Papua New Guinea - Economy

Economic activity is concentrated in two sectors, agriculture and mining. The subsistence sector, which occupies more than twothirds of the working population, produces livestock, fruit, and vegetables for local consumption; agricultural products for export include copra, palm oil, coffee, cocoa, and tea. Rubber production has declined in recent years, and in the mid-1980s, coffee crops were threatened by the spread of coffee rust fungus through Western Highlands Province. New mining operations have compensated for the 1989 closure of the Bougainville mine, which had been a chief foreign exchange earner since the early 1970s. Currently, the main gold and silver mines are located at Ok Tedi in the Star Mountains, on Misima Island, and at Porgera. Oil and natural gas have been discovered in Southern Highlands Province. Forestry and fishing hold increasing importance.

Economic growth, which averaged 3.7% in the late 1980s, rose to 9% in 1991, 11.8% in 1992, and 16.6% in 1993. The growth was driven by a mineral and petroleum boom centered in the Highlands region. Growth slowed to 3% in 1994, 2.9% in 1995, and 1.6% in 1996 and 1997 due to an anticipated drop in production from Papua New Guinea's aging mines and oil fields, and a 1997 drought that cut the coffee crop in half. To halt the economic decline, the government awarded a lease to private developers for the $800 million Lihir gold project. In addition, construction projects involving airports, highways, disaster rehabilitation, development of the Gobe oil field, and a petroleum refinery are planned or being implemented. These projects, together with the onset of new production at the mine, generated a slightly improved GDP growth rate of 1.6% in 1998. The economy did not reach the expected 4.5% increase in part because of the Asian financial crisis, and recurring drought. Growth in 1999 was 3.6%, and in 2000 and 2001, the economy experienced small contractions of -0.8% and -3.3%, respectively. Inflation persisted in double digits, averaging just over 10%. In 2002, positive growth returned, but at an anemic 1.2%, while the annual inflation rate rose to 12%.