans 97.5 82.8 94.6 134.3 150.4 163.0 Commercial loans 135.0 55.9 16.8 2.0 0.0 0.0 Donor funded Projects 670.5 693.0 849.7 1283.1 914.6 879.1 ADDTIONAL PRIORITY EXPENDITURE 625.0 450.0 TOTAL EXPENDITURE AND NET LENDING 3736.5 3774.4 4147.8 5319.1 5881.2 5421.9 % of GDP 32.1 30.0 32.8 34.8 34.5 29.4

Financing (Kina,Million) 2002 2003 2004 2005 2006 2007 Actual Actual Actual Actual Actual Proj 3231.2 3650.1 4349.6 5326.8 6311.6 6628.5 TOTAL REVENUE AND GRANTS 3681.3 3774.4 4147.8 5319.1 5881.2 5421.9 TOTAL EXPENDITURE AND NET LENDING -450.0 -124.3 201.8 7.6 430.4 1206.6 DEFICIT (-) / SURPLUS (+) -3.9 -1.0 1.6 0.1 2.5 6.5 % of GDP K million Per cent of GDP 1500 12 K million (LHS) 1000 8 500 4 0 0 -500 -4 Per cent of GDP (RHS) -1000 -8 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007

Debt repayment Total Public debt as a proportion of GDP Per cent of GDP Per cent of GDP 100 100 80 80 60 60 40 40 20 20 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2002 2003 2004 2005 2006 2007 Domestic 2588 3023 3181 3547 3187 3187 External 5777 4901 4410 3856 3612 3225 Total Public Debt Outstanding 8365 7924 7591 7403 6799 6412 Per cent of GDP 71.8 63.1 60.0 48.5 39.8 34.8 Standards and Poors credit rating for PNG has been upgraded to B+

Summary Economic Forecasts 2002 2003 2004 2005 2006 2007 Actual Actual Actual Actual Actual Proj GDP -0.2 2.2 2.7 3.4 2.6 5.2 Non-mining GDP 2.5 2.1 3.1 3.1 3.8 5.2 Employment growth 1.6 6.2 0.6 1.6 7.8 9.8* Inflation(year average) 11.8 14.7 2.1 1.7 2.6 4.8 Treasury Bill rate (%) 13.3 18.3 9 4.5 5 6 Exchange Rate(USD per PGK) 0.2976 0.2573 0.3117 0.3224 0.3272 0.3378 Foreign reserves(K,million) 1378.1 1702.1 2112.2 2316 4330.7 4684.9** Source: Treasury * Employment growth: BPNG QEB , March 2007 **Foreign reserves up to May 2007

Challenge for the new Parliament � Macroeconomic stability and Political stability achieved . � How do we translate these achievements for the people in both urban and rural areas? � Need more focus on microeconomic reforms and more funding on priority expenditure items. � Freeing up bottlenecks to the flow of economic resources throughout the economy � to maximise allocative and dynamic efficiency � and deliver the benefits to grassroots Papua New Guineans to achieve their full potential

Challenges at the micro-level � Electricity-high price, low accessiblity � Telecommunications-high price, low coverage � Water-high price, low accessibilty � Land tenure-lack of certainty � Air transport-high price � Road transport-need improved maintenance funding � Shipping-high price, low accessibilty � Health-improvement to infrastructure � Law and order-is still a big concern