Transcript KEY FACTS * Papua New Guinea

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
Presentation Parts
Background of current financial
economic issues in PNG
Short Term Issues & Challenges
Medium to Long Term Prospects
Conclusion
and
Robust economic growth track record
Real GDP by contribution (2010–
Strong GDP growth and potential
2016E)
Real GDP (K bn)
Real GDP growth rate (Y-o-Y %)
28.3
27.1
17.3
21.8
20.8
13.3%
28.8
24.7
40%
16%
11%
10%
4%
20%
5
4.3%
2014
2015
2016E
2016E real GDP growth vs. peers
38%
42%
45%
14%
11%
12%
10%
3%
19%
12%
9%
4%
19%
34
%
34%
21.8
20.8
19.2
17.3
10
5.0%
2010
2011
2012
2013
Source: Department of Treasury and Central Bank
Others1
27.1
15
9.9%
8.0%
7.6%
Mining and quarrying
Oil and gas extraction
25
20
11.1%
Construction
Wholesale and retail trade
30
24.7
19.2
(K billion)
Agriculture/Forestry/Fishing
8%
11%
8%
10%
12%
10%
3%
19%
7%
10
%
8%
24
%
7%
10%
8%
46%
25%
18%
18%
17
%
17%
0
2010
2011
2012
Source: Department of Treasury
2013
2014
2015
2016
Real GDP per capita
20%
15%
10%
6.3%
5%
7.9%
6.4%
6.0%
4.3%
2.4%
3.0%
3.6%
2,443
2,643
2010
2011
2,782
2,849
3,134
3,343
3,386
2015
2016E
5.0%
0%
PNG
(B+)
China
(AA-)
India
(BBB-)
Vietnam
(BB-)
Source: PNG and S&P (Jun 2015)
Kenya
(B+)
Fiji
(B+)
Zambia Mongolia
(B)
(B)
Ghana
(B-)
2012
2013
2014
Source: Department of Treasury and Central Bank
1
Others include education, human health and social work, electricity, gas and air conditioning, manufacturing, water supply and waste management, finance and insurance, real estate
activities, community social, personal services, transport and storage, public administration and defense, information and communication, accommodation and food services, administrative
and support services, professional, scientific and technical activities, and other services;
2 CAGR: Compounded Annual Growth Rate
3
Short Term Issues & Challenges
• Despite high economic growth, large budget deficits &
Kina depreciation of around 36% between 2012 and
October 2016, inflation remained low at manageable
level.
• Exporters should have taken advantage of the kina
depreciation & increased production/exports, thus
increase FX inflows.
• Importers & consumers should have adjusted & resort to
domestically produced goods/support local production,
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.
Inflation
Consumer Price Index Inflation
(percentage change)
9
Projections
9
7
7
5
5
3
3
1
1
-1
-1
-3
-3
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
Headline (Annual)
Underlying Exclusion-Based (Annual)
Underlying Trimmed Mean (Annual)
Q3 '16
Q2 '16
Q1 '16
Q4 '15
Q3 '15
Q2' 15
Q1 '15
Q4 '14
Q3 '14
Q2 '14
Q1 '14
Q4 '13
Q3 '13
Q2 '13
Q1 '13
Q4 '12
Q3 '12
Q2 '12
Q1 '12
Q4 '11
Q3 '11
Q2 '11
Q1 '11
Q4 '10
Q3 '10
Q2 '10
Q1 '10
AUD
USD
TWI
REER
0.7
Quarterly Kina exchange rate against AUD, USD, TWI and REER
0.4
40
0.3
20
0.2
0
0.1
AUD & USD
0.5
80
60
TWI & REER
Kina Exchange Rate
120
100
0.6
Short Term Issues & Challenges
• Govt’s plan to continue 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 domestic
market as main source of borrowing
Short Term Issues & Challenges
• Current account surplus did not translate to
Forex inflows, as mining & petroleum
companies were allowed to keep export
earnings in offshore accounts to meet
overseas liabilities, under provisions for
accelerated depreciation. Allowed under
various Development Agreements.
• After the debt service and accelerated
depreciation provisions for the PNG LNG
project are over, capital account will move into
surplus, translating into forex inflows through
Govt taxes.
Balance of Payments
Current account
Capital and financial account
Overall Balance
20.0
15.0
13.4
10.0
6.2
6.0
4.0
5.0
3.0
1.6
0.0
(0.4)
(1.7)
-5.0
(4.8)
(6.8)
(7.7)
-10.0
-15.0
(14.1)
-20.0
2010
2011
2012
2013
2014
2015
Short Term Issues & Challenges
• There will be a turn-around in the forex market,
Government revenue will increase & growth in
economic activity will increase.
• Start up of any pipeline projects (LNG & Mining)
will provide relief to budget & forex situation and
support economic growth.
• Recovery in export prices especially for nonmineral commodities will also support increased
employment and economic growth.
Short Term Issues & Challenges
• Good inflows of foreign currencies by exporters
• Contributed by the resumption of Ok Tedi mine in
March 2016, combined with Lihir's increasing
production and exports, & inflows by other mineral
companies.
• BPNG interventions & increased forex inflows was
sufficient to clear geniune import & service payment
orders . However, import orders still remain but
reduced.
• New Foreign Exchange Directives issued on 30th Sept
2016.
New Forex Directives
 All holders of onshore FCAs have to reapply to BPNG by 28th
October 2016
 All domestic lending in foreign currency such as trade finance
have to be approved by BPNG in line with Regulation 6 of the
Foreign Exchange Control Regulations
 Spot inflows should only be used to clear spot market orders,
& not for forwards and foreign currency trade finance loans
 Directives do not mean a change in the Foreign Exchange (FE)
Control regime.
 All the measures introduced since 2014 are to restore order
and ensure a smooth & efficient functioning of the FX market,
with transparent price setting and some protection for
consumers.
MEDIUM TO LONG TERM
PROSPECTS
• NEXT SLIDES
Medium to Long Term Prospects
• The PNG economy will continue to grow in real
terms but at a lower pace (2% to 3%). Inflation
projected to be in the range of 6 to 7%.
• Clear and direct focus by Govt on developing rural
areas, infrastructure, education, 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 intergrated projects in agriculture sector & SME
are encouraged. Good initiatives already led by
Government and landowners.
• Providing access to innovative technology, financing &
markets for agriculture, tourism & SME sectors would
increase participation by population
Medium to Long Term Prospects
• Benefits from past & current investments in priority areas
by Govt will be realised
• The non-mineral sectors have the potential for inclusive
growth and employment opportunities
• Need appropriate trade and investment policies to help
boost growth in the non-mineral sectors.
• Need improvements in public utilities & services sector to
facilitate developments in the non-mineral sector
• Would reduce reliance on the non-renewable resources
sector.
Unlocking the vast potential from the agriculture,
forestry, and fisheries sectors
Agriculture
Forestry
Fisheries
 29mm ha of forested land (63% of total land
 Economic backbone for the past 70 years
 Largest fisheries zone in South Pacific (2.4mm
area)
 Huge growth potential with current low export base of
km)
 15mm ha rich in timber species
K2bn (using only 3% of available agriculture land)
 Harvest approximately 500,000–750,000 tons of
fish & shellfish p.a.
 DSP 2010-2030 seeks to maximize sustainable
 National Fisheries Development Plan promotes
benefits and minimize detrimental impact on
environment
sustainable fishing and advancement of the
sector
Agriculture export value (Kbn):
Palm oil
Cocoa
Others
Timber
962 1%
865 1%
10%
6% 28%
13%
9%
22%
24%
4%
1.8
13%
16%
11%
12%
2%
21%
19%
44%
45%
50%
51%
768 5%
2.2
2.1
2.0
15%
744 5%
2.6
7%
10%
2.4
Taiwan and Thailand
Other forest products
3.3
13%
 Key exports destinations: EU, Japan, Philippines,
Forestry export value (Kmm):
Coffee
Copra + Copra Oil
627
11%
40%
730
760
1%
Fisheries export value (Kmm):
1%
466
5%
395
3%
4%
14%
330
3%
10%
23%
260
15%
51%
32%
48%
335
95%
95%
95%
99%
99%
99%
234
99%
114
2010
2011
2012
2013
2014
2015
2016E
Note: Others include rubber, tea, and a very small portion of
manufactured goods
Source: Central Bank and Department of Treasury
2010 2011 2012 2013 2014 2015 2016E
Note: Others forest products include timber, plywood, and woodchips
2010
2011
2012
2013
2014
2015 2016E
Unlocking to realize Import Substitution
 PNG’s annual imports of agricultural products amounts to
about K0.2 billion in 2015.
 The Government’s plan to grow the domestic agriculture
sector through initiatives that includes;
 reducing dependence on imports,
 diversification and improvement to the infrastructure and
 transmission of inputs to farms.
 In addition, developing the manufacturing sector (eg: small
industrial products) by supporting SMEs is positive.
 Over 80% of PNG’s population are involved in subsistence
agriculture & import substitution will;
 improve the livelihoods of the mass population & provide food security
 help relieve PNG of its current FX pressure.
17
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 positive
impact on the economy like the PNG LNG project
did.
• Lessons learnt from extensive concessions given to
extractive projects in non-renewable sector should
be LIMITED in future.
• Use of SWF to save excess revenue from nonrenewable resources developments for future use
& generation
Medium to Long Term Prospects
• Some necessary infrastructures to enable inclusive growth
already established include;
– Improved telecommunication
– Strong & stable financial system
– Improved National Payments System
– AML initiatives
• For wider benefit of our population, we need to reduce the
proportion of our unbanked population (around 70% now) into
modern financial services sector
• Great need for financial education & literacy of our population
• All these initiatives in place and in future should provide a
platform for greater participation of our population to start a
journey towards improved well being and prosperity by sharing
in future economic growth of our country.
POSITIVE NEWS
WHILE THERE ARE ISSUES & CHALLENGES WE
FACE IN SHORT TERM, THE MEDIUM TO LONG
TERM PROSPECTS AND OUTLOOK FOR THE
ECONOMY ARE:
“POSITIVE & STRONG”
THANKYOU.