The Bank of Papua New Guinea has released its Quarterly Economic Bulletin for the March and June 2020 Quarters. It shows that the economy and government finances came under great pressure because of the COVID-19 lockdowns, but that the impact was uneven.

The Central Bank. Credit: BAI

The bulletin says that in the six months to June 2020 the National Government recorded a financial deficit of K2.08 billion, compared with a deficit of K1.67 billion in the corresponding period of 2019. ‘The significantly higher deficit reflected lower revenue receipts.’

Total revenue and grants over the six months to June was 17.1 per cent lower than in the same period of 2019, while total expenditure for the six months to June 2020 was 7.7 per cent lower than in the corresponding period of 2019.

‘The balance of payments strengthened, recording a surplus of K43 million for the first six months of 2020, compared with a deficit of K388 million in the previous corresponding period.’

Sales in the private sector fell sharply in the March quarter of 2020.

‘Data from the Bank’s Business Liaison Survey (BLS) show that the total nominal value of sales in the formal private sector declined by 11.5 per cent in the March quarter of 2020,’ the report says.

‘The decline was mainly due to the two week lockdown in March imposed by the Government as measures were undertaken to close international borders, suspend domestic travels and scaled down business operations.’

Employment

Fluctuation of formal private sector employment from 2014 to 2020. Credit: Bank of PNG

There were signs of a rebound in employment in the middle of 2020. Employment in the formal private sector increased by 1.6 per cent in the June quarter of 2020, compared to a decline of 1.3 per cent in the March quarter. This reflected an easing of the state of emergency measures as ‘businesses began to slowly revamp or increase their operations’.

Over the year to June 2020, the total level of employment declined by 3.5 per cent, compared to an increase 4.3 per cent in the corresponding period of 2019.

Employment actually increased in the agricultural, forestry and fisheries (AFF) and retail sectors but fell in the wholesale, financial/business and other services, construction, mineral, transportation and manufacturing sectors.

Exports

Balance of payments comparison from 2014 to 2020. Credit: Bank of PNG

Prices for PNG’s exports were mixed. Excluding LNG, the average price decreased by 5.0 per cent in the June quarter of 2020 when compared with the corresponding quarter of 2019. Mineral prices increased by 0.1 per cent, but agricultural prices were hit hard.

‘For agricultural, logs and marine product exports, the weighted average kina price decreased by 22.8 per cent, due to lower kina prices for copra oil, rubber, logs and marine products.’

The trade account recorded a surplus of K10.9 billion for the first six months of 2020, slightly below the surplus of K11.8 billion in the previous corresponding period. This was driven by strong mineral exports, combined with a ‘decline in merchandise imports as a result of the COVID-19 pandemic.’

The balance of payments strengthened, recording a surplus of K43 million for the first six months of 2020, compared with a deficit of K388 million in the previous corresponding period.

The level of foreign exchange reserves at the end of June 2020 was K7.8 billion (US$ 2.3 billion) which is sufficient for 5.4 months of total, and 9.1 months of non-mineral, import covers. Inflation was 3.4 per cent in the June quarter, up from 1.1 per cent in the March quarter.

Sectors

The impact on sales in the different industry sectors varied widely. In the March quarter, the hardest hit sectors were:

• Construction – sales declined by 27.5 per cent
• Manufacturing – sales down 18.0 per cent
• Mineral sector – sales down by 15.4 per cent
• Transportation – sales down by 12.9 per cent

Less affected was the retail sector, where sales fell by 9.4 per cent and the wholesale sector, where sales decreased by just 2.6 per cent.

In the AFF sector, sales actually increased by 11.5 per cent in the March quarter due to higher production and exports of palm oil, as well as a strong tuna catchment. Sales rose by 1.7 per cent in the financial/business/other services sector.