BSP releases 3rd Quarter Economic & Market Insight 2018

GDP Growth expected to increase in 2019

Date: Wednesday October 31st, 2018

GDP growth rate in PNG is expected to be around 1.0% in 2018, before increasing to 2.8% in 2019 while this quarter Commodity prices based on the Bank's Energy Price Index increased by 11%. The increase in oil and national gas prices toward the end of September 2018 were above expectation, according to Bank South Pacific's (BSP) Economic & Market Insight 2018.  

BSP Group CEO Robin Fleming

Asian Development bank (ADB) projects GDP growth of 1.8% in 2018 and around 2.7% in 2019 in its update.  ABD noted that, 'confidence may be restored as PNG draws closer to the next round of gas investments, with two large projects (the expansion of PNG LNG Project and the Papuan LNG] that are expected to commence in early 2020.

The BSP quarterly Economic & Market Insight 2018, released in October reported that, while there is slightly higher growth expected complemented with a high government spending due to APEC related activities. The APEC summit in PNG is an important event for the Pacific Region. The summit provides an opportunity for the leaders to discuss trade and economic issues in the region.

In its Pacific Overview, the report indicates The Pacific Island economies are expected to grow by 1.1% in 2018 [half the 2.2% projected in Apr-18], much lower than 2.9% in 2017.

The downgrade was mainly due to weaker prospects for PNG following the Highlands earthquake. The aggregate forecast for 2019 is upgraded to 3.1% [from 3.0% projected in Apr-18], as expected recovery in PNG LNG production and reconstruction will improve growth in PNG. The APEC summit in PNG is an important event for the region. The summit provides an opportunity for the leaders to discuss trade and economic issues in the region. Amidst the US-China trade war, the Pacific island countries through the Pacific Islands Forum [PIF], will likely discuss on China's influence in the region

Additionally, the PNG government has also successfully issued US$500m (K1.57bn), 10 year sovereign bond during the quarter. Coupon interest was at 8.375% and payment will be denominated in USD. The successful bond issue indicates investor confidence in PNG.

BSP Group CEO Robin Fleming stated that the bond raising is an 'important milestone' for the country with the focus on 'budget support.'

"Development of the bond secondary market as part of the capital market development should be a priority investment in the next few years. This should assist the government meet its debt repayment obligations whilst deepening investor base and providing liquidity in the domestic market," says Mr Fleming.

Despite the LNG expansion and bond issue, available anecdotal indicator such as the average indicative retail price of fuel continued to increase as announced by Independent Consumer & Competition Commission (ICCC).

Revenue and expenditure is projected to increase slightly by the end of 2018, due to higher petroleum taxes. According to the budget strategy, revenue reforms in the 2019 Budget will be aimed at growing the revenue base, broadening the tax base and improving tax payer and administration efficiencies through appropriate and effective investment in revenue raising agencies.