I am once again pleased to present the Pacific Balanced Fund’s audited financial statements for 2022, which for the world and Papua New Guinea has been a year of recovery, financial and otherwise. This has in fact been a very successful financial year, one that has demonstrated the stability and resilience of the Fund, which has returned to a strong growth trajectory.
Although the Porgera mine unfortunately remained closed for the whole year, the PNG economy recovered to above its pre-pandemic GDP; according to the World Bank high commodity prices accelerated annual economic growth to 4.5%. The World Bank also reported that PNG’s fiscal deficit had narrowed to 5.4% of GDP during the year, compared to 6.8% in 2021, reflecting that the National Government’s continued fiscal consolidation is working to safeguard macroeconomic stability.
The unfortunate Russian invasion of Ukraine pushed petroleum prices higher, resulting in a windfall in petroleum tax revenue as a short-term benefit for the PNG economy. However, the first advantages were followed by an increasing market volatility, challenges in many sectors and supply chains and increasing inflation world-wide.
The country’s debt was restructured during the year with assistance from the International Monetary Fund and more concessionary finance; this resulted in the country’s sovereign credit rating being upgraded from ‘negative’ to ‘stable’ by both Standard and Poors and Moody’s.
The Fund over-performed the economy and reported an extraordinary return. The Fund achieved a long-term weighted average growth from 2008 to 2022 of 12.5% per annum. With the K4.76 dividend per unit also declared in this period, the total return was 12.3%, significantly higher than the GDP over this period. This is the result of strong management by the investee companies, in which MTSL’s appointed directors also play an important role.
It is projected that the PNG economy will grow by 4.0% in 2023, with a marginal rise in formal sector employment, after doing poorly in 2021 due to the impacts of Covid-19. The 2023 budget announced in November increased government spending by more than 10%, leading to a projected deficit of 5.4% of GDP. Inflation, estimated at between 5.7% and 6.6%, is hurting people’s incomes and may exacerbate economic hardship. This is one of the reasons that it is important that MTSL continues its prudent and cost-effective management of the Fund, to ensure that members can rely on a regular dividend return from their investments.
Of note this year are changes instituted in the senior management of MTSL. Lawrence Stephens continued as CEO until February 2022, and has been Co-CEO Administration,
Compliance and Legal Affairs since March 2022, when Norbert Kneifel was appointed as Co-CEO Investment, Finance, Mergers & Acquisitions. These changes will strengthen our governance practices and support more active commercial management of the Fund.
I am very aware that next year, 2023, is the 50th anniversary of the Fund, which started life as the Investment Corporation Fund of PNG. MTSL will be celebrating this milestone with unit holders across PNG. We are indeed proud that as the country gained independence and developed over this half century, the Fund has correspondingly grown in a sustainable manner and continues to benefit our members. Looking forward, the economic outlook for the country is positive, with announcements on the delayed expansion of the extractive sector as the Papua LNG Project moves towards FEED, the giant Wafi Golpu mine negotiations progress and reopening of the Porgera mine. The impact of these developments in the next few years should result in a significant boost to the service companies in our investment portfolio and consequently to our profitability and the level of dividends we can return to our members.
I applaud the professional behaviour of my fellow directors and the senior management of MTSL during this year of transformation, and look forward to the continued prosperity of investee companies in years to come.