Business

Bank predicts better business this year

confidence in Papua New Guinea should gather momentum this year, a bank forecast says.

The kina should strengthen beyond

budget projections.

Finance Pacific Group’s manager

(economics) Ivan

Gutai said.

In the banking group’s latest monthly

economic update,

Gutai said it was

expected that overall business confidence would gain “further momentum” at a much faster pace. This was expected in the context of developments so far and, more importantly, the “realisation of much needed financial assistance” from the World Bank, the International Monetary Fund and the “Friends of PNG” group.

On this basis, Finance Pacific expects the following developments this year: - The kina to gain strength and surpass budget assumptions. It is not unreasonable for the local unit to trade within the proximity of US4O cents and A4ocents; - Domestic liquidity to improve; - Domestic interest rates are likely to ease, but the key remains “the ability of the Government to shy away from domestic

borrowing”’;

- Lending growth is expected to remain relatively flat during the first two quarters and gain gradual momentum later; - On monetary policy, it expects some degree of progressive accommodative stance with a likelihood of reduction in the minimum liquid assets ratio early in the year.

This will be a most welcome initiative to kick-start private sector growth via reduction in cost of borrowing; and - Domestic inflationary pressures to ease to

within budget assumption of 12.9 per cent.

The report, among other projections, said domestic inflationary pressures should have eased during last quarter of 1999 on the basis of some recovery already evident in the kina.

This could result in the annual inflation rate in 1999 of about 14 per cent, the forecasters said.

Prices for major commodities remained weak as increasing supplies outstripped demand.

The subdued demand was due to slow recovery of economies in the Asia region, Russia and Latin America.

Cocoa prices remained low but gained some lost ground, coffee remained steady and rubber fell.

Metal prices rose substantially due to strong demand worldwide, the Finance Pacific report said.

“Gold prices rose to 5U5293.85 per ounce; silver prices increased to SUSS.2O an ounce; copper prices increased to SUS 1767.50 per tonne, and crude oil prices rose to 5U525.34 per barrel,” the report based on October/November said.

Of aid promises, the report said foreign exchange inflows from those sources had yet to filter through, but the kina was able to hold its ground, although below expected levels. ■

The Papua New Guinea economy is expected to gain strength this year