2018 PNG economic survey
Based on the latest NSO figures, it is now estimated that the non-resource economy contracted in 2015 by 5.9% after inflation. Whether the economy has started to grow again since 2015 is unclear. While imports and tax data show growth in 2017, credit to the private sector contracted in the same year. Formal sector employment has contracted four years in a row since 2013, with a cumulative decline extending through to the end of 2017 of 7.0%. Underestimation of the severity of the economy’s contraction has contributed to an absence of an appropriate policy response to what can only be described as an urgent economic crisis. The government’s emphasis is on fiscal correction and now tariff protection. A limitation of this strategy is that fails to provide any stimulus to exporters and is inadequate to tackle the primary problem facing the PNG economy, namely the shortage of foreign exchange, which is worsening. Two separate surveys of business show that foreign exchange shortages are the most important problem they face, that they have increased in severity and have displaced other longer-standing concerns around corruption, law and order and visas. There is no way around the need for a substantial devaluation of the currency. While a devaluation would reduce the demand for foreign exchange and provide a boost to the economy, for it to have a lasting impact it will need to be accompanied by a range of structural and governance reforms to reduce the cost of doing business and promote economic recovery in PNG.
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