Papua New Guinea’s economy has weathered the COVID pandemic well, according to the International Monetary Fund’s latest Article IV assessment, completed last week. While the assessment paints an improved picture over the medium term, it flags some key reforms that PNG’s government still needs to address.

Rollercoaster years: real GDP growth in PNG, 1980 to 2025  Source: IMF

Noting a decline in mining revenue due to the closure of the Porgera mine in 2020, the IMF nevertheless anticipates real GDP growth this year of 4.2 per cent, following by 4.7 per cent in 2023 as PNG’s economy bounces back, led by the resources sector. Thereafter, the IMF is predicting a more restrained three per cent GDP growth for the middle of the decade.

‘Recovery is expected in the resource sector with Ok Tedi and Simberi mines returning to normal operations in 2022, thanks to improved COVID preparedness. The reopening of the Porgera gold mine is assumed in late 2022, which will increase growth in 2023,’ says the IMF’s report.

‘Notably, nominal GDP – effectively the size of PNG’s economy – is expected to increase by 50 per cent between 2021 and 2027, from K94.6 billion to K142 billion.’

‘The gradual easing of containment measures and higher capital spending by the government should support recovery in the non-resource sector.’

It notes that the war in Ukraine is impacting PNG ‘through higher commodity prices and higher inflation, with the former leading to a stronger balance of payments and fiscal revenues, given that PNG is a large commodity producer’.

Medium term outlook

Notably, the IMF is expecting non-resources GDP to run ahead of overall GDP from 2024 onwards, with the resources sector’s contribution towards GDP slowly declining, from 31.1 per cent this year to 21.7 per cent by 2027.

Meanwhile, the annual value (FOB) of PNG’s exports is predicted to rise significantly, from US$9.7 billion (K34 billion) in 2021 to US$13.5 billion (K47.5 billion) by 2027, while the CIF value of imports is also expected to rise by a similar proportion over the same period, from US$3.2 billion (K11.27 billion) to US$4.5 billion (K15.8 billion).

‘The IMF is predicting PNG’s government could have a balanced budget by 2027’

Notably, nominal GDP – effectively the size of PNG’s economy – is expected to increase by 50 per cent between 2021 and 2027, from K94.6 billion to K142 billion.

More reforms needed, however

In making its assessment, the IMF is also concluding its Staff Monitored Program in PNG, which commenced in late 2019 and was designed firstly to assist the Marape Government with putting together a sustainable plan to manage its debt and deficits, and also to look at further monetary and exchange reforms.

The numbers issued last week suggest that the first goal of that program has been a qualified success.

The IMF is predicting PNG’s government could have a balanced budget by 2027, with borrowings gradually decreasing from their peak in 2020 and revenues gradually rising over the same period.

However, the IMF is also flagging more reforms need to be made, including:

• raising resource sector revenues and encouraged the adoption of a moderate value-based levy on future resource projects
• additional revenue mobilisation and improvements in the government’s payroll system to contain expenditures
• the tightening of monetary policy (ie higher interest rates) ‘if recent inflationary pressures from higher food and energy prices persist’
• the gradual introduction of greater exchange rate flexibility and the removal of exchange restrictions
• increased financial inclusion and financial sector development
• further reforms to address ‘governance, autonomy, transparency, and accountability’ at PNG’s central bank

Finally, the IMF report issued a strong warning related to climate change.

‘Directors remarked that PNG is highly vulnerable to climate change and stressed that policies should focus on developing and financing climate adaptation projects, as well as reducing the rate of deforestation and reaching PNG’s nationally determined [carbon] contributions.’