The momentum of the recent economic recovery was maintained in 2005 with real GDP expanding by about 3 percent and non mineral GDP by an estimated 3.5 percent, buoyed by continued strong global commodity prices particularly for minerals and anchored by the maintenance of fiscal discipline and stable monetary policies. These factors in turn provided a platform for expansion in private sector credit, for the first time in four years. Real GDP is expected to increase by 3.5Â percent in 2006. Consolidation of recent efforts to maintain fiscal discipline mainly through strict expenditure controls were an underlying factor as were interest savings due to lower domestic interest rates in the budgetary outcome of a surplus equivalent to about 2Â percent of GDP, compared to the budgeted deficit of 1Â percent of GDP. Windfall tax revenues from higher-than budgeted oil and gold prices also contributed to this favorable outcome. |
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Government also continued to make progress in reducing domestic payments arrears from earlier periods and restructure its domestic debt obligations from shorter to longer term maturities. In line with these developments public sector debt continued to decline from 55 percent of GDP in 2004 to about 50 percent of GDP in 2005, while the ratio of public external debt declined from 32 percent of GDP to 27 percent of GDP over the same period. Despite a continued resurgence in imports in 2005 the trade balance remained in surplus, fueled by high global commodity prices. The pick-up in imports reflected growing domestic demand and underlying improvements in consumer confidence. The current account remained in surplus, equivalent to an estimated 4.2 percent of GDP. For 2006 a similar outcome is presently expected. The currency remained stable during 2005, appreciating by about 1 percent against the U.S. dollar. The downward trend in inflation experienced since 2003, when it averaged 14 percent, continued in 2005 with inflation estimated at 1 percent over the year. Continued monetary easing in 2005 resulted in further declines in Treasury bill yields from about 5 percent to less than 4 percent over the year. Commercial bank interest rates mirrored these developments with the average lending rate approaching 10 percent by year-end. The strong fiscal stance together with these monetary policy developments set the stage for an expansion of about 20 percent in private sector credit, the first increase since 2001. External reserves increased slightly over the year to about US$800 million, equivalent to nearly six months of non‑mineral imports. Political Developments. Political stability has been maintained and the coalition government now stands to be the first since independence to complete its term in office. The Enhanced Cooperation Program with Australia—which was designed to provide direct personnel support to Papua New Guinea to stem the long term deterioration in law and order and to strengthen economic management—has been streamlined and reinstated, following an earlier Supreme Court ruling which had disrupted it. Back to top
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