economic outlook for png-2016 & beyond · 2016-09-08 · economic outlook for png-2016 &...
TRANSCRIPT
EconomicOutlookforPNG-2016&Beyond
Presentation by: Mr Loi M. Bakani CMG Governor-Bank of PNG
Business Summit
1-2 September 2016 BRISBANE, AUSTRALIA
Keyfacts
4.3% 6.3%
7.9% 6.4% 6.0%
2.4% 3.0% 3.6% 5.0%
PNG (B+)
China (AA-)
India (BBB-)
Vietnam (BB-)
Kenya (B+)
Fiji (B+)
Zambia (B)
Mongolia (B)
Ghana (B-)
0%
5%
10%
15%
20%
Source: PNG and S&P (May 2016)
n KeysectorsofGDP(2015): n Keyexports(2015):
Overview
OverviewofPapuaNewGuinea(PNG)Economy
2
n 2015nominalGDP:K64,162mm(US$21.5bn)n 2015realGDP:K27,134mm(US$9.1bn)n 2015realGDPgrowth:9.9%n Area:463,000sqkmn Capital:PortMoresbyn PopulaLon:8.1mm
n Currency:Kina(PGK)/US$1=K3.16(May2016)
1 Others include education, human health and social work, electricity, gas and air conditioning, manufacturing, water supply and waste management, mining and quarrying, finance and insurance, real estate activities, community social, personal services, transport and storage, public administration and defense, information and communication, accommodation and food services, administrative and support services, professional, scientific and technical activities, wholesale and retail trade and other services; 2 Other minerals include copper, nickel, cobalt, crude oil, condensate and refined petroleum products
RealGDPgrowth 2016ErealGDPgrowthvs.peers
Others151%
Oilandgas25%
Agriculture,forestry,andfishing17%
ConstrucXon8%
Otherminerals218%
LNG43%
Gold23%
Agriculture,forestry,andfishing16%
GlobalB-ratedpeersAsianpeers
Japan:~5,000km
Australia:~500km
China:~4,900km
PapuaNewGuinea
Australia
Indonesia
7.6% 11.1%
8.0% 4.9%
13.3% 9.9%
4.3%
2010 2011 2012 2013 2014 2015 2016E 0%
4%
8%
12%
16%
20%
Source: PNG
Source: Department of Treasury, Central Bank, 2011 National Population & Housing Census
KEYFACTS–PapuaNewGuinea§ Papua New Guinea is located in the South Pacific region, north of
Australia and within close proximity to our key export markets ofAustralia,JapanandChina
§ Papua New Guinea has a dual economy comprising a public- andcorporate-basedsector,andalargesubsistencefarming-basedsector.Agriculture, forestryandfishing,oil&gasandconstrucLonaremajorcomponentsofourdiversifiedGDPbase
§ Papua New Guinea is rich in both renewable and non-renewablenatural resources. These includeextensiverain forests,a richmarinelife, ferLle soil for agriculture and significant reserves of gold, silver,copper,nickel,cobalt,othermineraldeposits,crudeoilandnaturalgas
§ The commercial development of natural resources has created aresources-based export economy and our main exports include LNG,gold, copper, silver, nickel and cobalt and otherminerals and certaincashcrops,oilpalm,coffee,cocoa,forestryandmarineproducts
§ WearecurrentlyenjoyingourlongestperiodofrealGDPgrowthwhichisexpectedtoconLnuein2015for14consecuLveyearssince2002
§ From2007to2014,ouraveragerealGDPgrowthacceleratedto8.0%,morethandoublethepopulaLongrowthrate.
§ BasedonS&Pdata,wehaveoneofthehighestrealGDPgrowthratesin2015compared tosimilar ratedpeersandhigher thanhighgrowtheconomiessuchasChina,IndiaandVietnam
17.3 19.220.8
21.824.7
27.128.8
0
5
10
15
20
25
30
2010 2011 2012 2013 2014 2015 2016
34%
7% 10% 8% 24%
17%
RobusteconomicgrowthtrackrecordandpotenXal
17.3 19.2 20.8 21.8
24.7 27.1 28.3
7.6%
11.1% 8.0%
5.0%
13.3% 9.9%
4.3%
2010 2011 2012 2013 2014 2015 2016E
Real GDP (K bn) Real GDP growth rate (Y-o-Y %)
StrongGDPgrowth
4
1OthersincludeeducaXon,humanhealthandsocialwork,electricity,gasandaircondiXoning,manufacturing,watersupplyandwastemanagement,financeandinsurance,realestateacXviXes,communitysocial,personalservices,transportandstorage,publicadministraXonanddefense,informaXonandcommunicaXon,accommodaXonandfoodservices,administraXveandsupportservices,professional,scienXficandtechnicalacXviXes,andotherservices;2CAGR:CompoundedAnnualGrowthRate
RealGDPbycontribuLon(2010–2016E)
Agriculture/Forestry/Fishing ConstrucXon
Wholesaleandretailtrade MiningandquarryingOilandgasextracXon Others1(Kbillion)
CAGR22010–2
016E:[8.6]%
2016ErealGDPgrowthvs.peers
4.3% 6.3%
7.9% 6.4% 6.0%
2.4% 3.0% 3.6% 5.0%
PNG (B+)
China (AA-)
India (BBB-)
Vietnam (BB-)
Kenya (B+)
Fiji (B+)
Zambia (B)
Mongolia (B)
Ghana (B-)
0%
5%
10%
15%
20%
Source: PNG and S&P (Jun 2015)
Source:DepartmentofTreasuryandCentralBank
RealGDPpercapita
2,443 2,643 2,782 2,849 3,134 3,343 3,386
2010 2011 2012 2013 2014 2015 2016E
Source:DepartmentofTreasuryandCentralBank
20%4%10%11%16%
40%
Source:DepartmentofTreasury
CAGR22010–2016E:[5.6]%
19%4%9%12%
14%
42%
19%3%10%12%11%
45%
19%3%10%12%10%
46%
18%
18%
8%11%8%
38%
17%
25%
8%10%7%
34%
Diversified economic structure
51.0%
20.0%
20.0%
10.0%
Others
Oil and gas extraction
Agriculture, Forestry andFishing
Construction
47.0%
29.0%
17.0%
8.0%
Others
Oil and gas extraction
Agriculture, Forestry andFishing
Construction
By 2015 • Full year of LNG production and export - mining, oil & gas sector’s share increased to 29% • Other traditional sectors – agriculture/forestry/fisheries, construction remain dominant
In 2010 • Dominant sectors are: mining, oil
and gas; agriculture/forestry/fisheries; and construction
• Others include commerce, transport, manufacturing, finance
Fiscal Operations (K’mn)
• Responsible fiscal management – supplementary budgets were introduced in 2014 and 2015 given the declining revenues from international commodity prices and El Nino drought effects
• Key priority areas of education, health, transport & infrastructure, law & order, and rural development in general were not affected
Increased Gov’t spending on key economic enablers (K’bn)
• Budget deficit spending put to good use – growing the economic base • Largest allocation and spending was to the key priority sectors of economic
& agriculture, education, health, transport & infrastructure, law & order, and rural development increased from K6.2 bn in 2011 to K7.6 bn in 2015
• Spending in these priority areas averaged 68.8% of the total budget over the five years 2011-2015
Government Debt (K’mn)
• Total Gov’t debt in 2015 totalled K18 bn, increased to K19b in 2016. • Mainly domestic debt and around small component from external sources • External debt was all concessional, from ADB, World Bank, JICA,
Australian Gov’t, etc.
Debt to GDP
• Prudent debt management by the Gov’t • No breach of statutory borrowing limit (debt-to-GDP ratio of 35%) under
the Fiscal Responsibility Act • Highest ratio of 28% was reached in 2015 • Very low debt burden and negligible foreign debt burden
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5 Kina per USD Kina per AUD Kina per EUR
4.4% 4.6% 5.0% 5.2%
6.0%
0%
1%
2%
3%
4%
5%
6%
7%
2010 2011 2012 2013 2014 2015
Prices,employment,andwagesExchangerateHeadlineinflaLonrate
Source: National Statistical Office and Department of Treasury *2010 Based on old CPI basket
Source: Bloomberg
10
Kina
InflaLonbygroupNon-mineralandmineralemployment
161 172 172 161 159
173
188
270
237 247
100.0
140.0
180.0
220.0
260.0
300.0
2011 2012 2013 2014 2015
Non mining and petroleum Mining and petroleum
Source: Central Bank
FortheyearendedDecember31 Year-on-yearinflaLon(%) 2012 2013 2014 2015 Foodandnon-alcoholicbeverages(34.9%) (1.4) (0.9) 4.8 4.9 Alcohol,tobaccoandbetelnut(7.9%) 69.3 43.8 4.6 12.1 Clothingandfootwear(5.5%) 2.6 3.1 3.5 9.7 Housing(11.2%) 10.3 10.7 12.0 15.4 Householdequipment(4.5%) 1.1 (0.2) 5.2 10.4 Transport(14.2%) (0.5) - 6.7 (3.7) CommunicaXon(4.5%) - - (5.6) 0.1 Health(2.7%) 3.2 5.6 13.3 17.2 RecreaXon(2.9%) (4.4) (3.1) 5.2 (0.7) EducaXon(7.4%) 0.2 0.4 (1.9) - Restaurantsandhotels(2.6%) 8.5 7.2 6.1 5.1 Miscellaneous(1.5%) (3.9) (5.7) 4.5 (3.5) Allgroups 4.6 5.0 5.2 6.0
Source: National Statistical Office
Employmentindex,March2002=100
BalanceofPayments
(1.7) (0.4)
(4.8)
(7.7)
6.0
13.4
3.0 1.6
4.0
6.2
(6.8)
(14.1)
-20.0
-15.0
-10.0
-5.0
0.0
5.0
10.0
15.0
20.0
2010 2011 2012 2013 2014 2015
Current account Capital and financial account Overall Balance
Highlights
• Despitedeficitbudgets,KinadepreciaXonofaround36%between2012andAugust2016,andhigheconomicgrowth,inflaXonremainedlowatmanageablelevel.
• CurrentaccountsurplusdoesnotmeanhighForexinflows,asmining&petroleumcompanieswereallowedtokeepexportearningsinoffshoreaccountstomeetoverseasliabiliXes.AllowedundervariousDevelopmentAgreements.
• Theybringinforexforlocalexpenses,tax,royalXes,leviesanddividends
• KinadepreciaXonreflectssupply&demandcondiXons,whichistypicalofafloaXngexchangerateregime.
• AcXonin2014toimposetradingmarginof75basispointsfrommidratewastoapplydisciplinetomarketsekngrate.
• FurtheracXonin2015ondomesXcforeigncurrencyaccounts.
Foreign Exchange Reserves
ForeignreservesdeclinebutImportcoverincrease
10.5
11.5 11.0
7.9 8.0
10.0
0.0
2.0
4.0
6.0
8.0
10.0
0.0
3.0
6.0
9.0
12.0
15.0
18.0
2010 2011 2012 2013 2014 2015
FCY reserves (LHS) Import ratio of FCY reserves (RHS)
Foreign Exchange Reserves
• The Central Bank continued to support the foreign exchange market by supplying some foreign currency out of its reserves to meet some of the import demand by the private sector.
• From 2012 to date in 2016, the Central Bank has intervened by supplying US$2.4 billion in the foreign exchange market.
• With low Government external debt, the private sector has been the beneficiary of the forex intervention.
• Consequently, Reserves declined from US$4.0 billion at the end of 2012 to US$1.7 billion currently.
Short Term Issues – Budget Financing & Forex
• Govt’s plan to continue funding of priority sectors through deficit budget is clear.
• Without any revenue coming from LNG project and lower internal revenue from various sources, poses a challenge for budgetary financing for 2016 to 2018
• Also challenge for management of forex reserves • Govt needs to realise budgeted external financing of
the budget given the fiscal space from external debt stock & low debt servicing
• The Government and the Bank are pursuing it. • Provide relief for domestic market as main source of
borrowing • Provide support for foreign exchange reserves &
market
Short Term Issues –Budget Financing & Forex
• Early this year we were asking “What are the prospects for improvement in the forex market?”
• There is a queue in the foreign currency market of non-served orders.
• Good inflows of foreign currencies by exporters • The resumption of Ok Tedi mine in March 2016,
combined with Lihir's increasing production and exports, & inflows by other mineral companies contributed.
• BPNG interventions & increased forex inflows was sufficient to clear geniune import & service payment orders
• The total non-served orders have not declined much.
Short Term Issues – Budget Financing & Forex
• After the debt service and accelerated depreciation provisions are catered for there will be more foreign exchange inflows from the LNG project.
• There will be a turn-around in the forex market, Government revenue will increase, growth in economic activity will increase.
• Start up of any pipeline projects will provide relief to current situation.
Short Term Issues – Budget Financing & Forex
• Need for exporters to take advantage of the kina depreciation to increase production and exports that would bring in the much needed foreign exchange.
• Importers & consumers to resort to domestically produced goods, reduce FX demand and support local production.
• The Bank has to balance the foreign currency need of the Government, private sector demand and ensure maintenance of adequate level of foreign exchange reserves for the country.
MEDIUMTOLONGTERMPROSPECTS
• NEXTSLIDES
Mine Metals 2015ProducXon(’000)
OkTedi1Gold
CopperSilver
147ozAu43tCu482Ag
Porgera GoldSilver
591ozAu109Ag
Lihir Gold
805ozAu
Ramu NickelCobalt
26tNi3tCo
HiddenValley GoldSilver
161ozAu1,836ozAg
LargeandestablishedmineralsectorwithatrackrecordofdevelopmentwithinternaXonalpartners
Overview
Source: Mineral Resources Authority Note: 1 As a result of the El Niño weather phenomenon, operations at OK Tedi mine has
been suspended until 1Q2016
LargescaleoperaLngmines
Valueofmineralexported(2010–2015EMineralExports)
0
2
4
6
8
10
12
2010 2011 2012 2013 2014 2015 2016E
Gold Copper Nickel Cobalt
84%
TotalproducLonvalue(Kbillion)
67%
33%
66%
34%
71%
28%
72%
20%6%2%
69%
n EstablishedminingsectorgovernedbyMiningAct1992andregulatedbyMineral
ResourcesAuthority(“MRA”)
n Proventrackrecordofover40yearsofdevelopment
n KeymineralsareGold,Silver,Copper,NickelandCobalt
n ProjectsareoperatedandfinancedbylargeMNCs
Source: Central Bank, Department of Treasury
19%11%1%
77%
11%10%2%
9%6%1%
n 29mmhaofforestedland(63%oftotalland
area)
n 15mmharichinXmberspecies
n DSP2010-2030seekstomaximizesustainable
benefitsandminimizedetrimentalimpacton
environment
Agriculture
UnlockingthevastpotenXalfromtheagriculture,forestry,andfisheriessectors
FisheriesForestryn Economicbackboneforthepast70years
n HugegrowthpotenXalwithcurrentlowexportbaseof
K2bn(usingonly3%ofavailableagricultureland)
n LargestfisherieszoneinSouthPacific(2.4mm
km)
n Harvestapproximately500,000–750,000tonsof
fish&shellfishp.a.
n NaXonalFisheriesDevelopmentPlanpromotes
sustainablefishingandadvancementofthe
sector
n KeyexportsdesXnaXons:EU,Japan,Philippines,
TaiwanandThailand
744 768
627
730
962
865
760
2010 2011 2012 2013 2014 2015 2016E
Forestry export value (Kmm):
Timber Other forest products
Note: Others forest products include timber, plywood, and woodchips
114
260
330
234
335
466
395
2010 2011 2012 2013 2014 2015 2016E
Fisheries export value (Kmm):
Source: Central Bank and Department of Treasury
Note: Others include rubber, tea, and a very small portion of manufactured goods
2010 2011 2012 2013 2014 2015 2016E
Agriculture export value (Kbn): Palm oil Coffee Cocoa Copra + Copra Oil Others
44%
15%6%
13%
50%
24%
9%
13%
51%
19%
12%
4% 16%
51%
21%
11%
13%
2%
4%
22%
45%
28%
10%7%
10%
32%
15%
10%
40%
3%
2.4
3.3
2.01.8
2.1
2.6
95%
5%
95% 95% 99% 99%
5%
5%
1%
1%
1%
2.2
48%
23%
14%3%
11%
99% 99%
1%
UnlockingtorealizeImportSubsXtuXonu PNG’sannualimportsofagriculturalproductsamountstoaboutPGK1.2
billion.
u Thegovernment,hasputinplacea5-yearplantogrowthedomesXcagriculture.TheiniXaXvesincludes;
Ø reducingdependenceonimports,
Ø diversificaXonandimprovementtotheinfrastructureand
Ø transmissionofinputstofarms.
u InaddiXon,thereisalsoastrongimpetustodevelopthemanufacturingsectorwhichcurrentlycontributes3.0%toPNG’srealGDPbysupporXngSMEs.
u Over80%ofPNG’spopulaXonareinvolvedinsubsistenceagriculture.ImportsubsXtuXonwill;
Ø improvethelivelihoodsofthemasspopulaXon
Ø helprelievePNGofitscurrentFXpressure.23
Medium to Long Term Prospects • The PNG economy will continue to grow but a
lower pace (2% to 3%). Inflation projected to be in the range of 6 to 7%.
• Benefits from past & current investments in priority areas by Govt will be realised
• Supported by pipeline of investment, including Penyang by ExxonMobil, Papua LNG by Total and Wafi-Golpu gold, which will have positive impact on the economy like the PNG LNG project did.
• Lessons learnt from concessions given to extractive projects in non-renewable sector should be LIMITED in future.
Medium to Long Term Prospects • The non-mineral sectors have the potential for inclusive
growth and employment opportunities. • The Government is focussing on diversifying the economy
by giving emphasis on sectors like agriculture, tourism and SME sectors
• Large intergrated projects in agriculture sector & SME are encouraged. Good initiatives already led by Government and landowners.
• Need appropriate trade and investment policies to help boost growth in the non-mineral sectors.
• Would reduce reliance on the non-renewable sector.
ProspectsForInclusiveGrowth
• Focusondevelopingruralareas,infrastructure,educaXon,health,agriculture,tourism&SMEbyGovtisthestartofpathtoachievinginclusivegrowth
• ProvidingaccesstoinnovaXvetechnology,financing&marketsforagriculture&SMEsectorswouldincreasedparXcipaXonbypopulaXon
• Needtoget80%ofourunbankedpopulaXonintomodernfinancialservicessector
• GreatneedforfinancialeducaXonofourpopulaXon
• ConXnuefinancialinclusionandliteracystrategy
POSITIVENEWS
u WHILETHEREAREISSUES&CHALLENGESWEFACEINSHORTTERM,THEMEDIUMTOLONGTERMPROSPECTSANDOUTLOOKFORTHEECONOMYARE:“POSITIVE&STRONG”
u THANKYOU.