PNG’s faltering economic recovery
According to World Bank data, Papua New Guinea is the tenth most resource intensive economy in the world. Using its measure of underground resource rents (profits from oil, gas, coal and minerals) as a percentage of GDP, out of 205 countries PNG comes in tenth at 19.3%, just below Saudi Arabia at 20%. By comparison, the global average is only 1.5%. It really is no exaggeration to say that PNG is the Saudi Arabia of the Pacific.
When it comes to the measurement of national economic activity, Gross Domestic Product (GDP) is a poor choice for resource-intensive or resource-dependent economies. Ideally, we would use Gross National Income (GNI), which excludes the profits taken offshore by multinational mining and petroleum companies, but good GNI data is not available for PNG. The next best alternative is to use non-resource GDP (called “non-mining GDP” in PNG), which excludes the output of the petroleum and mining sectors, but captures their all-important spillover effects into the rest of the economy.
The figure below uses non-resource GDP (sourced from PNG Treasury) to tell the story of the PNG economy over the last decade or so. It is a story that can be told, perhaps, in three parts.
Figure 1: Non-resource GDP growth to 2023
The early years are the boom period (which actually started around 2003, with a dip for the GFC in 2008), when the economy was doing well, revenue to the government was expanding rapidly, and lots of new jobs were being created.
Unfortunately, every boom comes to an end, and PNG’s did around 2013 or 2014, with the end of the construction of the PNG LNG project, and the fall in oil prices. Resource revenue dried up, the stimulus of the PNG LNG construction was withdrawn, and economic growth slowed, right down to around zero in 2015, …read more