Statement of an IMF Staff Mission to Papua New Guinea

The following statement was issued on November 13 in Port Moresby after the conclusion of an International Monetary Fund (IMF) staff mission to Papua New Guinea for the 2007 Article IV Consultation:

"An IMF mission led by Ms. Susan Creane, Deputy Division Chief in the Asia-Pacific Department, visited Port Moresby November 1-14, 2007, to conduct the annual Article IV Consultation discussions. The mission met with the Treasurer and Minister of Finance, and other senior officials from the government and Bank of Papua New Guinea, and representatives from the private sector and civil society, to discuss recent economic developments and the outlook for 2008 and the medium-term.

"Papua New Guinea is enjoying its fifth successive year of economic growth and macroeconomic stability, underpinned by a combination of prudent fiscal and monetary policies and high global prices for key mineral export commodities. Economic growth has picked up in the non-mineral sector, supported by low interest rates, and inflation remains in the low single digits. The external current account has continued to strengthen, with foreign exchange reserves expected to rise to over $2 billion at end-2007. The financial sector appears sound, based on backward-looking indicators. Public sector debt, as a share of GDP, has been brought down sharply from a peak of 77 percent in 2002 to an estimated 34 percent for end-2007.

"These economic outcomes to date represent a marked improvement relative to the past. However, further efforts are needed to significantly raise human development and keep Papua New Guinea from falling behind relative to its peers. The challenge ahead will be to continue to pursue a prudent fiscal and monetary policy mix that maintains macroeconomic stability, and, together with vigorous implementation of structural reforms consistent with the government's Medium-Term Development Strategy, to improve prospects for higher sustained nonmineral sector growth. These reforms—including strengthening transportation and communication infrastructure, land reform, and improving education and law and order—would promote human development, create jobs, and improve the inter-regional allocation of resources and Papua New Guinea's competitiveness in an increasingly globalized world economy. The current favorable economic conditions and political stability provide an ideal opportunity to push ahead with these reforms.

"Against this background, a key challenge will be to continue to manage well the large, but temporary, fiscal surpluses to promote higher sustainable growth and low inflation. The mission expects that mineral revenue will decline over the medium term from its peak in 2007, based on government production data and world commodity price forecasts. In this regard, the mission is concerned with the loosening of fiscal policy in the 2007 Supplemental Budget. Elements of the 2007 Supplement Budget are welcomed, including one-off increases in spending to meet priority infrastructure and development needs, and the pay down of both debt and part of the government's superannuation liabilities, which represents a form of saving for the future. However, other elements of the 2007 Supplemental Budget, including the large increase in allocations to the districts where currently spending capacity is weak, raises risks for the Papua New Guinea economy, including for sustainable growth and inflation, over the medium term. The mission also looks forward to the resumption of the government's public sector reform program, including the rightsizing initiative."