Commodity prices are expected to remain low leading to large losses of exports for Papua New Guinea further adding to a dim global and domestic scenario amid a second wave of the covid-19 pandemic.
This is despite the fact, commodity prices for PNG’s exports recovered in the third quarter of 2020 in response to an acceleration of industry activity globally, particularly in China. However, energy prices were one-third lower in 2020 than in 2019. Metal prices fell slightly overall, although gold prices rose by a record 27 per cent year on year. Agricultural prices also recorded a modest decline.
This is according to the World Bank’s published sixth edition of PNG’s Economic Update series that was recently released titled, ‘Dealing With A Triple Crisis’.
Attributing sluggish global economic conditions owing to the second wave of the pandemic and associated lockdown measures as the main reason, the Update outlines some of the country’s economic outlook and risks.
The PNGEU says ‘export receipts from commodities will determine the external financing requirement, level of international reserves, and exchange rate developments.
It says despite falling commodity prices and an exceptionally uncertain global economic outlook, the current account balance is estimated to have recorded a surplus in 2020.
However, the size of the surplus will be significantly smaller than in 2019. As in previous years, the current account surplus will be offset by a large deficit on the capital and financial account. In a pessimistic scenario, the second wave of the pandemic may lead to a more prolonged global recession with implications for Papua New Guinea’s export revenue. In addition, failure to resolve tensions surrounding mining projects may further depress export revenue and shake investor confidence in Papua New Guinea.
These factors may lead to a balance of payments deficit, creating a requirement for additional external financing or a drawdown of reserves. Although currently above the level recommended by the IMF, foreign exchange reserves are under pressure. Against this backdrop, the Kina is expected to continue its depreciating trend. However, noting authorities’ careful management of the exchange rate, the deprecation is likely to be modest.
The Update also says that PNG’s medium-term macroeconomic outcomes remain subject to high downside risks that include external and domestic factors. For example externally, supposedly economic growth rates are below expectations with PNG’s main trading partners (Australia, China and Japan) and domestically, uncertain performance by the country’s major resource projects.
