Papua New Guinea's growth in 2013 is expected to slow considerably as the construction of a liquefied natural gas project winds down. Deficit spending will offset some of this slowdown, but future spending growth must be contained to maintain macroeconomic stability. With growth increasingly dominated by mining and gas, a challenge for the government will be to stimulate other sectors offering more jobs and higher investment in the country’s abundant renewable energy resources.

Source: ADB estimates.

Economic performance

Papua New Guinea, the largest developing economy in the Pacific, maintained its position as one of the fastest-growing economies in Asia and the Pacific in 2012, with economic growth of 9.2%. Construction was the strongest performer, contributing 4.5% to growth, or nearly half of the outcome. Transport, finance, and retail trade added a further 2.8% on the strength of domestic demand created by the peak construction period of a new liquefied natural gas (LNG) project and government expenditure that was higher than expected. Mining output recovered from weather and technical disruptions experienced in 2011, adding a modest 0.3% to overall growth in 2012.

Dragging on growth was falling oil output as reserves declined. Growth in agriculture, forestry, and fisheries output also slowed as the sector expanded by only 0.2% in 2012, down from 8.1% in 2011. Adding to this outcome were poorer growing conditions and moderating export prices, which depressed coffee, copra, and cocoa output. New investment in processing mills helped to support palm oil production.

Economic prospects

Economic growth is expected to slow to 5.5% in 2013 before picking up again to 6.0% in 2014. The non-mineral economy is expected to slow most sharply as the winding down of LNG project construction will dramatically curtail construction and transport activity, eventually spilling over into lower domestic consumption and retail and wholesale trade. Moderating international agricultural prices are expected to depress rural incomes derived from the sale of crops for export. A significantly increased national budget, which plans for large budget deficits of 7.2% of gross domestic product (GDP in 2013 and 5.9% in 2014, will counter some of the effects of falling domestic demand on the non-mineral economy.

Papua New Guinea's mineral sector is expected to lead growth, expanding by 13.0% in 2013 as production bottlenecks clear at a number of gold and copper mines and production at the new Ramu nickel and cobalt mine ramps up. Continued declines in petroleum production, as reserves in major oil fields become depleted, will offset some of this growth in 2013, but the onset of LNG exports will greatly boost mineral output late in 2014, with overall growth in the sector expected to surpass 60% in that year.

Source: ADB. 2013. Asian Development Outlook 2013. Manila.

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