MEDIUM TO LONG TERM PROSPECTS & OUTLOOK Presentation by: Mr Loi - - PowerPoint PPT Presentation

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MEDIUM TO LONG TERM PROSPECTS & OUTLOOK Presentation by: Mr Loi - - PowerPoint PPT Presentation

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MEDIUM TO LONG TERM PROSPECTS & OUTLOOK Presentation by: Mr Loi M. Bakani CMG Governor-Bank of PNG National Development Forum 18 th October 2016 Port Moresby Presenta8on Background of Current Financial and Economic Issues in PNG

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MEDIUM TO LONG TERM PROSPECTS & OUTLOOK

Presentation by: Mr Loi M. Bakani CMG Governor-Bank of PNG

National Development Forum 18th October 2016 Port Moresby

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Presenta8on

Ø Background of Current Financial and Economic Issues in PNG Ø Short Term Issues & Challenges Ø Medium to Long Term Prospects Ø Conclusion

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SLIDE 3

17.3 19.2 20.8 21.8 24.7 27.1 28.8

5 10 15 20 25 30 2010 2011 2012 2013 2014 2015 2016

34 % 7% 10 % 8% 24 % 17 %

Robust economic growth track record and potenKal

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 %)

Strong GDP growth

3

1 Others include educaKon, human health and social work, electricity, gas and air condiKoning, manufacturing, water supply and waste management, finance and insurance, real estate

acKviKes, community social, personal services, transport and storage, public administraKon and defense, informaKon and communicaKon, accommodaKon and food services, administraKve and support services, professional, scienKfic and technical acKviKes, and other services;

2 CAGR: Compounded Annual Growth Rate

Real GDP by contribu8on (2010– 2016E)

Agriculture/Forestry/Fishing ConstrucKon Wholesale and retail trade Mining and quarrying Oil and gas extracKon Others1 (K billion) CAGR2 2010–2016E: [8.6 ]%

2016E real GDP growth vs. 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: Department of Treasury and Central Bank

Real GDP per capita

2,443 2,643 2,782 2,849 3,134 3,343 3,386

2010 2011 2012 2013 2014 2015 2016E Source: Department of Treasury and Central Bank 20% 4% 10% 11% 16% 40% Source: Department of Treasury CAGR2 2010–2016E: [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%

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Short Term Issues & Challenges

  • Despite high economic growth, large budget deficits &

Kina depreciaKon of around 36% between 2012 and October 2016, inflaKon remained low at manageable level.

  • Exporters should have taken advantage of the kina

depreciaKon & increased producKon/exports, thus increase FX inflows.

  • Importers & consumers should have adjusted & resort to

domesKcally produced goods/support local producKon, thus reduce FX demand.

  • 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 to maintain confidence in economy.

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InflaKon

  • 3
  • 1

1 3 5 7 9

  • 3
  • 1

1 3 5 7 9

Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Dec-16 Dec-17 Dec-18

Consumer Price Index Inflation (percentage change)

Headline (Annual) Underlying Exclusion-Based (Annual) Underlying Trimmed Mean (Annual) Projections

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Kina Exchange Rate

0.1 0.2 0.3 0.4 0.5 0.6 0.7 20 40 60 80 100 120 Q1 '10 Q2 '10 Q3 '10 Q4 '10 Q1 '11 Q2 '11 Q3 '11 Q4 '11 Q1 '12 Q2 '12 Q3 '12 Q4 '12 Q1 '13 Q2 '13 Q3 '13 Q4 '13 Q1 '14 Q2 '14 Q3 '14 Q4 '14 Q1 '15 Q2' 15 Q3 '15 Q4 '15 Q1 '16 Q2 '16 Q3 '16 AUD & USD TWI & REER

Quarterly Kina exchange rate against AUD, USD, TWI and REER

REER TWI USD AUD

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Short Term Issues & Challenges

  • Govt’s plan to conKnue funding of priority sectors

through deficit budget is clear.

  • With low revenue coming from LNG project and

decline in internal revenue from various sources, poses a challenge for budgetary financing for 2016 to 2018

  • Govt needs to realise budgeted external financing

given the fiscal space from low external debt stock & debt servicing

  • The Government and the Bank are pursuing it.
  • External financing will provide relief for domesKc

market as main source of borrowing

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Short Term Issues & Challenges

  • Current account surplus did not translate to

foreign exchange inflows, as mining & petroleum companies were allowed to keep export earnings in offshore accounts to meet

  • verseas liabiliKes, under provisions for

accelerated depreciaKon. Allowed under various Development Agreements.

  • Aier the debt service and accelerated

depreciaKon provisions for the PNG LNG project are over, capital account will move into surplus, translaKng into foreign exchange inflows through Gov’t taxes.

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Balance of Payments

(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

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Short Term Issues & Challenges

  • There will be a turn-around in the foreign

exchange market, Government revenue will increase.

  • Start up of any pipeline projects (LNG & Mining)

will provide relief to budget & foreign exchange situaKon and support economic growth.

  • Recovery in export prices especially for non-

mineral commodiKes will also support increased employment.

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Short Term Issues & Challenges

  • Good inflows of foreign currencies by exporters
  • Contributed by the resumpKon of Ok Tedi mine in

March 2016, combined with Lihir's increasing producKon and exports, & inflows by other mineral companies.

  • BPNG intervenKons & increased foreign exchange

inflows was sufficient to clear genuine import & service payment orders . However, import orders sKll remain but reduced.

  • New Foreign Exchange DirecKves issued on 30th Sept

2016.

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New Forex DirecKves

Ø All holders of onshore FCAs have to reapply to BPNG by 28th October 2016 Ø All domesKc lending in foreign currency such as trade finance have to be approved by BPNG in line with RegulaKon 6 of the Foreign Exchange Control RegulaKons Ø Spot inflows should only be used to clear spot market orders, & not for forwards and foreign currency trade finance loans Ø DirecKves do not mean a change in the Foreign Exchange (FE) Control regime. Ø All the measures introduced since 2014 are to restore order and ensure a smooth & efficient funcKoning of the FX market, with transparent price senng and some protecKon for consumers.

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MEDIUM TO LONG TERM PROSPECTS

  • NEXT SLIDES
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Medium to Long Term Prospects

  • The PNG economy will conKnue to grow in real

terms but at a lower pace (2% to 3%). InflaKon projected to be in the range of 6 to 7%.

  • Clear and direct focus by Gov’t on developing rural

areas, infrastructure, educaKon, health, agriculture, tourism & SME is the right strategy for PNG

  • The Government is focussing on diversifying the

economy to broaden revenue base & to achieve future sustainability of inclusive growth

  • Large integrated projects in agriculture sector & SME

are encouraged. Good iniKaKves already led by Government and landowners.

  • Providing access to innovaKve technology, financing &

markets for agriculture, tourism & SME sectors would increase parKcipaKon by populaKon

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Medium to Long Term Prospects

  • Benefits from past & current investments in priority areas

by Gov’t will be realised

  • The non-mineral sectors have the potenKal for inclusive

growth and employment opportuniKes

  • Need appropriate trade and investment policies to help

boost growth in the non-mineral sectors.

  • Need improvements in public uKliKes & services sector to

facilitate developments in the non-mineral sector

  • Would reduce reliance on the non-renewable resources

sector.

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n 29mm ha of forested land (63% of total land

area)

n 15mm ha rich in Kmber species n DSP 2010-2030 seeks to maximize sustainable

benefits and minimize detrimental impact on environment

Agriculture

Unlocking the vast potenKal from the agriculture, forestry, and fisheries sectors

Fisheries Forestry

n Economic backbone for the past 70 years n Huge growth potenKal with current low export base of

K2bn (using only 3% of available agriculture land)

n Largest fisheries zone in South Pacific (2.4mm

km)

n Harvest approximately 500,000–750,000 tons of

fish & shellfish p.a.

n NaKonal Fisheries Development Plan promotes

sustainable fishing and advancement of the sector

n Key exports desKnaKons: EU, Japan, Philippines,

Taiwan and Thailand

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 2.0 1.8 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%

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Unlocking to realize Import SubsKtuKon

¥ PNG’s annual imports of agricultural products amounts to about K0.2 billion in 2015. ¥ The Government’s plan to grow the domesKc agriculture sector through iniKaKves that includes; Ø reducing dependence on imports, Ø diversifica;on and improvement to the infrastructure and Ø transmission of inputs to farms. ¥ In addiKon, developing the manufacturing sector (eg: small industrial products) by supporKng SMEs is posiKve. ¥ Over 80% of PNG’s populaKon are involved in subsistence agriculture & import subsKtuKon will;

Ø improve the livelihoods of the mass popula;on & provide food security Ø help relieve PNG of its current FX pressure.

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Medium to Long Term Prospects

  • Growth to be supported by pipeline of investment,

including 2 major LNG projects-Penyang & Papua LNG, and 2 major mining projects-Wafi-Golpu & Frieda River Gold mines, which will have posiKve impact on the economy like the PNG LNG project did.

  • Lessons learnt from extensive concessions given to

extracKve projects in non-renewable sector should be LIMITED in future.

  • Use of SWF to save excess revenue from non-

renewable resources developments for future use & generaKon

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Medium to Long Term Prospects

  • Some necessary infrastructures to enable inclusive growth already established

include;

– Improved telecommunica;on – Strong & stable financial system – Improved Na;onal Payments System – AML ini;a;ves

  • Need for improvement in public service delivery mechansim.
  • For wider benefit of our populaKon, we need to reduce the proporKon of our

unbanked populaKon (around 70% now) into modern financial services sector

  • Great need for financial educaKon & literacy of our populaKon
  • All these iniKaKves in place and in future should provide a plarorm for greater

parKcipaKon of our populaKon to start a journey towards improved well being and prosperity by sharing in future economic growth of our country.

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POSITIVE NEWS

u WHILE THERE ARE ISSUES & CHALLENGES WE FACE IN SHORT TERM, THE MEDIUM TO LONG TERM PROSPECTS AND OUTLOOK FOR THE ECONOMY ARE: “POSITIVE & STRONG” u THANKYOU.