Farmers make up the majority of the PNG population, so higher agricultural prices will support local consumption. Gross domestic product expanded by 7% in 2010 and 5.5% in 2009.
ADB's quarterly economic review of the Pacific, the Pacific Economic Monitor, also projects that the 14 economies of the region will expand by 6.3% this year, up from 5.3% last year.
East Timor is forecast to grow by 10%, driven by the development of its oil and gas fields. The resumption of gold exports and a stronger forestry sector will expand the Solomon Islands economy by 7.5% in 2011 while phosphate exports will help Nauru return to moderate economic growth.
The monitor credits the $US15 billion ExxonMobil-led PNG LNG project as being largely responsible for boosting growth in the nation.
"Private investment is strong in PNG as businesses seize the opportunities generated by the LNG project," Charles Andrews, country director of ADB's Papua New Guinea resident mission, said.
"The challenge is to ensure the sound management of the revenues gained from these opportunities, and the government has already made some prudent steps in this area."
Still, rising international food prices, the depreciation of the kina in 2010 and some supply side constraints in skilled labour, construction and transportation will fuel inflation.
The diversification of imports sourced from emerging Asian markets may, however, be helping to contain wholesale and retail prices. ADB expects inflation of 8% this year and 7.5% next year, which may require the central bank to tighten monetary policy.
PNG's 2011 national budget - at 3.5 billion kina or 14% of GDP - is the largest in the country's history. The government expects to generate sufficient revenues to deliver a balanced budget this year.
The report acknowledged the PNG government's commitment to developing a sovereign wealth fund as a means of preserving the expected profits of the PNG LNG project for future generations. It commended the government on its consultative approach and its intention to manage all resource revenues through offshore funds, with all expenditures channelled through the budget process.