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Papua New Guinea Country Risk Report 20 2016

  • March 2016
  • -
  • Business Monitor International
  • -
  • 29 pages

Core Views We forecast Papua New Guinea (PNG)'s real GDP growth to average an impressive 6.2% per annum through 2025 as the country leverages its rich endowment of natural resources. In particular, we expect the country to experience strong growth from the development of its significant natural gas reserves. Following the construction of ExxonMobil's massive liquefied natural gas plant, we see potential for additional reserves to be explored and developed over the coming years and expect more multinational firms to become involved in the process. Papua New Guinea's rapid economic growth on the back of natural resource development also poses risks to the long-term structure of the economy.

Despite the fact that GDP per capita will rise rapidly in the country over the coming years, development is likely to be relatively uneven. Similarly, the rout in global commodity prices from late 2014 onwards has significantly undermined PNG's near-term growth outlook, as the government will struggle to balance its fiscal accounts. Following 2012's general elections, PNG's political outlook stabilised considerably under Prime Minister Peter O'Neill. However, a high degree of factionalism within and between the country's myriad political parties continues to add to political uncertainty, and corruption investigations against the prime minister suggest that stability over the medium term is not a foregone conclusion.

Table Of Contents

Papua New Guinea Country Risk Report 20 2016
Executive Summary 5
Core Views5
Key Risks5
Chapter 1: Economic Outlook 7
SWOT Analysis 7
BMI Economic Risk Index 7
Economic Growth Outlook 8
Government Footprint To Remain Large8
Papua New Guinea's GDP by expenditure breakdown is somewhat unique in the sense that public consumption takes a particularly
large share, while private consumption is somewhat limited This will continue to be the case as the government attempts to redistribute
the revenues derived from the country's extractive industries over the coming years
TABLE: GDP GROWTH FORECASTS8
TABLE: PRIVATE CONSUMPTION FORECASTS8
TABLE: GOVERNMENT CONSUMPTION FORECASTS8
TABLE: FIXED INVESTMENT FORECASTS9
TABLE: NET EXPORTS FORECASTS9
Fiscal Policy And Public Debt Outlook 9
Commodity Price Collapse Endangers Fiscal Sustainability9
The Papua New Guinea government finds itself in a tenuous position having implemented expansionary fiscal programmes in
anticipation of significant resource-based revenue growth from 2015 onwards The collapse in global commodity prices beginning in
late 2014 undermined the government's fiscal position considerably, and spending growth will likely remain constrained over the coming
years as officials look to shore up their rapidly rising debt position
External Trade And Investment Outlook 10
Current Account Surge To Alleviate Debt Woes10
Papua New Guinea will enjoy a fast-rising current account surplus over the coming years, which is likely to help to alleviate the shortage
of foreign exchange that the economy has faced in the past However, at well over 100% of GDP, the country's external debt stock
remains formidable, and this will likely take years to pare down even as net current account inflows grow
Monetary Policy 11
BPNG Faces A Tall Task11
The Bank of Papua New Guinea has a relatively consistent track record in terms of inflation management but will face considerable
difficulties over the coming years as it looks to manage the embattled Papua New Guinea kina amid volatile commodity prices and a
jump in the country's trade surplus
Long-Term Economic Outlook 12
Tethered To Commodities12
Papua New Guinea's economy will continue to grow relatively rapidly over the coming decade on the back of its significant natural
resource wealth, and we see real GDP growth averaging 62% per annum Still, significant structural issues remain, and if commodity
prices remain depressed for an extended period, this could seriously undermine the country's long-term growth outlook
Chapter 2: Political Outlook 15
SWOT Analysis 15
BMI Political Risk Index 15
Long-Term Political Outlook 16
Corruption, Leadership Uncertainties Underscore Challenging Outlook16
Papua New Guinea's political system has not experienced significant improvements over the past decade, and it remains among the
country's most prescient risk areas In particular, we note that Papua New Guinea is prone to politically motivated attacks against top
political leaders, and that corruption is widespread For these reasons, Papua New Guinea scores an underwhelming 538 in our Long-
Term Economic Risk Index, well below the regional average of 625
Chapter 3: Demographic Outlook 19
Demographic Outlook 2016 19
TABLE: POPULATION BY AGE GROUP 20
TABLE: POPULATION BY AGE GROUP % 20
TABLE: POPULATION HEADLINE INDICATORS 21
TABLE: KEY POPULATION RATIOS 21
TABLE: URBAN/RURAL POPULATION and LIFE EXPECTANCY 21
Chapter 4: Operational Risk 23
Operational Risk Index 23
Chapter 5: BMI Global Macro Outlook 25
Global Macro Outlook 25
Tail Risks Mounting Amid Sub-Par Growth25
TABLE: GLOBAL ASSUMPTIONS 25
TABLE: DEVELOPED STATES, REAL GDP GROWTH, % 26
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, 2015 AND 2016 (%) 26
TABLE: EMERGING MARKETS, REAL GDP GROWTH, % 27
TABLE: MACROECONOMIC DATA and FORECASTS 29

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