Papua New Guinea

Politics:

• Analysis

  Papua New Guinea politics: Quick View - Government seeks to amend no-confid

  Event

  The prime minister, Peter O'Neill, has said that his government is seeking to extend the current 18-month no-confidence window to two and a half years.

  Analysis

  Under existing rules, a new government is protected from no-confidence motions for its first 18 months in office. Similar such provisions exist in other parts of the Pacific, and are designed to combat the fractious nature of politics in some countries where there are a multitude of political parties. In Papua New Guinea (PNG) the passage in 2001 of the Organic Law on the Integrity of Political Parties and Candidates (OLIPPAC) was a further attempt to stabilise politics by stipulating that an MP's vote on the choice of prime minister following an election was legally binding for the entirety of the five-year parliamentary term. However, in 2012 a Supreme Court ruling found that certain provisions of the law were inconsistent with the constitution and it was consequently overturned.

  In theory, the no-confidence provision can help new administrations to focus on governance without being side-tracked by internal politicking. In PNG, following the general election held in June-July, no single party attained a majority of seats, owing in part to the large number of parties that contested the poll. A coalition government headed by Mr O'Neill was subsequently formed. Although he was elected prime minister with 94 votes, his party holds just 27 of the 111 seats in parliament. Once the grace period is over, Mr O'Neill can expect to see significant movement between the parliamentary benches.

  Indeed, Mr O'Neill-who proposed that one-half of the legislature's five-year term be protected from no-confidence motions-argues that the extra year is needed to give the government sufficient time to make progress on its election promises. As it stands, once the 18-month grace period is over, politicians in PNG frequently use threats of no-confidence motions to induce the government to change tack on policy or redistribute patronage.

  However, the move raises questions about the executive's willingness to bear checks on its authority. Since the country's independence, the government has progressively extended the grace period, from six months following independence to 18 months in 1991. On re-election to the post in 2002, the previous prime minister, Sir Michael Somare, attempted to increase the no-motion period further, to three years. Sir Michael's attempt to extend the grace period to nearly three-quarters of a parliamentary term ultimately failed. This time, however, Mr O'Neill appears to have reasonably wide support for the move among coalition members. Nevertheless, he may face popular opposition to the move.

  October 10, 2012

• Background

  Papua New Guinea: Key figures

  Sir Michael Somare

  The prime minister, Sir Michael Somare, widely known as the Chief, was voted into office for the fourth time in August 2007. In 1972, as the founding leader of Pangu Pati, he became chief minister of Papua New Guinea (PNG) in the run-up to self-government. Following the granting of independence in 1975, he won two elections in 1977 and 1982, and he returned to lead the government in 2002, after his current party, National Alliance (NA), won 19 of 103 declared seats in the election in the 2002 election. Owing to his success in the 2002-07 parliament in fending off vigorous attempts to hold a vote of no confidence, he became the first prime minister to serve a full term, and he was re-elected following the July 2007 election. He has pledged to step down before the end of his current term, and in mid-2008 was facing severe pressure to resign following the eruption of a number of damaging scandals.

  Sir Mekere Morauta

  After the 2007 election, Sir Mekere Morauta took up the leadership of the parliamentary opposition. He had previously served as prime minister (July 1999-June 2002), and during this time received the strong backing of international donors as he attempted to push ahead with economic reforms. However, these reforms proved to be domestically unpopular and contributed to his failure to retain the post of prime minister in 2002. Sir Mekere served as finance secretary and governor of the Bank of Papua New Guinea (the central bank) prior to his stint as prime minister.

  Bart Philemon

  After being sacked as treasury and finance minister in 2006 and ousted as the NA's deputy leader, Mr Philemon has emerged as a leading political opponent of Sir Michael. Having become the leader of the New Generation Party, Mr Philemon declared “war” on the NA and Sir Michael in the run-up to the 2007 election. During his term as treasury and finance minister in Sir Michael's administration, Mr Philemon was widely regarded as having performed well, helping to stabilise the government's fiscal position. After the 2007 election, Mr Philemon became the deputy opposition leader.

  Democracy index (for methodology, see Appendix)

  The Economist Intelligence Unit's 2008 democracy index ranks Papua New Guinea (PNG) 63rd out of 167 countries, putting it among the countries considered to be "flawed democracies". This designation includes Indonesia, the Philippines, and Malaysia. Although elections in PNG are technically free, election-related violence and electoral fraud are serious problems. Nevertheless, reflecting some improvements in this respect, the election in 2007 was generally regarded as being one of the most peaceful in PNG's history. Although the large number of political parties winning seats in parliament results in a lengthy period of post-election horse trading, the transfer of power is typically orderly. Corruption remains a serious problem, undermining government effectiveness, while the government's manipulation of parliamentary procedures often prevents the parliamentary opposition from questioning the government over its performance. The poor score for political participation reflects low voter turnout, a distinct lack of women in parliament and low adult literacy rates. PNG scores well in terms of civil liberties, with the media regarded as being free, and the judiciary independent. Although there are some concerns over human rights abuses, politically motivated killings and disappearances at the hands of government agents are rare.

  Democracy index
  	Overall score	Overall rank	Electoral process	Government functioning	Political participation	Political culture	Civil liberties	Regime type
  Papua New Guinea	6.54	63	7.33	6.43	4.44	6.25	8.24	Flawed democracy
  Overall and component scores are on a scale of 0 to 10; overall rank is out of 167 countries.

  Download text file (csv format)

  July 28, 2008

• Structure

  Papua New Guinea: Political structure

  Official name

  Independent State of Papua New Guinea

  Form of state

  Constitutional monarchy

  Head of state

  Queen Elizabeth II, represented by the governor-general, who is nominated by the national parliament. The current governor-general is Michael Ogio

  The executive

  The National Executive Council, presided over by the prime minister, has executive powers; the prime minister is proposed by parliament and appointed by the head of state

  National legislature

  Unicameral national parliament of 111 members elected for a period of five years. A total of 89 represent "open" constituencies, while the remainder represent provincial constituencies and the capital district

  Provincial government

  Each of the country's 21 provinces has its own government, which may levy taxes to supplement grants received from the national government

  Legal system

  A series of regional and magistrates' courts, leading to the Supreme Court at the apex

  National elections

  The most recent general election took place in June-July 2012. The next general election is due to be held by 2017

  National government

  In July 2012 the leader of the People's National Congress (PNC) party, Peter O'Neill, was reselected as prime minister by members of parliament by 94 votes

  Main political organisations

  PNC; National Alliance Party; Papua New Guinea Party; People's Action Party; Pangu Pati; People's Democratic Movement; United Resources Party; People's Progress Party; New Generation Party

  Main members of the National Executive Council

  Prime minister: Peter O'Neill

  Deputy prime minister: Leo Dion

  Key ministers

  Agriculture & livestock: Tommy Tomscoll

  Defence: Fabian Pok

  Education: Paru Aihi

  Finance: James Marape

  Foreign affairs & immigration: Rimbink Pato

  Justice, attorney-general: Kerenga Kua

  Mining: Byron Chan

  National planning: Charles Abel

  Petroleum & energy: William Duma

  Public enterprise & State Investment: Ben Micah

  Trade, commerce & industry: Richard Maru

  Transport: Ano Pala

  Treasury: Don Polye

  Central bank governor

  Loi Bakani

  December 06, 2012

• Outlook

  Papua New Guinea: Key developments

  Outlook for 2013-17

  • Political stability in Papua New Guinea (PNG) is likely to improve in 2013-17, as the recent general election has ended the year-long impasse between the prime minister, Peter O'Neill, and his predecessor, Sir Michael Somare.
  • The new government is protected from no-confidence votes for the first 18 months of its term, but Mr O'Neill's decision to leave his former deputy, Belden Namah, out of his cabinet could be a source of growing tension.
  • The lay-off of some 8,000 employees from the liquefied natural gas (LNG) project led by ExxonMobil (US) as construction finishes in 2013 could pose risks to political stability if alternative job opportunities are not provided.
  • The government will face a number of economic policy challenges in 2013-17, largely related to the impact of the ExxonMobil-led LNG project, which the Economist Intelligence Unit expects to start production on time in 2014.
  • Real GDP growth will moderate to 5.5% in 2013, from an estimated 6.8% in 2012. Growth will pick up significantly in 2015, when LNG production reaches full capacity.
  • The government's recent approval of a second LNG project, in Gulf province, could considerably boost economic activity in PNG further. Construction of the project is expected to start in the next five years.
  • Inflationary pressures will persist in the forecast period, owing to strong growth in domestic demand. We expect consumer price inflation to average 6.3% a year in 2013-17.

  Review

  • ExxonMobil has announced that the estimated cost of developing its LNG project, which is based in the Western and Southern Highlands provinces, has soared by 21% to US$19bn, from US$15.7bn previously.
  • By cancelling equipment orders in November 2012 for its seafloor production system, a Canadian firm, Nautilus Minerals, has signalled that it has in effect suspended work on a pioneering underwater mining project in PNG.
  • The government has unveiled an ambitious budget for 2013-which will need to be financed out of increased borrowing-in an attempt to develop the country's infrastructure.
  • The Gulf LNG project has been given approval by the government to proceed. The scheme will be jointly developed by a Canadian energy firm, InterOil, and the locally based Pacific LNG.

  December 06, 2012

Economy:

• Background

  Papua New Guinea: Economic background

  Nominal gross domestic product by sector
  (% share of GDP)
  	2003	2004	2005	2006	2007
  Agriculture	38.3	36.0	35.4	34.8	34.0
  Industry	35.3	37.0	37.8	37.3	37.3
  Services	26.4	27.0	26.7	27.9	28.7
  Sources: IMF, Papua New Guinea: Selected Issues and Statistical Appendix, March 2008; Economist Intelligence Unit.

  Download text file (csv format)

  July 28, 2008

• Structure

  Papua New Guinea: Economic structure

  Data and charts: Annual trends charts

  
  

  

  December 06, 2012

• Outlook

  Papua New Guinea: Country outlook

  Papua New Guinea: Country outlook

  FROM THE ECONOMIST INTELLIGENCE UNIT

  POLITICAL STABILITY: The political scene in Papua New Guinea (PNG) is likely to regain a degree of stability in the forecast period. The impasse that had persisted since August 2011-a power struggle between the supporters of the de facto prime minister, Peter O'Neill and those aligned with his predecessor, Sir Michael Somare-has finally been resolved. Mr O'Neill was confirmed as prime minister in a parliamentary vote in August 2012, following the general election in June-July. The strong parliamentary backing for Mr O'Neill for the post of prime minister (he was elected unopposed) was made possible by a surprising move on the part of Sir Michael at the end of July, when he announced that he would lend his support to Mr O'Neill in the formation of a new government.

  ELECTION WATCH: Following his endorsement as prime minister by the legislature in August 2012, Mr O'Neill formed a coalition government. It is rare in PNG for a single political party to win a parliamentary majority, partly because candidates frequently run as independents but then align themselves with parties following elections. Political affiliation is often based on tribal, linguistic, geographical or personal ties, rather than party loyalty. The next general election is due in 2017. A major test for Mr O'Neill will be his ability to build the core of support necessary to prevent his opponents from forcing an early poll following the expiry of the government's 18-month period of immunity from no-confidence motions (although he is currently seeking to have this period extended).

  INTERNATIONAL RELATIONS: There is little likelihood that the new administration will introduce major changes to foreign policy. The Australian government will aim to maintain its close relationship with PNG, but the latter will persist with efforts to reduce the country's dependence on Australian aid and trade. Attempts to expand economic links with China are expected to continue.

  POLICY TRENDS: Given the improved prospects for political stability in the forecast period, the Economist Intelligence Unit now expects the ExxonMobil-led LNG project to commence production on time, in 2014. However, this will bring several policy challenges for the government. The project will result in a significant increase in commodity export earnings and will boost the public coffers through royalties and taxes, facilitating crucial spending on infrastructure and welfare provision. But the government will need to manage this dramatic increase in national income so as to avoid "Dutch disease"-the risk that large resource projects may lead to an influx of foreign currency, causing appreciation of the local currency and a decline in competitiveness in other sectors. The newly created sovereign wealth fund should help to offset this risk: the fund is not allowed to invest in domestic assets, and there is a cap on withdrawals by the government to limit spending (although the authorities have a record of contravening their own expenditure limits). Both features should help to limit upward pressure on the kina. Achieving effective delivery of new public services will require capacity and governance impediments to be addressed at both central and local levels.

  ECONOMIC GROWTH: We expect real GDP growth to slow to 5.5% in 2013, from an estimated 6.8% in 2012. The slowdown in the pace of expansion next year will be owing primarily to the ending of the construction phase at PNG's newest mine, the US$1.4bn nickel-cobalt project in the Ramu district of Madang province. As a result, investment growth will slow significantly next year, although a modest impetus will still be provided by the final stages of construction of the ExxonMobil-led LNG project. Exports of goods and services will grow by 5.9% in 2013; production at a number of older mines will decline, but growth will be supported by the start of exports from the Ramu mine. Private consumption will meanwhile grow by 5.1% in 2013, as despite a pick-up in some agricultural prices (such as those for cocoa), which will support real incomes, the government will face a major challenge in finding new employment for the 8,000 or so workers who will be laid off when construction of the ExxonMobil-led LNG project is completed in that year.

  INFLATION: The rate of consumer price inflation slowed sharply in the second quarter of 2012, to 1.4% year on year, from 4% in the first quarter. According to the Bank of Papua New Guinea (the central bank), the deceleration reflected lower import prices-supported by an appreciation of the kina against the US dollar-as well as a drop in the price of betelnut (the chewing of which is popular in PNG). We estimate that inflation will average 3.1% in 2012 as a whole. In 2013-17 consumer price inflation will pick up to an average of 6.3% a year, owing in part to strong growth in domestic demand, although kina appreciation against the US and Australian dollars in the early part of the period will help to limit imported inflation. There is a significant degree of upside risk attached to our inflation forecast: the rate of price rises in the coming years could be faster if the government fails to keep credit growth in check once it starts to receive revenue from the ExxonMobil-led LNG project.

  EXCHANGE RATES: On an annual average basis the kina will strengthen in 2013-14 against most major currencies, including the US and Australian dollars, on the back of strong inflows of foreign direct investment and rising exports. We expect the kina to appreciate to an average of Kina2.03:US$1 in 2013 and to Kina2.02:US$1 in 2014, from an estimated Kina2.08:US$1 in 2012. In 2015 the value of the kina is expected to fall slightly, but will resume an appreciating trend in 2017, averaging Kina2.02:US$1 in that year. There are significant upside risks to our forecast for the kina:US dollar exchange rate; whether they materialise will depend on the government's ability to limit the flow into the economy of liquidity resulting from the ExxonMobil-led LNG project.

  EXTERNAL SECTOR: In 2013 merchandise export revenue will expand by 11.5% in US dollar terms, boosted by the start of exports of nickel and cobalt from the Ramu mine and by a recovery in global prices for a number of industrial raw materials (after a sharp decline in 2012). The start of production at the ExxonMobil-led LNG project will result in a strong acceleration in merchandise export revenue expansion in 2014-15. Growth in the goods import bill will slow in 2013 as a number of projects reach completion. In 2014-17 an increase in domestic demand will cause merchandise imports to rise by 6% a year on average. The merchandise trade balance will remain positive throughout the forecast period. In 2013-17 PNG will continue to run a deficit on its services account as payments for transport services exceed credits.

  December 07, 2012

• Forecast

  Papua New Guinea: 5-year forecast summary

  Outlook for 2013-17: Forecast summary

  Forecast summary
  (% unless otherwise indicated)
  	2012a	2013b	2014b	2015b	2016b	2017b
  Real GDP growth	6.8	5.5	6.4	14.6	6.2	6.7
  Gross agricultural production growth	2.5	2.0	3.0	3.0	2.0	3.0
  Consumer price inflation (av)	3.1	5.1	5.4	6.1	7.9	7.0
  Consumer price inflation (end-period)	4.0	6.0	5.4	6.1	7.9	7.0
  Short-term interbank rate	10.4	11.0	12.2	12.1	11.6	11.6
  Government balance (% of GDP)	0.1	-2.3	-1.5	-0.2	-0.1	0.2
  Exports of goods fob (US$ bn)	5.7	6.2	8.2	11.2	11.5	11.9
  Imports of goods fob (US$ bn)	4.8	4.9	5.1	5.3	5.7	6.2
  Current-account balance (US$ bn)	-2.8	-1.1	1.0	3.0	2.2	1.8
  Current-account balance (% of GDP)	-16.1	-5.9	4.3	11.3	7.1	5.1
  External debt (year-end; US$ bn)	4.8	4.5	4.2	4.0	3.8	3.7
  Exchange rate Kina:US$ (av)	2.08	2.03	2.02	2.04	2.04	2.02
  Exchange rate Kina:¥100 (av)	2.37	2.55	2.50	2.38	2.21	2.21
  Exchange rate Kina:€ (end-period)	2.78	2.62	2.67	2.62	2.59	2.54
  Exchange rate Kina:SDR (end-period)	3.26	3.09	3.17	3.11	3.08	3.03
  a Economist Intelligence Unit estimates. b Economist Intelligence Unit forecasts.

  Download the numbers in Excel

  Download text file (csv format)

  December 06, 2012

View detailed map

Country Briefing

Land area

462,840 sq km

Population

6.6m (2008, IMF mid-year estimate)

Major islands

New Britain, New Ireland, Manus, Bougainville

Population in '000 (2000 census)

Port Moresby (capital): 254

Lae: 79

Madang: 29

Mount Hagen: 28

Rabaul: 24

Wewak: 20

Goroka: 20

Climate

Tropical

Weather in Port Moresby (sea level)

Hottest month, December, 24-32°C (average daily minimum and maximum); coldest month, August, 23-28°C; driest month, August, 18 mm average rainfall; wettest month, February, 193 mm average rainfall

Languages

Tok Pisin (Pidgin English), English and Hiri Motu; more than 800 other distinct languages also in use

Measures

Metric

Currency

1 kina = 100 toea. Average exchange rate in 2010: Kina2.72:US$1

Time

10 hours ahead of GMT

Public holidays

January 1st (New Year's Day), observed on January 2nd; April 5th (Good Friday); April 9th (Easter Monday); June 11th (the Queen's birthday); July 23rd (Remembrance Day); August 26th (National Day of Repentance); September 16th (Independence and Constitution Day); December 25th (Christmas Day); December 26th (Boxing Day)

March 26, 2012