Papua New Guinea is falling short of its potential – by Devesh Rasgotra (Global Risk Insights – November 1, 2015)

Falling commodity prices alongside poor political governance have meant that Papa New Guinea, rich in natural resources, is seemingly not fulfilling its potential.

Papua New Guinea is one of the poorest and most isolated countries in the world. Yet it has experienced sustained economic growth in recent years. The country is rich in gold, oil, gas, copper, silver and timber.

The extraction of these natural resources accounts for 60% of its GDP whilst it’s other main economic sector, agriculture, employs up to 85% of the population.

The revenues from this commodity-based economy have not translated into strong economic development and improvements to living standards. Despite maintaining an average annual growth rate of 6.5% over the past 10 years, the country is blighted by corruption and poor fiscal management by the government.

The country has also been dealt a bad hand due to the fall of commodity prices and the effects of the El Nino. Yet the abundance of resources within Papa New Guinea means that it has the potential to develop quickly in the future, but this potential will only be realized by strong actions by its government.

Fall in Commodity Prices

Papua New Guinea’s commodity-based economy was hit hard by the collapse in global commodity prices in late 2014.

The government has little control over this event. The fall in prices has impacted the country’s revenue streams. The price of oil, for example, was almost 50% lower in July 2015 than in November 2014.

With the World Bank lowering its forecast for crude oil prices, it seems that the Papua New Guinea will continue to suffer from its reliance on natural resources. This is further demonstrated by a 67% collapse in Asian gas prices, which brings little hope to a country where almost 40% of its population live below the poverty line.

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