ANALYSIS - PAPUA NEW GUINEA OUTLOOK - DEC 2004.

(From Asia Pulse)

(Analysis by Australia's Department of Foreign Affairs and Trade Economic Analytical Unit. Contact details below.)

PORT MORESBY, Feb 17 Asia Pulse - Again, Papua New Guinea is at a crossroad. But this time it is looking in the right direction.

The Government's management of the budget and its public sector reform program, combined with good prospects for the Highlands Gas project, are all contributing to an improved economic outlook.

After years of economic contraction, the Papua New Guinea economy is showing some signs of recovery and macroeconomic conditions are improving.

While these encouraging signs are attributed largely to favourable commodity prices, financial sector reforms and short-term fiscal consolidation have contributed to the emerging macroeconomic stability. Papua New Guinea's development continues to be challenged by poor governance, lawlessness and weak institutions.

Australia, as a long-term friend, is committing significant human and financial resources through a new-five year assistance program, the Enhanced Cooperation Program (ECP), to assist Papua New Guinea in its task. The ECPs objectives encompass law and order, economic and justice management; and border and transport security.

ECONOMIC CONTRACTION 1995-2002

Papua New Guinea is endowed with vast natural resources, but its inhabitants have not enjoyed sustained increases in their incomes.

Large-scale developments in …