The economy of Papua New Guinea (PNG) is largely underdeveloped with the vast majority of the population living below the poverty line. It is dominated by the agricultural, forestry, and fishing sector and the minerals and energy extraction sector. The agricultural, forestry, and fishing sector accounts for most of the labour force of PNG while the minerals and energy extraction sector, including gold, copper, oil and natural gas is responsible for most of the export earnings.
PNG's GDP growth has been driven by the extraction industries and real GDP growth per capita has averaged 4% since mid-2000. The country has made significant progress investing proceeds from oil and gas in infrastructure building. As a result, its major cities like Port Moresby and Lae have received increased international investor attention, giving rise to an unprecedented building boom to exploit the opportunities presented by the country's rise as a regional economic leader in the South Pacific region. This is well supported by its strategic location as a gateway from the Pacific to Asia, as well as its comparatively huge landmass and demographic profile (almost 7 times that of the rest of the smaller Pacific Island nations).
According to the International Monetary Fund, PNG, despite its poverty, is richly endowed with natural resources, but exploitation has been hampered by the rugged terrain and the high cost of developing infrastructure.World Economic Outlook Database, October 2015, International Monetary Fund. Database updated on 6 October 2015. Accessed on 6 October 2015.The Case for a Parliamentary Budget Office in Papua New Guinea. Social Science Research Network (SSRN). Accessed 18 July 2017. Agriculture provides a subsistence livelihood for the bulk of the population. Mineral deposits, including oil, copper, and gold, account for 72% of export earnings.
Budgetary support from Australia and development aid under World Bank auspices continue to sustain the economy. Australia is PNG's largest aid donor, and will provide $479.2 million of aid in 2023. In June 2021 the World Bank approved a US$100 million (PGK 352 million equivalent) operation to support Papua New Guinea in its response to COVID-19, and to lay important foundations for a sustainable recovery.
Overview
Papua New Guinea is classified as a developing economy by the International Monetary Fund.World Economic Outlook Database, October 2015 , International Monetary Fund . Database updated on 6 October 2015. Accessed on 6 October 2015. The economy is largely dependent on natural resources, where capital investment is dominated by mining and oil, while most labour is taken up by agriculture. As of 2018, natural resource extraction made up 28% of overall GDP, with substantial contributors including minerals, oil, and natural gas.
According to the Investment Promotion Authority of Papua New Guinea the major economic sectors are agriculture and livestock, forestry, mining and petroleum, tourism and hospitality, fisheries and marine resources, manufacturing, retailing and wholesaling, building and construction, transport and telecommunications, and finance and business trade. The economy generally can be separated into subsistence and market sectors, although the distinction is blurred by smallholder cash cropping of coffee, cocoa, and copra. About 75% of the country's population relies primarily on the subsistence economy. The minerals, timber, and fish sectors are dominated by foreign investors. Manufacturing is limited, and the formal labour sector consequently also is limited.
Timber and marine resources are also exported, with the country being one of the few suppliers of tropical timber, Forestry is an important economic resource for Papua New Guinea, but the industry uses low and semi-intensive technological inputs. As a result, product ranges are limited to sawed timber, veneer, plywood, block board, moulding, poles and posts and wood chips. Only a few limited finished products are exported. Lack of automated machinery, coupled with inadequately trained local technical personnel, are some of the obstacles to introducing automated machinery and design. Forestry is an avenue for corruption and many projects face legal uncertainty. Up to 70% of logging may be illegal. Marine fisheries provide around 10% of global catch. The EEZ forms the largest fisheries zone in the South Pacific. The dominant deep-sea fishery is tuna. There are also inland and coastal fisheries.
Other sources include renewable resources, such as forests, marine resources (including a large portion of the world's major tuna stocks), and in some parts agriculture. Agriculture, for subsistence and cash crops, provides a livelihood for 85% of the population and continues to provide some 30% of GDP. Oil palm production has grown steadily over recent years (largely from estates and with extensive outgrower output), with palm oil now the main agricultural export. Coffee remains the major export crop (produced largely in the Highlands provinces); followed by cocoa and coconut oil/copra from the coastal areas, each largely produced by smallholders; tea, produced on estates; and rubber.
Measuring economic growth is tricky due to the resource-dependent economy distorting GDP. Other metrics such as Gross national income are hard to measure. Even historical GDP estimates have changed dramatically. As of 2019, PNG's real GDP growth rate was 3.8%, with an inflation rate of 4.3% This economic growth has been primarily attributed to strong commodity prices, particularly mineral but also agricultural, with the high demand for mineral products largely sustained even during the crisis by the buoyant Asian markets, a booming mining sector and by a buoyant outlook and the construction phase for natural gas exploration, production, and exportation in liquefied form (liquefied natural gas or "LNG") by LNG tankers, all of which will require multibillion-dollar investments (exploration, production wells, pipelines, storage, liquefaction plants, port terminals, LNG tanker ships).
Formal employment is low. There is a minimum wage, but it has declined in real terms since independence. In the late 2010s, around 40% of those employed in urban areas worked outside of agriculture, but only around 20% in rural areas. Altogether, the informal economy supports about 85% of the population, mainly through subsistence agriculture.
The Papua New Guinean kina is managed through a crawling peg, with its value heavily impacted by the country's natural resource exports. The largest bilateral trade partner is Australia, followed by Japan, and then China.
History The first decade of independence saw slow but steady economic growth. The Ok Tedi Mine opened in 1982. While Australian contribution to the budget dropped from 40% of government revenue in 1975 to 17% in 1988, improved taxation allowed for government expenditure to be maintained. The closure of the Bougainville mine led to issues with government finances, however an expansion of exports of oil, minerals, and forestry products led to economic recovery in the early 1990s. This growth did not decrease inequality however, and government services declined. This economic decline both caused and was exacerbated by increases in violence. Local violence damaged infrastructure, and defence expenditure increased. In 1986 the public services lost a significant degree of independence, leading to their becoming more politicised. Increasing government expense and resulting rising debt led to significant economic trouble. The Papua New Guinean kina was devalued and put on a floating exchange rate in 1994, and the country obtained an emergency loan from the World Bank in 1995. The economy had a series of crises during the 1990s. A drought in 1997 caused by the El Niño–Southern Oscillation killed over 1,000 people.
GDP grew around 9.4% a year from 2008 to 2015, although this ranged from 0.7% from 2014 to 2015 to 21.1% from 2009 to 2010. The economy in this period relied heavily on foreign direct investment, which came to an end when liquefied natural gas began to be exported.
The GDP Growth rate for PNG in 2021 was at 1.3%. According to the Asian Development Bank its GDP was expected to grow 3.4% in 2022 and 4.6% in 2023.
Sectors Mineral resources
Significant exported minerals include gold, copper, cobalt, and nickel. Oil and liquified natural gas (LNG) are also significant resource exports. Extractive resources make up 86% of all exports, has their high value has enabled the country to generally run current account surpluses. The biggest mine is a private gold mine on Lihir Island, which is followed by the state-run Ok Tedi Mine, and then the Porgera Gold Mine.
In 1999, mineral production accounted for 26.3% of gross domestic product. Government revenues and foreign exchange earning minerals. Copper and gold mines are currently in production at Porgera, Ok Tedi, Misima, Lihir, Simberi and Hidden Valley. As of 2014, talks of resuming mining operations in the Panguna mine have also resurfaced, with the Autonomous Bougainville Government and National Government of Papua New Guinea expressing interest in restarting mining operations in the area.
New nickel, copper and gold projects have been identified and are awaiting a rise in commodity prices to begin development. At early 2011, there are confirmation that Mount Suckling project has found at least two new large highly prospective porphyry bodies at Araboro Creek and Ioleu Creek.http://www.asiaminer.com/magazine/current-news/news-archive/130-january-2011/3171-papua-new-guinea-new-mt-suckling-porphyries.html A consortium led by Chevron is producing and exporting oil from the Southern Highlands Province of Papua New Guinea. In 2001, it expects to begin the commercialization of the country's estimated 640 km3 (23 trillion cubic feet) of natural gas reserves through the construction of a gas pipeline from Papua New Guinea to Queensland, Australia. The project was shelved.
In 2019, the country was the 8th largest world producer of cobalt, and the 15th largest world producer of gold. In the production of silver, in 2017 the country produced 90 tons.
Mineral deposits account for 72% of export earnings.
Traces of gold were first found in 1852, in pottery from Redscar Bay on the Papuan Peninsula.The NSW library's article further references the following primary sources (publications): * Drew, Philip, Leaves of Iron Glen Murcutt: pioneer of Australian Architectural Form, Harper Collins, Sydney 1985 * Nelson, Hank, Taim Bilong Masta, The Australian involvement in Papua New Guinea, Australian Broadcasting Commission, Sydney 1982 * Levien, Cecil John (1874–1932), Australian Dictionary of Biography.
Oil and gas The Iagifu/Hedinia Field was discovered in 1986 in the Papuan fold and thrust belt.Matzke, R.H., Smith, J.G., and Foo, W.K., 1992, Iagifu/Hedinia Field, In Giant Oil and Gas Fields of the Decade, 1978–1988, AAPG Memoir 54, Halbouty, M.T., editor, Tulsa: American Association of Petroleum Geologists, Most crude oil produced is exported, although some is imported for energy production.
LNG exports began in 2014, although the opening of new projects has been delayed due to disputes regarding revenue sharing. Around 80% of all LNG produced is exported.