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The World Bank’s “Reinforcing Resilience” report

By Marcel Schroder

The World Bank recently released the first biannual report of its newly launched “Papua New Guinea Economic Update” (PNG EU) series. This is a welcome development, as the PNG EU sequence will stimulate policy debate and the dissemination of information on the PNG economy to policymakers, business leaders, and the wider public.

The report is entitled “Reinforcing Resilience” and consists of three parts. The first outlines recent PNG economic developments in terms of economic growth, fiscal and monetary settings, and the external sector. The second discusses a set of fiscal, monetary, and exchange rate policy recommendations. The third analyses the state of PNG’s health service delivery.

The report contains a number of interesting findings and information on the PNG economy. For instance, inflation is currently projected at around six percent, despite sluggish economic growth and now fixed exchange rate. However, the report argues that if betel nut is excluded, inflation drops to around two percent, which is more consistent with the current economic climate. The drop is explained by betel nut’s high weight in the Consumer Price Index (CPI) of 10.8% and a 34% price rise over the past year (p. 17).

There is also a neat and comprehensive explanation for the puzzling observation that government revenue from the LNG project vastly lags behind the projected K2 billion per year (Box 7, p. 26-28). The report suggests that revenue is determined by the “well-head value”, which is the difference between LNG-sales and the sum of operating costs, amortisation costs, and capital allowances. According to the Bank, the well-head value can be negative during times of low LNG prices, even when the project generates operating profits. In addition, there are various complex tax exemptions and allowances. Taken together, these factors explain why the project has so far only paid K150 million …read more

From:: Development Policy Centre – DEVPOLICY Blog

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