png survey of developments, 2015-16devpolicy.org/events/2016/pacific update/2c...png economic survey...
TRANSCRIPT
PNG economic survey 2015-16
Rohan Fox, Stephen Howes, Nelson Nema, Win Nicholas and Manoj Pandey
UPNG SBPP Division of Economics &ANU Crawford School Development Policy Centre
1
Introduction
Joint project of Division of Economics, Schoolof Business and Public Policy, UPNG andDevelopment Policy Centre, Crawford Schoolof Public Policy, ANU
Provides a survey of key economicdevelopments
Focus this year on economic growth,macroeconomic developments and structuralpolicy response
2
Economic Growth
3
-6-4
-20
24
68
1012
14
Rea
l gro
wth
rat
e (
%)
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
p
2017
p
2018
p
Year
Real GDP Growth Rate_all Real GDP Growth Rate_non-mining
p: projected
Source: NSO/Treasury/BPNG
All sectors and non-mining sectors: 1994-2018
Real GDP Growth Rates (%)
4
PNG’s growth slowdown
-4-2
02
46
81
0%
2008q1 2008q3 2009q1 2009q3 2010q1 2010q3 2011q1 2011q3 2012q1 2012q3 2013q1 2013q3 2014q1 2014q3 2015q1 2015q3 2016q1
Year (quarter)
Employment Growth Lowess Curve
Source: QEB Statistical Tables, BPNG
2008q1:2016q1
Formal sector employment growth (quarterly, year on year)
5
Employment growth negative since 2014 Q4
-30
-20
-10
010
2030
% a
nnu
al c
han
ge
45
67
89
1011
12
Val
ue (
in K
ina
Bill
ion
)
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015Year
Import value for goods % annual change in import value of goods
Source: QEB Statistical Tables, BPNG
Value and % annual change: 2002-2015
Goods import in Papua New Guinea
6
Imports down below 2007 levels
510
1520
2530
35
%
8010
012
014
016
018
020
0
Num
bers
(in
000
s)
2007 2008 2009 2010 2011 2012 2013 2014 2015Year
Number of visitors arrival
% Annual change in number of visitor arrivals
Source: PNG Tourism Promotions Authority (PNG-TPA)
Numbers and % annual change: 2007- 2015
Visitor Arrivals in Papua New Guinea
7
Visitor arrivals still growing, but slowly
Growth summary
Overall, the indicators suggest a sharp slowdown in domestic economic activity.
Even if GDP growth is still positive, manyindicators are suggestive of an economicrecession in PNG.
A key challenge for the government istherefore how to stimulate the economythrough its macroeconomic tools which is thesubject of the next section.
8
Fiscal Developments
9
Expenditure has outpaced revenue
10
4
6
8
10
12
14
16
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Kin
a b
illio
ns
(20
15
pri
ces)
Revenue - FBO GFS1986 Revised Revenue - GFS2012
Revenue - Projections 2015 Budget Expenditure - FBO GFS1986
Revised Expenditure - GFS2012 Expenditure - Projections 2015 Budget
Source: Treasury
Both mineral and economy-wide taxes have fallen
11
0
1
2
3
4
5
6
7
8
9
10
Mining and petroleum taxes Other taxes Non-tax revenue
Kin
a b
illio
ns
(20
15
pri
ces)
2014 2015 budget 2015 actuals
Unanticipated
Expected due to fall in commodity prices
Source: Treasury
Harsh cuts to critical services, reprioritization, 2013 vs 2015
12
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
Economic &agriculture
Education Health Transport &infrastructure
Law & Order Ruraldevelopment
(incl. PSIP)
Interestpayments
KIN
A B
ILLI
ON
(2
01
5 P
RIC
ES)
2011 2012 2013 2014 2015
Due to deficits
Constituency funds switch
Source: BPNG and Treasury
Fiscal deficits are very large
-12%
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
2000 2005 2010 2015 2020
% o
f G
DP
GFS1986 GFS2012 Projections13
Source: Treasury
Debt is rising and borrowing difficult
14
0%
10%
20%
30%
40%
50%
60%
70%
80%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
% G
DP
Debt/GDP - actuals Revised FRA limitSource: Treasury
Fiscal Policy Reflections
Cash flow problem due to (i) limited domesticappetite for further lending to the governmentand (ii) significant reduction in tax collections
Expenditure cut in health and education not asolution
Government needs to stimulate economy andexamine the scope for tax increases to boostrevenue, and reprioritize expenditures throughcuts in the constituency spending
15
Exchange Rate
16
Recent modest nominal depreciationTWI AUD & USD
17Source: BPNG
Inflation remains at about 6%
18
0
1
2
3
4
5
6
7
%
Source: BPNG
Real exchange rate at a record high
Source: World Bank (2016)
19
60
70
80
90
100
110
120
130
140
1990 1995 2000 2005 2010 2015
(In
dex
; 20
10
=10
0)
Real Effective Exchange Rate
Modest depreciation + higher inflation as compared to trading partners
Foreign exchange reserves are falling
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
USD
bill
ion
s
20Source: BPNG
Over-valued exchange rate, foreign exchange rationing
Foreign exchange rationing
Overvalued currency leads to excess marketdemand
To cater, BPNG needs to provide foreigncurrency to the market but not enoughreserves available. Result: forex rationing
Wait list is as high as 1 billion USD
Imports are compressed
Business deferring investment in lack of forex
21
Kina depreciation modest by international comparisons
Country%Δ exchange rate 1
June 2014 – 1 June 2016 Natural resource rents
as % of GDP
Mozambique -45.8 13.6
Brazil -37.3 5
Zambia -34.8 16.1
South Africa -32.5 7.6
Mexico -30.5 6.3
Norway -28.3 9.1
Madagascar -26.6 10.9
Uganda -24 11.3
PNG (interbank rate) -23.5 29.6
Australia -22 7.1
Ghana -21.9 21.1
Chile -20.5 16.2
Peru -18 8.7
Indonesia -14.5 6.3
Mongolia -9.2 22.1
PNG (market rate) -8.7 29.6
Solomon Islands -8.7 4122
Source: World Bank
Lessons from cross-country research
Oil exporters with more flexible exchange rate regimes have a smaller GDP and government spending shock
when oil prices fall
Source: Koh (2015) “Oil prices shocks and macroeconomic adjustments in oil-exporting countries” International Economics and Economic Policy
23
Lesson from international experience
Several oil-exporting economies have movedto more flexible exchange rates in response tocommodity price falls
Examples include Azerbaijan, Colombia,Kazakhstan, Malaysia, Nigeria and Venezuela.
PNG has done the opposite.
Needs to stimulate growth through moreflexible exchange rate
24
Structural policy
25
New policy initiatives
Ban on vegetable agricultural imports Introduced last year, then lifted again, now reintroduced.
Also further discussions of rice import quotas
SME policyGoals of policy to increase employment, income per
capita, SME contribution to GDP, local ownership
Foreign ownership of businesses in several areas (e.g.trade stores, tourism) to be restricted.
Land policyBan of foreign ownership and leasing of land
Existing foreign leases have to be given up within 30 years
26
Commentary on the new policies
All protectionist in nature, limiting trade andinvestment.
Limiting trade will increase domestic output, butpush up higher prices.
Limiting foreign investment will reduce output.
Unclear if policies will be implemented, but theannouncement effect may further scare offforeign investment, already deterred by foreignexchange rationing.
27
Conclusion
28
Conclusion
In the face of economic slowdown and severegovernment expenditure cuts, the governmentneeds to stimulate the economy, but lacksborrowing capacity.
The real exchange rate is at a record high. Ratherthan introducing protectionist measures, wouldbe better to allow further currency depreciation.
This would have an immediate impact, and wouldnot scare off foreign investors.
29
Thank you!
30