News Brief No. 01/38

News Brief: IMF Approves US$48 Million Credit to Papua New Guinea

April 23, 2001

The Executive Board of the International Monetary Fund (IMF) completed today the second and third reviews of Papua New Guinea's performance under a Stand-By Arrangement, which enables the release of SDR 37.77 million (about US$48 million).

As part of the Executive Board's review, waivers for the non-observance of performance criteria for the period ended December 2000 were granted, and an extension of the Stand-By Arrangement by four months until September 28, 2001 was approved. The Executive Board also approved performance criteria for the period ending-June 2001. A supplementary Memorandum on Economic and Financial Policies (MEFP), which updates an MEFP dated October 2, 2000, is being published on the IMF's website (www.imf.org). The memoranda provide details on Papua New Guinea's IMF-supported economic and structural reform program for 2001.

The Executive Board's decision will bring total disbursements to Papua New Guinea under the Stand-by Arrangement to SDR 66.66 million (about US$85 million).

At the conclusion of Executive Board discussions of Papua New Guinea's economic program, Eduardo Aninat, Deputy Managing Director and Acting Chairman, stated:

"Papua New Guinea's performance under the program supported by the Stand-by Arrangement has generally been good, despite difficult external circumstances. Macroeconomic policy has continued to be focused on reducing inflation and increasing international reserves. All performance criteria for end-September 2000 were observed, and the non-observance of performance criteria for end-December 2000 was due mainly to a shortfall in external financing related to delays in bringing the country's largest bank (PNGBC) to the point of sale. The authorities have recently issued an information memorandum for the sale of this bank, and have made progress in other areas of structural reform.

"Continued perseverance in program implementation will be needed to solidify confidence and create the conditions for a sustained economic recovery. In particular, adherence to the proposed fiscal path would facilitate timely external assistance, including funds to be secured at an upcoming consultative group meeting. With the external support envisaged under the program, the government would be able to avoid further net domestic borrowing, thereby allowing interest rates to fall and releasing bank resources for financing private sector activity.

"Structural reforms remain crucial in ensuring long-term improvements in Papua New Guinea's economic performance. In this area, the authorities are encouraged to press ahead with privatization, public sector reform, and improvements in the production of statistical indicators used for economic policy-making.

"The Fund welcomes the authorities' intention to consider a successor arrangement with the Fund. Continued Fund involvement in Papua New Guinea could help catalyze the resources that will be necessary to overcome the challenges in the years ahead and to help fund the improvements in capital, both physical and human, necessary for economic diversification and growth," Mr. Aninat said.