Presentation to the CIMC National Development Forum ECONOMIC - - PowerPoint PPT Presentation

Bank of Papua New Guinea

Presentation to the CIMC National Development Forum “ECONOMIC OUTLOOK FOR 2011-2015” by

• Mr. Loi Bakani

Governor, Bank of Papua New Guinea

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24th August 2011 State Function Room, Parliament House, Port Moresby State Function Room, Parliament House, Port Moresby

Bank of Papua New Guinea

Outline of Presentation

• 1. Economic Prospects: 2011-2014

G

• 2. Good Economic Management
• 3. Combating the ‘Dutch Disease’
• 4. Initiatives of the Central Bank

5 Conclusion

• 5. Conclusion

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1) Economic Prospects: 2011 2014 1) Economic Prospects: 2011-2014

Chart 2: Annual Real GDP Growth (percent) 15.0 10.0 15.0 5.0 0.0 2006 act 2007 est 2008 est 2009 est 2010 proj 2011 proj 2012 proj 2013 proj

• 5.0
• 10.0

Non-mineral GDP (real) Mineral GDP (real) Total Real GDP

Bank of Papua New Guinea

I t ti l P i f C d G ld International Prices of Copper and Gold

900 1000 1800 Copper - London Wire Bars (Usc/lb) - LHS Gold - London (US$ per fine oz) - RHS 700 800 900 1400 1600 Gold London (US$ per fine oz) RHS 500 600 700 Sc/lb 1000 1200 er fine oz 300 400 US 600 800 US$ pe 100 200 200 400 Jan '06 Feb '06 Mar '06 Apr '06 May '06 Jun '06 Jul '06 Aug '06 Sep '06 Oct '06 Nov '06 Dec '06 Jan '07 Feb '07 Mar '07 Apr '07 May '07 Jun '07 Jul '07 Aug '07 Sep '07 Oct '07 Nov '07 Dec '07 Jan '08 Feb '08 Mar '08 Apr '08 May '08 Jun '08 Jul '08 Aug '08 Sep '08 Oct '08 Nov '08 Dec '08 Jan '09 Feb '09 Mar '09 Apr '09 May '09 Jun '09 Jul '09 Aug '09 Sep '09 Oct '09 Nov '09 Dec '09 Jan '10 Feb '10 Mar '10 Apr '10 May '10 Jun '10 Jul '10 Aug '10 Sep '10 Oct '10 Nov '10 Dec '10 Jan '11 Feb '11 Mar '11 Apr '11 May '11 Jun '11

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Fiscal Operations Fiscal Operations

Chart 4: Fiscal Operations of the Government (K'm) 10,000 800 8,000 9,000 e 600 5 000 6,000 7,000 Exp en d itu re 200 400 D eficit / 3,000 4,000 5,000 even u e & E

• 200

Su rp lu s 1,000 2,000 R

• 400

2005 2006 2007 2008 2009 2010 Est 2011Proj 2012 Proj 2013 Proj

• 600

Revenue Expenditure Deficit/Surplus

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Employment (f

l i t t )

Employment (formal private sector)

12.0 8.0 10.0 6.0 8.0 Percent 4.0 0.0 2.0 D-05 M-06 J-06 S-06 D-06 M-07 J-07 S-07 D-07 M-08 J-08 S-08 D-08 M-09 J-09 S-09 D-09 M-10 J-10 S-10 D-10 M-11

Bank of Papua New Guinea

Monetary Policy Management

• Increase in aggregate demand, Gov’t

expenditure, international food and fuel prices expenditure, international food and fuel prices have led to increased prices

• Annual inflation is 9 6 percent in the June
• Annual inflation is 9.6 percent in the June

quarter of 2011 Trade off bet een economic gro th and

• Trade-off between economic growth and

inflation

Bank of Papua New Guinea

f Inflation – annual % change

25 20 10 15 5

• 5

M ' 9 9 S ' 9 9 M ' S ' M ' 1 S ' 1 M ' 2 S ' 2 M ' 3 S ' 3 M ' 4 S ' 4 M ' 5 S ' 5 M ' 6 S ' 6 M ' 7 S ' 7 M ' 8 S ' 8 M ' 9 S ' 9 M ' 1 S ' 1 M ' 1 1 Qtr

Bank of Papua New Guinea

Monetary Policy management

• BPNG will strive to maintain its price stability
• bjective in the current high inflationary

environment, so that inflation does not spiral environment, so that inflation does not spiral

• ut of control
• This will require close cooperation and

coordination between fiscal (Gov’t) and coordination between fiscal (Gov t) and monetary (BPNG) policies

• BPNG will use all available instruments to

maintain price stability

• Ensure policies do not counteract the
• bjective of economic growth development
• bjective of economic growth, development

and improved standard of living

Bank of Papua New Guinea

Monetary Policy Management

• Close co-ordination and co-operation between

the Gov’t and the Central Bank the Gov t and the Central Bank

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2) Good Economic Management

• Microeconomic and macroeconomic

considerations are important for non- i fl ti th inflationary growth

– Gov’t should not compete with LNG developer for the limited productive resources and for the limited productive resources and capacities – Competition would only lead in higher prices, Competition would only lead in higher prices, increased imported inputs (materials, equipment and labour), and misallocation of resources resulting in losses to the nation resulting in losses to the nation

Bank of Papua New Guinea

Good Economic Management (cont’d)

• Recommendations for economic management during

the LNG construction period

– Gov’t to refrain from undertaking major infrastructure j t ti f th li it d ( i t projects, competing for the limited resources (equipment, machineries, labour) and other industries fully utilised by the LNG project – Gov’t to concentrate on maintenance, upgrading and complementing the work done by the LNG developer G ’t t l it i f t t i l t ti d di – Gov’t to plan its infrastructure implementation and readiness to implement as and when the LNG project progressively scales down its construction activities. Highly skilled g y workforce trained by the LNG developer will become available.

Bank of Papua New Guinea

Good Economic Management (cont’d)

• Gov’t should concentrate on the social

sectors of education, health and law and

• rder
• Keep to a bare minimum investment in

existing infrastructure until the LNG project winds down construction

• Gov’t to devise a plan on how to use these

resources (skilled labour, equipment, machineries) when they become available machineries) when they become available

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3) Combating the ‘Dutch Disease’

• The LNG project threatens to price out

the traditional export sectors, the so- p , called ‘Dutch Disease’

• Developing a competitive traditional

Developing a competitive traditional export sector is one of the most effective ways of combating the ‘Dutch effective ways of combating the Dutch Disease’

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‘D t h Di ’ ( t’d) ‘Dutch Disease’ (cont’d)

• PNG has fertile land abundant water

PNG has fertile land, abundant water resources, and available labour

• Can develop a competitive advanced

Can develop a competitive advanced agricultural sector

• With world wide food shortage and rising

With world wide food shortage and rising food prices, Gov’t should invest in the agricultural sector to make PNG a food g supplier to itself and the world

• Set up a Special Purpose Account at BPNG

p p p with all the excess revenue for this purpose

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4) Initiatives of the Central Bank

• Financial inclusion – enabling every Papua

New Guineans wherever they live access to banking and financial services. This includes microfinance and mobile banking products and services

• Payment system – enhance and

y y improvement the National and International payment systems and make them modern, p y y low cost and efficient

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5) Conclusion

• Gov’t, through fiscal policy can redistribute

effectively the windfall revenue by investing in the social sectors and agriculture to combat Dutch social sectors and agriculture to combat Dutch disease and achieve balanced growth

• Gov’t not to compete with limited resources during

Gov t not to compete with limited resources during construction phase of the LNG project

• Closer co-ordination need between fiscal and

monetary policy to contain inflation so it does not spiral out of control during this period of high economic growth economic growth

Bank of Papua New Guinea

Thank you