IMF Mission Concludes the 2013 Article IV Consultation with Papua New Guinea

Press Release No. 13/336
September 10, 2013

An International Monetary Fund (IMF) team led by Mr. Yongzheng Yang visited Papua New Guinea during August 19–September 3 for the 2013 Article IV Consultation. The team met with the Minister for Treasury Don Polye, Bank of Papua New Guinea (BPNG) Governor Loi Bakani, members of Parliament, and other senior public officials, as well as representatives from the private sector, think tanks and development partners. Staff from the Asian Development Bank and the World Bank joined the mission. The team expresses its appreciation to the authorities and other stakeholders for the frank and constructive discussions.

At the conclusion of the discussions, Mr. Yang issued the following statement:

Papua New Guinea’s economic growth is expected to be around 5½ percent in 2013, and to pick up speed through 2014 and 2015, when production at a new LNG plant reaches full capacity. While risks to near- to medium-term growth are broadly balanced, over the longer term they are tilted towards the downside due to an uncertain environment for external demand, including global market conditions for LNG, and commodity prices. Inflation, measured by the CPI, is projected to rise to around 5⅓ percent in 2013, largely reflecting pass-through from a weaker kina and demand pressures from government spending. The external position remains strong, with the floating exchange rate continuing to provide a useful buffer to external shocks.

“The mission welcomes the authorities’ increased allocation of expenditure in 2013 to law enforcement and the legal system, infrastructure, health, and education, as well as their commitment to ensuring that government debt stays within the target of 30 percent of GDP over the medium term. However, the quality of spending remains a concern in some projects, particularly at local levels. In these cases, resources should be saved until development projects can be implemented effectively. In light of capacity constraints, the mission recommends a moderate fiscal deficit of about 4 percent of GDP for 2014, with a budget focused on improvements in spending quality. The Organic Law on Sovereign Wealth Fund Management, which was passed by the Parliament in February 2012, followed sound international guidelines, and the Sovereign Wealth Fund now needs to be adequately resourced and operated.

“The mission notes that monetary policy should adjust to a post-construction boom environment and anchor inflation at a lower rate than during the boom. Continued vigilance is also needed against financial sector risks arising from slowing domestic activity and possible price corrections in certain segments of the property market.

“The authorities are working toward improving the inclusiveness of growth and diversifying the economy. To engender broad-based growth, the mission urges sustained effort to reduce impediments to doing business in Papua New Guinea, including costs associated with law enforcement problems and poor infrastructure services. To increase the inclusiveness of growth, particular focus is required on the development of agriculture and small and medium sized enterprises to generate incomes and jobs for the vast majority of the population. Improvements in the efficiency of public enterprises and their service delivery will also be important for improving welfare. The recent initiative to reorganize public enterprises and consolidate public investments through the Kumul Trust has the potential to enhance the transparency and efficiency of public investments. However, the success of this initiative will hinge on adoption of governance structures at the trust and in companies that will ensure independence from political interference and focus on stated corporate goals.

“The mission will be preparing a report that the IMF’s Executive Board is scheduled to discuss in November 2013.”



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