Papua New Guinea

Politics:

• Analysis

  Papua New Guinea politics: Quick View - Bilateral relations with Thailand a

  Event

  A visit to Port Moresby by Yingluck Shinawatra on March 24th-25th was the first to Papua New Guinea (PNG) by a Thai prime minister and was marked by a raft of agreements on economic co-operation.

  Analysis

  In a joint press conference on March 25th Yingluck and the PNG prime minister, Peter O'Neill, announced several areas that the two countries had agreed to emphasise. These included raising the level of bilateral trade in areas such as agricultural products and vehicles. The value of trade between the two countries has grown rapidly in recent years, from US$139m in 2007 to US$282m in 2011, but these sums represent only a fraction of the countries' total trade. In addition, all of the growth in recent years has come from a rise in imports to PNG from Thailand. PNG exports to Thailand have actually fallen considerably since a high of US$83m in 2009.

  Other areas of agreement included a pledge to end double-counting of tax revenue and an effort to increase the level of Thai investment in the local economy. Yingluck was accompanied by representatives from 30 Thai firms with an interest in investing in PNG.

  During Yingluck's visit, the Thai energy minister, Pongsak Raktapongpaisal, denied a claim by a Thai opposition MP that chief among the reasons for the prime minister's visit was to continue negotiations begun by her brother, Thaksin, in 2006 to sign an agreement to build a liquefied natural gas (LNG) plant in PNG. According to the Thai government, Yingluck's role in the visit was purely diplomatic. However, The Economist Intelligence Unit expects foreign interest in PNG's natural resources sector to rise in the forecast period and the possibility of an LNG deal with Thailand should not be discounted. Although we do not expect Thailand to become one of PNG's major export destinations in the forecast period, any attempt to diversify exports away from the main centres of Australia and Japan will bode well for the external sector.

  March 25, 2013

• 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 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 a large majority of members of parliament

  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

  March 18, 2013

• 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 last year's general election ended a lengthy impasse between the prime minister, Peter O'Neill, and his predecessor, Sir Michael Somare.
  • Following a recent change in the law, the government is now protected from no-confidence motions for the first 30 months of its term. This will further reinforce political stability.
  • The lay-off of some 8,000 local employees from the liquefied natural gas (LNG) project led by ExxonMobil of the US as construction ends later in 2013 could exacerbate social tensions if new job opportunities are not created.
  • 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 just 2.8% in 2013, from an estimated 7.4% in 2012, owing to a decline in investment following the winding down of construction work on the LNG project.
  • The government's approval of a second LNG project, in Gulf province, could boost economic activity in PNG further in the medium term. Construction work on the scheme 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

  • On March 8th Mr O'Neill rebuffed a claim by the local branch of a global anti-corruption agency, Transparency International, that the 2012 parliamentary election had been "seriously flawed".
  • The defence minister, Fabian Pok, has announced a major expansion in the size of the PNG Defence Force, with a view to increasing the total number of military personnel deployed to 10,000, compared with 1,900 at present.
  • Mr O'Neill has said that he will not be coerced into extending the life of the Ok Tedi copper and gold project, following a long-running dispute with the mine's previous owner, BHP Billiton.
  • On March 10th the Bank of Papua New Guinea (the central bank) announced that it had cut its main policy interest rate, the kina facility rate, by 50 basis points to 6.25%, from 6.75% previously.

  March 18, 2013

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

  
  

  

  March 18, 2013

• 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. Peter 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's appointment to the post (he was elected unopposed) was made possible owing to a surprising move by his predecessor and erstwhile political foe, Sir Michael Somare, who announced that he would support Mr O'Neill in forming 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 often run as independents and then align themselves with political parties following polls. Political affiliation is frequently based on tribal, linguistic, geographical or personal ties, rather than party loyalty. The next general election is due in 2017. Following Mr O'Neill's recent success in implementing a longer period of government immunity from no-confidence motions, the likelihood of any short-term political unrest triggering an early poll has diminished.

  INTERNATIONAL RELATIONS: The Australian government will aim to maintain its close relationship with PNG, particularly given the importance of Pacific countries to its attempts to solve the problem of how to deal with asylum-seekers. Mr O'Neill has been supportive of Australia's request to locate an asylum-seeker processing centre on PNG's Manus Island, and the first group arrived on the island in November. However, the opposition claims that the facility violates PNG's constitution, while the UN Refugee Agency has criticised the harsh living conditions in the camp. Although ties with Australia will remain strong, PNG's government will attempt to expand its economic links with other countries in the region, particularly China.

  POLICY TRENDS: Given the improved prospects for political stability in the forecast period, the Economist Intelligence Unit expects the liquefied natural gas (LNG) project led by ExxonMobil of the US to commence production on time, in 2014. However, this will entail 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, enabling crucial spending on infrastructure and welfare. But officials will need to manage this dramatic increase in national income so as to minimise the risk that large resource projects may lead to an influx of foreign currency, causing the kina to appreciate and the competitiveness of other sectors to decline. A 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 limitations of capacity and governance to be addressed at both central and local levels.

  ECONOMIC GROWTH: We expect real GDP growth to slow significantly in 2013, to 2.8%, from an estimated 7.4% in 2012. The deceleration in the pace of expansion this year will primarily reflect the winding down of the construction phase of the giant ExxonMobil-led LNG project. As a result, fixed investment is likely to contract in 2013. 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 PNG's newest mine, the US$1.4bn nickel-cobalt project in the Ramu district of Madang province. Private consumption will meanwhile grow by 5.2% in 2013. A pick-up in international prices for some agricultural products, such as copper, will support real incomes, but the government will face a major challenge in finding new employment for the 8,000-odd local construction workers who will be laid off from the LNG project.

  INFLATION: The rate of consumer price inflation accelerated in the third quarter of 2012, to 2% year on year, from 1.4% in the second quarter, but it remains on a slowing trend. Inflation in July-September was far lower than in the year-earlier period (when prices rose by 8.5%), owing to appreciation in the value of the kina in the intervening period, according to the BPNG. We estimate that inflation averaged 2.8% in 2012 as a whole. In 2013-17 the pace of consumer price increases will accelerate to 6.3% a year on average, owing in part to strong growth in domestic demand, despite kina appreciation against the US and Australian dollars, which will help to limit imported inflation. There is significant 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 2013-17 against most major currencies, including the US and Australian dollars, on the back of healthy inflows of foreign direct investment and rising exports. We expect the kina's value to rise to an average of Kina2.07:US$1 in 2013 and to Kina2.04:US$1 in 2014, from an estimated Kina2.08:US$1 in 2012. The pace of appreciation will increase from 2015 onwards on the back of rising earnings from LNG exports, so that the currency will average Kina1.91:US$1 in 2017. There are significant upside risks to our exchange-rate forecast. Whether they materialise or not will depend on the government's ability to limit the flow into the economy of liquidity resulting from rising LNG exports.

  EXTERNAL SECTOR: In 2013 merchandise export revenue will expand by 6% 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 following substantial declines in 2012. The start of production at the ExxonMobil-led LNG project will cause merchandise export revenue growth to accelerate strongly in 2014-15. The goods import bill will be broadly unchanged in 2013, following a period of rapid expansion in recent years, as a number of projects reach completion. However, in 2014-17 a renewed strengthening in domestic demand will cause imports of goods to rise by 8.3% a year on average. The merchandise trade account will remain in surplus throughout the forecast period.

  March 25, 2013

• 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	7.4	2.8	6.4	14.8	6.2	6.7
  Gross agricultural production growth	2.5	2.0	3.0	3.0	2.0	3.0
  Consumer price inflation (av)	2.8	5.3	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	10.7	11.0	12.2	12.1	11.6	11.6
  Government balance (% of GDP)	-0.2	-3.9	-3.2	-1.9	-1.8	-1.4
  Exports of goods fob (US$ bn)	5.6	6.0	8.1	12.0	12.0	12.5
  Imports of goods fob (US$ bn)	4.5	4.5	4.8	5.2	5.7	6.2
  Current-account balance (US$ bn)	-2.1	-0.8	1.4	4.1	2.8	2.6
  Current-account balance (% of GDP)	-12.4	-4.1	6.6	15.2	8.9	7.2
  External debt (year-end; US$ bn)	11.2	10.2	9.5	8.9	8.4	8.0
  Exchange rate Kina:US$ (av)	2.08	2.07	2.04	1.98	1.94	1.91
  Exchange rate Kina:¥100 (av)	2.61	2.59	2.47	2.28	1.99	1.98
  Exchange rate Kina:€ (end-period)	2.73	2.59	2.65	2.41	2.45	2.41
  Exchange rate Kina:SDR (end-period)	3.30	3.10	3.16	2.91	2.89	2.84
  a The Economist Intelligence Unit estimates. b The Economist Intelligence Unit forecasts.

  Download the numbers in Excel

  Download text file (csv format)

  March 18, 2013

View detailed map

Country Briefing

Land area

462,840 sq km

Population

7.1m (2011 preliminary census figures, National Statistical Office)

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 2012: Kina2.37:US$1

Time

10 hours ahead of GMT

Public holidays

January 1st (New Year's Day); April 1st (Easter Monday); June 10th (the Queen's birthday); July 23rd (Remembrance Day); September 16th (Independence Day); December 25th (Christmas Day); December 26th (Boxing Day)

January 18, 2013