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### Executive summary: context, program, and mission
- PNG navigates macroeconomic and social challenges after a decade of exogenous shocks (low commodity prices, droughts, earthquakes, COVID-19) that have:
  - Adversely affected growth, contributed to foreign exchange shortages, and pushed up public debt.
  - Left significant development and climate adaptation gaps; PNG ranks in the lowest quartile worldwide on measures such as the Human Development Index.
- Program background and approvals:
  - IMF Executive Board approved Extended Credit Facility (ECF) and Extended Fund Facility (EFF) arrangements with PNG on March 22, 2023; arrangements extended to 45 months in December 2024.
  - IMF Board approved a 24-month arrangement under the Resilience and Sustainability Facility (RSF) on December 11, 2024.
- Staff support and mission:
  - Staff supports completion of the fourth reviews under the EFF/ECF and first review under the RSF, a waiver of non-observance of a performance criterion, modification of a continuous QPC for the second half of 2025, and resetting two structural benchmarks.
  - Staff mission visited Port Moresby March 27 – April 9, 2025; mission personnel included S. Rafiq, S. Kilian, R. Paewai, Y. Xu, L. Anisi, and S. Nawar.

### Recent macroeconomic developments (selected)
- Growth and inflation:
  - Real GDP growth in 2024 is estimated at 3.8 percent (same as 2023).
  - Headline inflation in 2024 was 0.6 percent (down from 2.3 percent in 2023); core inflation edged up to 3.2 percent in 2024.
  - In 2025Q1, headline inflation sharply increased due to a strong rebound in betelnut prices; core inflation continued to edge up due to higher food prices.
- Fiscal sector:
  - Fiscal deficit narrowed to 3.4 percent of GDP in 2024 from 4.3 percent of GDP in 2023.
  - Public debt started declining in 2024 to 52 percent of GDP from a peak of 54 percent in 2023.
  - Tax revenue declined by 0.7 pp of GDP relative to 2023, largely reflecting a decrease of 0.8 pp of GDP in goods and services tax (GST).
- External sector and reserves:
  - Net international reserves (NIR) at end-2024 were USD 2.4 billion; NIR decreased by USD 0.4 bn relative to end-2023.
  - Current account surplus widened to about 16 percent of GDP in 2024.
  - The Kina depreciated by 6.8 percent in 2024.
  - REER estimated to be overvalued by about 6.2 percent (external sector assessment for 2024).
- Monetary and financial conditions:
  - BPNG increased the Kina Facility Rate (KFR) from 2 to 4 percent in 2024H1 and raised the cash reserve requirement (CRR) ratio from 10 to 12 percent; in March 2025 KFR maintained and CRR lowered to 11 percent.
  - Private sector credit growth fell from nearly 15 percent y/y at end-2023 to about 3 percent at end-2024.
  - Banking sector: one domestic (partly state-owned) bank carries 70 percent of banking system’s assets; government deposits and government securities account for a third of total bank assets.
  - Net liquidity uneven: domestic banks face tighter liquidity while foreign banks face excess liquidity constrained by country exposure limits.

### Program performance, conditionality, and structural benchmarks
- ECF/EFF performance:
  - All but one quantitative performance criterion (QPC) and indicative targets (IT) for end-December 2024 were met.
  - Of eight structural benchmarks (SB) due: two met, two implemented with delay, two partially implemented, and two proposed to be reset.
  - Six new SBs proposed to broaden tax base, improve transparency of government securities issuance, enhance liquidity management, operationalize central bank’s lender of last resort function, and enhance the AML/CFT framework.
- RSF reform measures (RMs):
  - One RM completed (disaster risk screening mechanism RM4); progress recorded on remaining RMs.
- Notable QPC/IT outcomes (selected):
  - Fiscal deficit of the government (ceiling, cumulative from the beginning of the year): Approved 4,132 (Dec 2024), Outcome 2,274 — met.
  - Stock of net international reserves of the BPNG (floor, US$ millions): Approved 2,200 (Dec 2024), Outcome 2,730 — met.
  - Continuous QPC — New external payment arrears of the government (ceiling, US$ millions): Approved 0, Outcome 8.5 — not met (breach due to a guarantee call; fully repaid by government on April 30, 2025).

### Outlook and projections (selected indicators)
- Short- and medium-term macro outlook:
  - Real GDP growth (percent): 2024 3.8, 2025 4.7, 2026 3.5, 2027 3.1, 2028 3.1, 2029 3.1, 2030 3.1.
  - Resource growth (percent): 2024 1.7, 2025 4.7, 2026 1.4, 2027 0.1, 2028 0.2, 2029 0.2, 2030 0.2.
  - Non-resource growth (percent): 2024 4.5, 2025 4.8, 2026 4.2, 2027 4.1, 2028 4.1, 2029 4.0, 2030 4.0.
  - CPI (annual average, percent): 2024 0.6, 2025 4.8, 2026 4.6, 2027 4.6, 2028 4.6, 2029 4.5, 2030 4.5.
  - Overall fiscal balance (percent of GDP): 2024 -3.4, 2025 -2.6, 2026 -1.2, 2027 0.0, 2028 0.0, 2029 0.2, 2030 0.3.
  - Current account balance (percent of GDP): 2024 15.8, 2025 10.8, 2026 12.7, 2027 11.3, 2028 11.8, 2029 10.7, 2030 11.4.
  - Government gross debt (percent of GDP): 2024 52.1, 2025 50.5, 2026 48.9, 2027 46.3, 2028 44.1, 2029 41.9, 2030 39.4.
- Key drivers:
  - 2025 growth pickup to 4.7 percent driven by resource sector as Porgera gold mine capacity expected to increase to 75 percent from around 40 percent in 2024.
  - Headline inflation projected to rebound to 4.8 percent in 2025; core inflation expected to edge up to 4.0 percent.

### Fiscal policy stance, adjustment plan, and medium-term strategy
- 2025 fiscal adjustment:
  - Adjustment expected at 0.8 pp of GDP, bringing the overall fiscal deficit to -2.6 percent of GDP in 2025.
  - Adjustment projected to rely mostly on higher non-tax revenue (0.7 pp of GDP) and a rebound of grants (0.2 pp of GDP), alongside rationalization of current expenditure.
- Fiscal Adjustment Plan (selected figures, percent of GDP):
  - Revenue and Grants: 2024 Latest 18.7; 2025 Prog. 17.0; 2025 Third Rev. 19.3; 2025 Latest 17.9.
  - Revenue: 2024 Latest 16.9; 2025 Prog. 16.2; 2025 Third Rev. 17.6; 2025 Latest 16.8.
  - Resource revenue: 2024 Latest 3.3; 2025 Latest 4.2; 2026 4.5.
  - Non-resource revenue: 2024 Latest 13.6; 2025 Latest 12.7; 2026 13.0.
  - Expenditure: 2024 Latest 22.6; 2025 Latest 20.5; 2026 19.7.
  - Overall balance: 2024 Latest -3.9; 2025 Latest -2.6; 2026 -1.2; 2027 0.0.
  - Fiscal adjustment (selected): 2024 Latest 0.4; 2025 Latest 0.8; 2026 1.4; 2027 1.2.
- Revenue administration and reforms:
  - Medium-Term Revenue Strategy (MTRS) to broaden tax base and improve compliance.
  - Adopted Income Tax Act (ITA) amendments to simplify rules and close loopholes (implemented with delay).
  - Draft amendments to the Internal Revenue Commission (IRC) Act to create an oversight board; SB proposed reset to end-July 2025.

### Public financial management (PFM) and SOEs
- Payroll management:
  - Progress in payroll data cleansing in the National Capital District (NCD); capacity constraints slowed the process (SB partially implemented).
  - Nationwide data cleansing for teachers and other sectors ongoing.
- Expenditure management and arrears:
  - Commitment to clear stock of accumulated domestic arrears; no further payroll arrears as of end-December 2024.
  - Consolidated balance of trust accounts reduced but still PGK 0.6 billion (around 0.4 percent of GDP) as of end-December 2024.
  - TSA: sequenced implementation plan to be formulated (ongoing SB by end-December 2025).
- State-owned enterprises:
  - SOEs in power and water face financial distress; recommendation to review sectoral price-setting to ensure full cost recovery and financial viability (ADB support).
  - NEC adopted a dividend policy for all three state holding companies (SB fully implemented with delay); restoring publication of financial statements for Kumul Petroleum and Kumul Minerals remains critical.
- Debt management and treasury operations:
  - Interface between Meridian debt reporting and IFMS to automate transfer and reconciliation (ongoing SB by end-September 2025).
  - Treasury and BPNG to ensure auction calendar and auction results publicly available (proposed SB by end-September 2025).

### Debt sustainability, financing, and external borrowing policy
- Debt status and risks:
  - Public and publicly guaranteed debt assessed as sustainable but risk of debt distress remains high (DSA).
  - Liquidity risk from a bullet payment due in 2028 on existing Eurobonds and higher bilateral and multilateral debt service in near term leads to multiple breaches of the debt service-to-revenue threshold in the baseline scenario.
  - Domestic debt vulnerabilities elevated; elevated PV of overall debt ratio breaches persist in baseline.
- DSA key projections and indicators (selected):
  - Public sector debt (percent of GDP): 2024 52.1; 2025 50.5; 2026 48.9; 2027 46.3; 2028 44.1; 2029 41.9; 2030 39.4.
  - Debt-service-to-revenue threshold: projected to breach the 14 threshold, with a relatively large breach in 2028 due to the US$500 million Eurobond bullet payment.
  - Fund credit outstanding will peak in 2026 at 4.3 percent of GDP, equivalent to around 9.2 percent of exports of goods and services and 40.2 percent of gross international reserves (GIR).
- External borrowing policy:
  - Prioritize concessional loans and grants and semi-concessional financing for critical projects.
  - PV limit on new external borrowing set at USD 810 million until end-June 2025, proposed to be modified thereafter to USD 1.66 billion for second half of 2025 (MEFP ¶19).
  - For 2025, projected present value ceilings and outcomes reported (e.g., Approved 1,425 (Mar 2025), Outcome 592 — met).

### Monetary policy, exchange rate framework, and liquidity management
- Exchange rate and roadmap:
  - De facto crawl-like arrangement in place; anchor currency USD; revised annual rate of crawl of 6 percent for 2025.
  - Since January 2024, USD/PGK exchange rate has gradually depreciated by 8 percent (as of end-March 2025).
  - Goal to return to kina convertibility gradually while removing FX rationing measures.
- Monetary operations and instruments:
  - Introduced fixed rate full allotment (FRFA) auction, mid-rate corridor, and partial reserve averaging.
  - Limit access to central bank bill (CBB) auctions to reserve-maintaining supervised institutions (SB met); 28-day CBB issuance instituted every four weeks (SB met).
  - Recommend tighter monetary stance and further rate hikes to reduce FX pressures; recalibrate CRR to reduce captive liquidity and enhance reliance on interest rates.
  - Develop liquidity forecasting framework and interbank market (proposed SBs: liquidity forecasting by end-July 2025; align Master Repo Agreement with GMRA standard by end-December 2025).

### Governance, anti-corruption, and AML/CFT
- ICAC operationalization:
  - ICAC Act (2021) adoption marked progress; ICAC staffing increased from 18 to 75 since July 2023.
  - ICAC received 239 potential cases as of early February 2025 and launched investigations; first arrest in March 2025.
  - ICAC oversight committee appointment delayed; authorities request SB deadline reset to end-September 2025.
  - MoUs partially implemented; multilateral MoUs viewed by staff as more effective than bilateral MoUs.
- AML/CFT gaps and actions:
  - 2024 APG MER recognizes BPNG’s FASU capacity for strategic analysis; capacity constraints in law enforcement limit prosecutions.
  - Forestry sector identified as high ML risk; proposed SB to publish forestry sectoral risk assessment by end-December 2025.
  - Proposed AML/CFT SBs by end-December 2025 to provide guidance for low-risk customers, NBFIs, lawyers, accountants, real-estate agents, and precious metal dealers, and to strengthen risk assessments and PEP obligations.
  - PNG in one-year APG observation period ending October 2025 to address MER deficiencies.

### RSF: climate-related reform measures and timelines (selected RMs)
- Enhancing Disaster Risk Management:
  - RM1: public website for hazard mapping data — Target date: September 18, 2025 — Status: In progress.
  - RM2: amendments to the 1984 Disaster Management Act — Target date: March 18, 2026 — Status: In progress.
  - RM3: disaster risk financing strategy — Target date: September 18, 2026 — Status: In progress.
- Integrating climate into public investment:
  - RM4: climate-related disaster risk screening methodology (requirement for major capital projects above PGK 10 million) — Target date: March 18, 2025 — Status: Met.
  - RM5: PIM regulations incorporating climate considerations — Target date: March 18, 2026 — Status: In progress.
  - RM6: pilot climate considerations in road maintenance standards — Target date: March 18, 2026 — Status: In progress.
- Green and inclusive finance:
  - RM7: supervisory guidelines on mandatory reporting of FIs’ exposures aligned with Taxonomy for 3 priority sectors — Target date: March 18, 2026 — Status: In progress.
  - RM8: empower GFC to collect climate investment data and develop centralized database — Target date: September 18, 2026 — Status: In progress.
- Mitigation measures:
  - RM9: amend Excise Tariff Act to shift tax burden toward fuels with higher carbon content — Target date: March 18, 2025 — Status: Delayed.
  - RM10: review royalties/taxes/levies in logging sector — Target date: September 18, 2025 — Status: In progress.

### Key risks, uncertainty, and stress-test findings
- Risks tilted to the downside; high uncertainty (Annex III).
- Downside risks include:
  - Drop in commodity prices; weaker external demand.
  - Unstable supply of utilities; natural disasters; political and social instability.
  - Local tensions at Porgera mine potentially disrupting production.
  - Cyberattacks disrupting government and central bank services.
  - Global risks: geopolitical conflicts, geoeconomic fragmentation, trade barriers, supply disruptions.
- Offsetting and upside factors:
  - Weaker US dollar and rising gold prices could offset adverse effects.
  - Upside: higher commodity prices and kickoff of major resource projects (Papua LNG, P’nyang NG, Wafi-Golpu) with potential investment decisions by end-2025 or early 2026.
- DSA and stress tests:
  - PNG assessed at “high” risk of external and overall debt distress; public debt sustainable under baseline conditional on fiscal consolidation and conservative financing.
  - Debt-service-to-revenue indicator projected to breach its 14 threshold, with a large breach in 2028 due to the US$500 million Eurobond bullet payment.
  - Climate alternative scenario (adaptation financed at 2 percent of GDP annually until 2030) leads to protracted breaches and worse debt dynamics; adaptation financing composition and concessionality critical to preserve sustainability.

### Policy priorities and recommendations (summarized)
- Fiscal:
  - Maintain sustained fiscal consolidation to reduce public debt vulnerabilities while creating space for social and infrastructure spending.
  - Advance revenue mobilization via MTRS, broaden corporate income tax base, reduce inefficient incentives, and improve non-tax revenue (dividends).
  - Strengthen rules-based fiscal framework (consider primary fiscal balance as operational rule) and modernize public investment management (PIMA support).
  - Contain current expenditure growth, raise expenditure efficiency, and increase critical social and capital spending.
- Monetary and financial:
  - Tighten monetary policy stance to reduce FX pressures and maintain the crawl-like arrangement while gradually removing FX rationing measures toward kina convertibility.
  - Modernize monetary policy operations, enhance liquidity management, develop interbank market, and operationalize lender of last resort/ELA.
- Governance and AML/CFT:
  - Allocate sufficient budget resources to ICAC for operationalization.
  - Address AML/CFT gaps identified in the MER; publish forestry sector risk assessment; update AML/CFT guidance.
  - Strengthen SOE financial management and transparency; restore timely publication of state holding companies’ financial statements.
- Structural and competitiveness:
  - Improve trade competitiveness and FDI attractiveness: remove trade barriers, enhance export capacity, tackle security and connectivity impediments, diversify the economy, and carefully design SEZ incentives.
  - Promote financial inclusion, gender equality measures, and digital infrastructure (including CBDC exploration).
- Climate:
  - Strengthen disaster risk management, integrate climate considerations in infrastructure governance and PIM, enable climate finance, and set fiscal incentives for forest protection and energy efficiency.
- Data and capacity:
  - Devote resources and CD support to improve data quality, timeliness, and consistency (expenditure-based GDP, IIP, CPI rebasing, national household survey, census).

### Program financing, monitoring, and operational requests
- Program financing and burden sharing:
  - Program fully financed with firm commitments for upcoming 12 months; Fund burden share increased from average 34.7 percent at program approval to 40.8 percent across the program.
  - RSF disbursement upon completion of first review: SDR 19.74 million available for disbursement.
- Monitoring and conditionality adjustments:
  - Semi-annual program reviews; six new SBs proposed adding to three ongoing SBs.
  - Specific adjustments proposed: modify PV ceiling on new external debt to USD1,660 million for second half of 2025; revise floors on non-resource tax revenue for 2025 test dates; reset deadlines for IRCA amendments and ICAC oversight committee to end-July and end-September 2025, respectively.
- Authorities’ requests in Letter of Intent:
  - Completion of Fourth Reviews under ECF/EFF and First Review under RSF; immediate disbursement upon Board approval of SDR 140.81 million (53.5 percent of quota) broken down as:
    - SDR 40.36 million (15.3 percent of quota) under the ECF,
    - SDR 80.71 million (30.7 percent of quota) under the EFF,
    - SDR 19.74 million (7.5 percent of quota) under the RSF.
  - Waiver request for non-observance of continuous QPC on new external payment arrears (USD 8.5 million, 0.02 percent of GDP) — repaid April 30, 2025.

*Source: IMF staff report and Papua New Guinea authorities (content unit: 1pngea2025001-print-pdf).*

### EXECUTIVE SUMMARY

### EXECUTIVE SUMMARY

### Context and challenges
- PNG is navigating macroeconomic and social challenges after a decade of exogenous shocks, including low commodity prices, droughts, earthquakes, and the COVID-19 pandemic, which have:
  - Adversely affected growth, contributed to foreign exchange shortages, and pushed up public debt.
  - Left significant development and climate adaptation gaps, with PNG ranking in the lowest quartile worldwide on measures such as the Human Development Index.
- The economy remains fragile and vulnerable to further negative effects of climate change, requiring a multipronged reform agenda to promote inclusive, sustainable, and resilient growth.

### Program background and modalities
- On March 22, 2023, the IMF Executive Board approved Extended Credit Facility (ECF) and Extended Fund Facility (EFF) arrangements with PNG; these arrangements were extended to 45 months in December 2024 to address a protracted balance of payments need and structural impediments to growth.
- On December 11, 2024, the IMF Board approved a 24-month arrangement under the Resilience and Sustainability Facility (RSF) to help address longer-term structural climate-related risks to balance of payments stability.
- Staff supports the authorities’ requests for:
  - Completion of the fourth reviews under the EFF/ECF arrangements and the first review under the RSF arrangement.
  - A waiver of non-observance of a performance criterion.
  - Modification of a continuous QPC for the second half of 2025.
  - Resetting of two structural benchmarks to a later date.

### Recent macroeconomic developments (selected)
- Growth and inflation:
  - Real GDP growth in 2024 is estimated at 3.8 percent, similar to 2023, supported by increased capacity in the resource sector (notably Porgera gold mine) and slightly slower non-resource momentum.
  - Headline inflation in 2024 was 0.6 percent (down from 2.3 percent in 2023); core inflation edged up to 3.2 percent in 2024.
  - In 2025Q1, headline inflation sharply increased due to a strong rebound in betelnut prices; core inflation continued to edge up due to higher food prices.
- Fiscal sector:
  - Fiscal deficit narrowed to 3.4 percent of GDP in 2024 from 4.3 percent of GDP in 2023.
  - Public debt started declining in 2024 to 52 percent of GDP from a peak of 54 percent in 2023.
  - Tax revenue declined by 0.7 pp of GDP relative to 2023, largely reflecting a decrease of 0.8 pp of GDP in goods and services tax (GST) from an exceptionally high base in 2023.
- External sector and reserves:
  - Net international reserves (NIR) at end-2024 were USD 2.4 billion.
  - NIR decreased by USD 0.4 bn relative to end-2023, largely reflecting BPNG interventions to clear the backlog of essential FX orders.
  - Current account surplus widened to about 16 percent of GDP in 2024.
  - The Kina depreciated by 6.8 percent in 2024.
  - External sector assessment for 2024 indicates the REER is estimated to be overvalued by about 6.2 percent.
- Monetary and financial conditions:
  - In 2024H1, BPNG increased the Kina Facility Rate (KFR) from 2 to 4 percent and raised the cash reserve requirement (CRR) ratio from 10 to 12 percent.
  - In March 2025, the Monetary Policy Committee maintained the KFR unchanged and lowered the CRR ratio to 11 percent.
  - Private sector credit growth fell from nearly 15 percent y/y at end-2023 to about 3 percent at end-2024.
  - Banks’ capital adequacy ratios remain well above prudential standards; nonperforming loans decreased from their 2021 peak but remain above pre-pandemic levels.
  - The banking sector is highly concentrated, with one domestic (and partly state-owned) bank carrying 70 percent of banking system’s assets.
  - Government deposits and government securities account for a third of total bank assets.
  - Net liquidity conditions are uneven: domestic banks face tighter liquidity while foreign banks face excess liquidity constrained by country exposure limits.

### Program performance and conditionality
- ECF/EFF program performance has been broadly on track:
  - All but one quantitative performance criterion (QPC) and indicative targets (IT) for end-December 2024 were met.
  - Of eight structural benchmarks (SB) due: two were met, two implemented with delay, two partially implemented, and two proposed to be reset.
  - Six new SBs are proposed to broaden the tax base, improve transparency and predictability of government securities issuance, enhance liquidity management, operationalize the central bank’s lender of last resort function, and enhance the AML/CFT framework.
- RSF-supported climate policy reforms have started:
  - One reform measure (RM) completed and progress recorded on remaining RMs.

### Policy recommendations from Article IV discussions
- Fiscal policy:
  - Advance fiscal consolidation to reduce debt vulnerabilities and create space for development spending via revenue mobilization reforms, expenditure rationalization, and a prudent borrowing strategy.
  - Strengthen a rules-based fiscal framework to help bring public debt to safe levels in the medium-term.
- Monetary and financial policies:
  - Tighten monetary policy stance to reduce FX pressures and maintain the crawl-like arrangement while gradually removing foreign exchange rationing measures to facilitate return to Kina convertibility.
  - Continue to modernize monetary policy operations to support financial sector development, while monitoring financial stability risks.
- Governance and AML/CFT:
  - Allocate sufficient budget resources to the Independent Commission Against Corruption (ICAC) for effective operationalization.
  - Address gaps in the AML/CFT regime.
  - Further strengthen SOE financial management.
- Macro-structural policies:
  - Improve trade competitiveness and attractiveness for foreign investment by removing trade barriers, enhancing export capacity, tackling security, connectivity and human capital impediments, and diversifying the economy.
- Climate change policies:
  - Strengthen disaster risk management, integrate climate considerations in infrastructure governance, enable climate finance, and set up fiscal incentives for forest protection and energy efficiency.
- Data adequacy:
  - Devote sufficient resources, with capacity development support and improved interagency coordination, to improve data quality, timeliness, and consistency.

### Outlook, risks, and vulnerabilities (high-level)
- Outlook is positive but fragile; key risks include:
  - Continued FX shortages and external shocks.
  - Climate change impacts and low adaptive capacity.
  - Political and social stability risks evidenced by social unrest in January 2024 and subsequent political events.
- External position assessed as moderately weaker than implied by medium-term fundamentals and desirable policies; REER overvaluation estimated at about 6.2 percent (Annex II).

### Staff views and mission
- Staff consider the Letter of Intent and Memorandum of Economic and Financial Policies to demonstrate program ownership and appropriate policies to reach program goals.
- Staff supports program reviews, requested waivers and resets as specified above.
- A staff team visited Port Moresby during March 27 – April 9, 2025; mission met with Treasurer Ling-Stuckey, BPNG Governor Genia, Treasury Secretary Oaeke, BPNG Deputy Governor Yabom, senior officials, development partners, and private sector representatives.
- Mission assistance and support personnel included S. Rafiq, S. Kilian, R. Paewai, Y. Xu, L. Anisi, and S. Nawar.

*Source: IMF staff executive summary for Papua New Guinea (EXECUTIVE SUMMARY).*

### 9.      Weakening global conditions may affect PNG’s economy through various channels.

### 1pngea2025001 — Chapter 9: Weakening global conditions may affect PNG’s economy through various channels

### External conditions and transmission channels
- PNG’s limited trade exposure to the US implies the direct impact of rising tariffs is likely to be limited.
- Indirect effects: weaker growth in key trading partners can lower demand for PNG’s commodity exports.
- Price effects are mixed:
  - Prices of LNG exports are expected to decline.
  - Gold prices have recently reached all-time highs.
  - Prices of some other metals have increased significantly since the beginning of the year.
- Exchange rate effects:
  - Recent USD depreciation against other currencies, if persistent, may support PNG’s external competitiveness and resilience of exports given the current crawling peg arrangement vis-à-vis the USD.
- Limited exposure to recently announced reductions in bilateral development assistance globally.

### 2025 outlook and medium-term projections
- Growth:
  - Real growth in 2025 is expected to pick up to 4.7 percent, driven by stronger growth in the resource sector as production capacity of Porgera gold mine is expected to increase to 75 percent from around 40 percent in 2024.
  - Continued improvement in access to FX, combined with a weaker currency and favorable agricultural production, is expected to lift non-resource sector growth.
  - Over the medium term, growth is expected to moderate and stabilize at just above 3 percent, supported by non-resource sector growth.
- Inflation:
  - Headline inflation is projected to rebound to 4.8 percent from a very low base in 2024 as the drag from the low betel nut prices wanes.
  - Average core inflation is expected to edge up to 4.0 percent.
  - Inflation remaining anchored at around 4.5 percent over the medium term.
- External sector and reserves:
  - With greater access to FX, import compression is expected to ease, narrowing the current account surplus to 10.8 percent of GDP in 2025.
  - Continued efforts by BPNG to reduce the backlog of FX orders are projected to lead to a further reduction of reserves in 2025.

- Key projected indicators (Text Table 1. Papua New Guinea: Selected Economic Indicators, 2024–2030)
  - Real GDP growth (percent): 2024 3.8, 2025 4.7, 2026 3.5, 2027 3.1, 2028 3.1, 2029 3.1, 2030 3.1
  - Resource (percent): 2024 1.7, 2025 4.7, 2026 1.4, 2027 0.1, 2028 0.2, 2029 0.2, 2030 0.2
  - Non-resource (percent): 2024 4.5, 2025 4.8, 2026 4.2, 2027 4.1, 2028 4.1, 2029 4.0, 2030 4.0
  - CPI (annual average, percent): 2024 0.6, 2025 4.8, 2026 4.6, 2027 4.6, 2028 4.6, 2029 4.5, 2030 4.5
  - Overall fiscal balance (percent of GDP): 2024 -3.4, 2025 -2.6, 2026 -1.2, 2027 0.0, 2028 0.0, 2029 0.2, 2030 0.3
  - Current account balance (percent of GDP): 2024 15.8, 2025 10.8, 2026 12.7, 2027 11.3, 2028 11.8, 2029 10.7, 2030 11.4
  - Government gross debt (percent of GDP): 2024 52.1, 2025 50.5, 2026 48.9, 2027 46.3, 2028 44.1, 2029 41.9, 2030 39.4

### Risks and uncertainty
- Outlook subject to high uncertainty, with risks tilted to the downside (Annex III).
- Downside risks:
  - Drop in commodity prices.
  - Weaker external demand.
  - Unstable supply of critical utilities.
  - Natural disasters.
  - Further political and social instability undermining reform implementation and the business environment.
  - Tensions among local communities at the Porgera gold mine could disrupt production.
  - Cyberattacks disrupting government and central bank services, triggering financial and socio-economic instability.
  - Global risks from geopolitical conflicts, geoeconomic fragmentation, trade barriers, and supply disruptions.
- Offsetting factors:
  - A weaker US dollar and rising gold prices could help offset some adverse effects.
- Upside risks:
  - Higher commodity prices.
  - Kickoff of major resource projects, including Papua LNG, P’nyang NG, and the Wafi-Golpu gold mine; final investment decisions could occur by end-2025 or early 2026.

### Authorities’ views
- Broad agreement with staff’s assessment of PNG’s economic outlook and risks.
- Near-term expectations:
  - Favorable agricultural commodity prices and improved access to FX will support non-resource sector growth.
  - Resource sector to benefit from increased production capacity at Porgera gold mine.
  - Headline inflation expected to increase to its historical average in 2025 due to base effects and continued depreciation of the Kina amid the crawl-like exchange rate arrangement.
- Medium-term views:
  - More optimistic about growth potential from major resource projects and Government-funded agricultural intervention programs.
- Shared concerns:
  - Political and social instability, commodity price volatility, and weaker external demand as significant downside risks.
  - Recent changes to oil prices and increased international economic uncertainties create potential fiscal pressures.
  - External vulnerabilities persist; the Kina remains overvalued—albeit less than at the start of the ECF-EFF arrangements.

### Program performance and conditionality
- Program performance broadly on track: all but one quantitative performance criterion (QPC) and indicative targets (IT) for end-December 2024 and end-March 2025 met.
- Notable outcomes and status (selected QPC/ITs, Text Table 2):
  - Fiscal deficit of the government (ceiling, cumulative from the beginning of the year)
    - Approved: 4,132 (Dec 2024), Outcome: 2,274 — met
    - Approved: 4,810 (Mar 2025), Outcome: 4,138 — met
    - Approved: 1,159 (Sep 2025), Outcome: 349 — met
  - Stock of net international reserves of the BPNG (floor, US$ millions)
    - Approved: 2,200 (Dec 2024), Outcome: 2,730 — met
    - Approved: 2,050 (Mar 2025), Outcome: 3,183 — met
    - Approved: 1,988 (Sep 2025), Outcome: 2,723 — met
  - BPNG's gross credit to government (ceiling)
    - Approved: 2,400 (Dec 2024), Outcome: 2,126 — met
    - Approved: 2,400 (Mar 2025), Outcome: 2,128 — met
    - Approved: 2,400 (Sep 2025), Outcome: 2,062 — met
  - Continuous QPC — New external payment arrears of the government (ceiling, US$ millions)
    - Approved: 0, Outcome: 0 — met (Dec 2024)
    - Approved: 0, Outcome: 8.5 — not met (Mar 2025)
    - Approved: 0, Outcome: 8.5 — not met (Sep 2025)
  - Present value of new external debt contracted or guaranteed by the government (ceiling, US$ millions)
    - Approved: 1,072 (Dec 2024), Outcome: 0 — met
    - Approved: 1,425 (Mar 2025), Outcome: 592 — met
    - Approved: 810 (Sep 2025), Outcome: 0 — met
  - Indicative targets highlights:
    - Non-resource tax revenue (floor, cumulative from the beginning of the year)
      - Approved: 10,714 (Dec 2024), Outcome: 10,702 — not met
      - Approved: 14,677 (Mar 2025), Outcome: 14,740 — met
      - Approved: 3,268 (Sep 2025), Outcome: 3,350 — met
    - Social and other priority spending (floor, cumulative from the beginning of the year)
      - Approved: 2,958 (Dec 2024), Outcome: 4,742 — met
      - Approved: 4,059 (Mar 2025), Outcome: 8,439 — met
      - Approved: 550 (Sep 2025), Outcome: 1,458 — met
    - Stock of unmet import-related FX payments in the orderbook (ceiling)
      - Approved: 100 (Dec 2024), Outcome: 0 — met
      - Approved: 75 (Mar 2025), Outcome: 40 — met
      - Approved: 50 (Sep 2025), Outcome: 0 — met
- Arrears and guarantees:
  - A government guarantee was called in late December 2024 following missed payments by a joint venture in 2022-2024, resulting in a breach of the continuous QPC on the absence of new external payment arrears for USD 8.5 million (0.02 percent of GDP).
  - The loan was fully repaid by the government on April 30, 2025, and the government is committed to a set of corrective actions.
  - Ongoing dispute regarding government’s liability in another guarantee involving an outstanding amount of USD 2.6 million on the underlying private sector loan.
- No new exchange restrictions were imposed during the review period; no evidence of Multiple Currency Practices.

### Structural reforms and benchmarks
- Structural benchmarks (SBs) under ECF/EFF:
  - Out of eight SBs due by the fourth reviews:
    - Two met in a timely fashion: restriction of eligibility to central bank bills (CBB); issuance of a new 28-day CBB.
    - Two fully implemented with delay: amendments to the Income Tax Act (ITA); dividend policy for state holding companies.
    - Two partially implemented with delay: data cleansing exercise in the National Capital District; signature of ICAC’s memoranda of understanding with other anti-corruption agencies.
  - Authorities request deadline resets:
    - Amendments to the Internal Revenue Commission (IRC) Act to end-July 2025 (¶17).
    - Appointment of the ICAC’s oversight committee to end-September 2025 (¶32).
  - Implementation of three other ongoing SBs due by the fifth and sixth reviews is on track with Fund CD support.
- Reform measures (RMs) under the RSF arrangement:
  - Out of two RMs with tentative target dates passed:
    - One met: disaster risk screening mechanism (RM4).
    - Submission of amendments to the Excise Tariff Act (RM9) to be assessed at a future RSF review due to need for additional time.

### Fiscal policy stance and adjustment plan
- Authorities committed to fiscal consolidation to put public debt on a downward path, consistent with the fiscal repair strategy.
- 2025 fiscal adjustment:
  - Adjustment expected at 0.8 pp of GDP, bringing the overall fiscal deficit to -2.6 percent of GDP in 2025.
  - Adjustment projected to rely mostly on higher non-tax revenue (0.7 pp of GDP) and a rebound of grants (0.2 pp of GDP), alongside continued rationalization of current expenditure.
- 2025 budget execution has been slower than planned in part due to a recent cyberattack on IRC’s IT systems delaying revenue transfers to Treasury.
- Medium-term revenue mobilization and reforms:
  - Further revenue mobilization envisaged in the authorities’ Medium-Term Revenue Strategy (MTRS) to create space for priority spending.
  - Non-tax revenues are very low relative to resource-rich peers; ensuring extractive sector contributes its fair share is critical.
  - Recently adopted ITA amendments will help simplify income tax rules and close loopholes (SB fully implemented with delay).
  - Plan to analyze existing CIT incentives and gaps, with FAD support; proposed new SB due by end-March 2026.
- Revenue administration reforms:
  - Continued implementation to improve compliance, enforcement, institutional capacity, and accountability (MEFP ¶11).
  - Shortcomings remain in registration data reliability, compliance, and performance monitoring per FAD’s TADAT report.
  - Drafting of amendments to the IRC Act to create an oversight board; deadline for SB proposed to be reset to end-July 2025.
- Expenditure priorities:
  - Authorities should contain current expenditure growth, raise expenditure efficiency, and increase critical social and capital spending (MEFP ¶12).
  - Capital spending is significantly lower and has stagnated since 2015, constraining infrastructure gap closure.
  - With FAD’s upcoming Public Investment Management Assessment (PIMA), authorities committed to enhancing public investment management practices.

- Fiscal Adjustment Plan — selected figures (Text Table 3. Papua New Guinea: Fiscal Adjustment Plan, 2022-2028; in percent of GDP)
  - Revenue and Grants:
    - 2022 Prog. 16.6; 2023 Third Rev. 17.9; 2024 Latest 18.7; 2025 Prog. 17.0; 2025 Third Rev. 19.3; 2025 Latest 17.9; 2026 18.6; 2027 18.8; 2028 18.9
  - Revenue:
    - 2022 Prog. 15.3; 2023 Third Rev. 16.9; 2024 Latest 16.9; 2025 Prog. 16.2; 2025 Third Rev. 17.6; 2025 Latest 16.8; 2026 17.5; 2027 17.7; 2028 17.8
  - Resource revenue:
    - 2022 Prog. 3.9; 2023 Third Rev. 3.9; 2024 Latest 3.3; 2025 Prog. 3.5; 2025 Third Rev. 3.7; 2025 Latest 4.2; 2026 4.5; 2027 4.6; 2028 4.5
  - Non-resource revenue:
    - 2022 Prog. 11.4; 2023 Third Rev. 13.0; 2024 Latest 13.6; 2025 Prog. 12.7; 2025 Third Rev. 13.9; 2025 Latest 12.7; 2026 13.0; 2027 13.2; 2028 13.3
  - Grants:
    - 2022 Prog. 1.3; 2023 Third Rev. 1.0; 2024 Latest 1.8; 2025 Prog. 0.9; 2025 Third Rev. 1.7; 2025 Latest 1.1; 2026 1.1; 2027 1.1; 2028 1.1
  - Expenditure:
    - 2022 Prog. 21.9; 2023 Third Rev. 22.3; 2024 Latest 22.6; 2025 Prog. 20.4; 2025 Third Rev. 21.9; 2025 Latest 20.5; 2026 19.7; 2027 18.8; 2028 18.9
  - Expense:
    - 2022 Prog. 17.9; 2023 Third Rev. 19.0; 2024 Latest 18.6; 2025 Prog. 17.8; 2025 Third Rev. 18.1; 2025 Latest 16.9; 2026 16.3; 2027 15.4; 2028 15.3
  - Net acquisition of non-financial assets:
    - 2022 Prog. 4.0; 2023 Third Rev. 3.3; 2024 Latest 4.1; 2025 Prog. 2.7; 2025 Third Rev. 3.8; 2025 Latest 3.6; 2026 3.4; 2027 3.4; 2028 3.7
  - Overall balance:
    - 2022 Prog. -5.3; 2023 Third Rev. -4.3; 2024 Latest -3.9; 2025 Prog. -3.4; 2025 Third Rev. -2.6; 2025 Latest -2.6; 2026 -1.2; 2027 0.0; 2028 0.0
  - Primary balance:
    - 2022 Prog. -2.9; 2023 Third Rev. -1.8; 2024 Latest -1.5; 2025 Prog. -1.0; 2025 Third Rev. 0.0; 2025 Latest 0.0; 2026 1.4; 2027 2.3; 2028 2.1
  - Non-resource net lending (+)/borrowing (-):
    - 2022 Prog. -9.1; 2023 Third Rev. -8.2; 2024 Latest -7.2; 2025 Prog. -6.9; 2025 Third Rev. -6.3; 2025 Latest -6.8; 2026 -5.7; 2027 -4.6; 2028 -4.5
  - Non-resource primary balance:
    - 2022 Prog. -6.8; 2023 Third Rev. -5.7; 2024 Latest -4.8; 2025 Prog. -4.5; 2025 Third Rev. -3.7; 2025 Latest -4.2; 2026 -3.1; 2027 -2.2; 2028 -2.4
  - Fiscal adjustment (selected years):
    - 2022 Prog. -12.1; 2023 Third Rev. 0.9; 2024 Latest 0.4; 2025 Prog. 0.9; 2025 Third Rev. 1.3; 2025 Latest 0.8; 2026 1.4; 2027 1.2; 2028 0.0

### Policy priorities and recommendations (summarized)
- Maintain sustained fiscal consolidation to reduce public debt vulnerabilities while creating fiscal space for social and infrastructure spending.
- Continue implementation of the Roadmap of central banking reforms to modernize monetary policy, restore kina convertibility, and support financial sector development.
- Strengthen anti-corruption, governance, and AML/CFT frameworks.
- Address structural impediments to private sector development and strengthen resilience to climate change.
- Contain current expenditure growth, raise expenditure efficiency, and increase critical social and capital spending.
- Strengthen infrastructure governance and public investment management (with FAD’s PIMA support).
- Broaden the corporate income tax base by reducing inefficient incentives and carry out an in-depth analysis of existing CIT incentives and gaps (FAD support; proposed SB due end-March 2026).
- Continue revenue administration reforms to improve compliance, enforcement, institutional capacity, and accountability; finalize IRC Act amendments to create an oversight board (deadline proposed end-July 2025).

*Source: Papua New Guinea authorities; and IMF staff estimates and projections.*

### 19.      Public financial management reforms are critical to improve expenditure efficiency.

### 19.      Public financial management reforms are critical to improve expenditure efficiency.

### Payroll management
- Authorities have made strides in enhancing payroll management in the National Capital District (NCD), although capacity and resource limitations have slowed the data cleansing process (SB partially implemented).
- The Department of Personnel Management has initiated a nationwide data cleansing exercise for teachers and will continue the payroll data cleansing exercise in sectors other than the economic and administrative sectors, in the NCD and other provinces (MEFP ¶13).

### Expenditure management and controls
- Authorities remain committed to clear the stock of accumulated domestic arrears (MEFP ¶14).
- No further payroll arrears were accumulated as of end-December 2024 and domestic debt has continued to be paid on time (IT).
- To prevent new goods and services arrears, recommended actions include:
  - Continue to improve commitment accounting and multiyear contract management.
  - Fully activate commitment controls for all types of expenditure.
  - Enable a more automated and timely monitoring of budget execution (MEFP ¶15).

### Debt management
- Authorities are creating an interface between the debt reporting system (Meridian) and the Integrated Financial Management System (IFMS) to automate transfer and reconciliation of debt data across the two IT systems (ongoing SB by end-September 2025).
- To improve transparency and predictability for government securities, the Treasury and the BPNG will ensure that the auction calendar and auction results are publicly available, with MCM and World Bank support (proposed new SB by end-September 2025, MEFP ¶18).
- Authorities will work, with Fund support, on consolidating and strengthening the legal framework for debt management to foster development of local currency bond primary and secondary markets.

### Cash management
- Consolidated balance of trust accounts reduced since start of the ECF/EFF arrangement but still represent PGK 0.6 billion (around 0.4 percent of GDP) as of end-December, challenging efficient cash management.
- Authorities remain committed to formulate a sequenced implementation plan for a Treasury Single Account (TSA), supported by FAD TA (ongoing SB by end-December 2025, MEFP ¶16).
- Footnote: The NEC decided in December 2024 to raise the ceiling for accessing the TAF from PGK 1.5 to 2.0 billion. The requirement to bring the TAF balance to zero by year-end remains unchanged.

### State-owned enterprises (SOEs)
- SOEs, particularly in power and water sectors, face difficult financial situations that prevent reliable utility services and adequate infrastructure maintenance.
- Causes include being only partly compensated for community services and inability to ensure full cost recovery.
- Recommended action: Review sectoral price-setting policies, with ADB support, to strengthen efficiency, ensure SOEs’ financial viability, and improve reliability of service delivery (MEFP ¶29).

### Debt sustainability and external borrowing policy
- PNG’s public and publicly guaranteed debt continues to be assessed as sustainable, while the risk of debt distress remains high (see Debt Sustainability Analysis, DSA).
- Liquidity risk from a bullet payment due in 2028 on existing Eurobonds and higher official bilateral and multilateral debt service payments in the first half of the forecast horizon leads to multiple breaches of the debt service-to-revenue ratio threshold in the baseline scenario.
- Domestic debt vulnerabilities are elevated, contributing to persistent breaches of the PV of overall debt ratio to GDP.
- Authorities aim to address refinancing risks for domestic debt, including by issuing longer-term securities when possible.
- External borrowing policy:
  - Complement fiscal consolidation with prioritization of concessional loans and grants, and semi-concessional financing for critical projects.
  - Significant underutilization of the PV limit on new external borrowing set for 2024 amid delays in loan signings.
  - For 2025, the PV limit on new external borrowing remains set at USD 810 million until end-June (continuous QPC), while it is proposed to be modified thereafter to USD 1.66 billion (MEFP ¶19), to allow signing of some unsigned loans in 2024, with the DSA as critical anchor.

### Strengthening rules-based fiscal framework
- Authorities’ fiscal repair strategy envisions halving public debt (as a share of GDP) by 2030 and bringing it to zero by 33 (text as in source).
- Staff analysis suggests a debt anchor of bet een 3  to 40 percent of GDP would ensure fiscal sustainability while embedding a sufficient buffer against shocks.
- The primary fiscal balance is recommended as an appropriate operational fiscal rule to facilitate convergence to the debt anchor, being easy to communicate, compute, and monitor.
- Effective implementation requires investment in institutional capacity and improved quality of fiscal data.

### Authorities’ views on fiscal reforms
- Authorities reiterated commitment to their budget repair strategy and plan to achieve a balanced budget by 2027.
- They view implementation of the NTRA and adoption of a clearer dividend policy as critical to boost non-tax revenues.
- Plan to contain growth of non-essential spending and redirect funds towards critical development needs.
- Despite liquidity constraints in early 2025, largely due to a cyberattack against IRC’s IT system, authorities remain committed to achieving their deficit target for 2025 and may adopt new measures if needed.
- Adoption of the ITA amendments in March 2025 is viewed as a major milestone to support compliance and revenue mobilization over the medium term.
- Authorities plan to review tax expenditures and incentives, address tax administration shortcomings identified in the recent TADAT, and undertake a wide range of public financial management reforms (including shift to a TSA and infrastructure governance enhancements) with IMF TA support.
- Authorities are committed to reviewing sectoral price-setting policies to improve SOEs’ financial viability and welcomed staff’s advice on options to strengthen the rules-based fiscal framework.

*Source: 1pngea2025001-print-pdf - 19.      Public financial management reforms are critical to improve expenditure efficiency.*

### 32.      Further strengthening the anti-corruption framework will help improve policy

### Further strengthening the anti-corruption framework will help improve policy outcomes and benefit economic activity

### Anti-corruption institutional developments and recommendations
- The adoption in 2021 of the ICAC Act marked an important change in PNG’s policies to prevent and combat corruption; steps since then to operationalize the ICAC include allocating resources, appointing a commissioner and deputies, hiring and training new staff, and adopting regulations (MEFP ¶28).
- Cooperation and coordination:
  - The ICAC has signed memoranda of understanding (MoUs) with other anti-corruption agencies, including a bilateral one with the BPNG’s Financial Analysis and Supervision Unit (FASU) (SB partially implemented with delay) and two multilateral MoUs to create new coordination mechanisms on AML policies—the AML Joint Task Force (AMLJTF) and the Asset Recovery ML Operations Committee (ARMLOC).
  - Staff view that multilateral MoUs are a more effective way to achieve interagency cooperation and exchange of information than bilateral MoUs; for that reason the deadline for the SB on the ICAC’s MoUs is not proposed to be reset.
- Governance strengthening:
  - Positions in the ICAC’s oversight committee, which will align ICAC’s governance with best-practice standards, were advertised in March 2025; additional time is needed to finalize the selection and appointment process (SB delayed).
  - The deadline for this SB is proposed to be reset from end-March to end-September 2025.
- Operational workload: As of early February 2025, the ICAC has received 239 potential cases, and has launched investigations.

### State-owned enterprises (SOEs) transparency and fiscal implications
- Recent policy action:
  - The NEC adopted a clear dividend policy for all three state holding companies to help ensure SOEs contribute their due share to government revenue (SB fully implemented with delay, MEFP ¶29).
- Outstanding transparency action:
  - Publication of financial statements for Kumul Petroleum and Kumul Minerals should be urgently restored, in line with the National Policy for Transparency and Accountability in the Extractive Sector (PNG’s transposition of the Extractive Industries Transparency Initiative standards).

### AML/CFT framework: findings, gaps, and proposed measures
- MER and risk environment:
  - The 2024 mutual evaluation report (MER) by the Asia/Pacific Group (APG) recognizes the BPNG’s FASU ability to carry out strategic analysis and disseminate financial intelligence.
  - Capacity constraints: Limited capacity and institutional resources in law enforcement agencies undermine effective investigation and prosecution of money laundering/terrorist financing (ML/TF).
  - Sector-specific challenges: Implementation challenges are noted in sectors such as forestry and by non-bank financial institutions (NBFIs) and designated non-financial businesses and professions (DNFPBs).
  - Given the high money laundering risk associated with logging activities, the authorities are committed to publishing the forestry sectoral risk assessment (proposed new SB by end-December 2025).
- Planned AML/CFT framework enhancements (proposed new SB by end-December 2025):
  - Include greater guidance on the treatment of low-risk customers, NBFIs, lawyers, accountants, real-estate agents, and precious metal dealers.
  - Provide further guidance on risk assessments, politically exposed person obligations, and reporting of suspicious transactions.
- Coordination and implementation:
  - Authorities should continue building on coordination mechanisms: National Coordinating Committee (NCC) on AML/CFT, AMLJTF, and ARMLOC.
  - Advance the Strategic Implementation Plan to address MER-identified priorities.
- Timeline and surveillance context:
  - PNG has a one-year observation period, ending in October 2025, to work with APG to address deficiencies before possible public identification and formal review by the FATF.

### Authorities’ views on governance and AML/CFT
- Authorities’ priorities and constraints:
  - Enhancing governance and AML/CFT frameworks is viewed as a top reform priority to support more inclusive economic growth.
  - Authorities are resolute to address critical shortcomings in PNG’s AML/CFT framework identified in the MER, guided by their strategic implementation plan, and underscore the need for technical support from development partners.
  - While satisfied the ICAC is effectively investigating corruption cases, authorities acknowledge full operationalization depends on sustaining appropriate and stable budget funding and on operationalizing the ICAC Act.
  - Government committed to restoring timely publication of financial statements of state holding companies, particularly in the resource sector.

### Macro-structural policy context linked to governance
- Export concentration and trade implications:
  - PNG’s exports are concentrated on a few products—mostly hydrocarbon, mining and agricultural commodities—and markets, with 90 percent of exports directed to Asia-Pacific countries.
- Reform areas to improve competitiveness and FX outcomes:
  - Improve the business environment: close infrastructure gap, increase public investment efficiency (¶18), strengthen governance (¶32-34), develop domestic and skilled labor resources, ensure adequate law and order.
  - Remove barriers to trade: simplify customs regulations and procedures, lower transportation costs, harmonize and simplify regional trade agreements.
  - Enhance export capacity: upgrade quality of export products, facilitate greater integration into regional value chains, and improve financial inclusion (¶38).
- Economic diversification:
  - Promote investment in new sectors with comparative advantage (e.g., tourism, Blue Economy) and expand trading partners to reduce concentration risks.
  - Authorities have started creating special economic zones (SEZ) focused on non-traditional export sectors; SEZs should avoid large foregone revenue or domestic profit shifting that could threaten revenue integrity.
- Financial inclusion and gender equality as inclusivity pillars:
  - Continue implementing Financial Inclusion Strategy for 2023-2027, particularly in rural areas; priorities include capacity building for financial literacy, increase access to microfinance in the agricultural sector, and strengthen regulatory environment consistent with AML/CFT requirements.
  - Over the longer term, invest in digital infrastructure, including central bank digital currency, to improve access and delivery of financial services.
  - Gender policy priorities: support entry of women into formal labor market via family and household care policies, invest in maternal health campaigns, and bridge legal gaps in childcare, entrepreneurship, and women’s safety.

### Climate-related governance and financing actions
- Vulnerability and finance needs:
  - PNG ranks among countries most at risk from natural disasters; expected climate changes could adversely affect economic activity, inflation, fiscal position, and balance of payments in the medium to long run.
  - Climate finance access is insufficient; IMF (2021) estimates adaptation needs at a minimum of 2 percent of GDP annually until 2030.
- Enabling climate finance and regulatory steps:
  - Authorities working with IFC on technical screening criteria (TSC) for renewable energy, energy efficiency, and clean transportation sectors of the Green and Inclusive Taxonomy; supervisory guidelines and mandatory regulatory reporting for banks’ exposures in these three sectors will rely on the Taxonomy’s TSC (RM7 for March 2026).
  - GFC is setting up a comprehensive database of climate projects (RM8 for September 2026).
- Disaster risk management and financing (timelines):
  - Stocktaking of hazard mapping systems and publication of existing data on a new portal (RM1 for September 2025).
  - Modernize legal and institutional framework for DRM (RM2 for March 2026).
  - Develop and publish a Disaster Risk Financing Strategy (RM3 for September 2026).
- Integrating climate considerations in infrastructure governance (deliverables and status):
  - A methodology for climate disaster risk screening was developed with Fund support and is required for large projects prior to inclusion in budget submissions starting from the 2026 budget process (RM4 for March 2025, met).
  - Pilot incorporation of climate considerations in maintenance standards and costing applied to national roads (RM6 for September 2026).
  - Adopt public investment management regulations incorporating climate considerations throughout the capital project cycle (RM5 for March 2026).
- Fiscal incentives and sectoral reviews:
  - Review of existing royalties, taxes, and levies in the logging sector (RM10 by September 2025) to support mitigation while ensuring equitable distribution of benefits.
  - Coral reef preservation and stronger fisheries regulation highlighted as key to preventing overfishing and ensuring sustainability.
  - Energy efficiency tax measure: commit to amend the Excise Tariff Act to shift tax burden towards fuels with higher carbon content (RM9 for March 2025, delayed); this RM will be assessed at the next RSF review given authorities’ request for additional time.

### Statistics and data quality
- Data shortcomings that hamper surveillance: frequency and timeliness, coverage of national accounts, external sector statistics and price data, and intersectoral consistency (Annex IV).
- These shortcomings are largely attributed to capacity limitations; authorities are expected to continue receiving extensive capacity development support from the Fund and other development partners (MEFP ¶31).

*Source: IMF staff report content as provided.*

### 48.      The authorities are committed to enhancing data quality, benefitting from extensive

### 1pngea2025001-print-pdf - 48.      The authorities are committed to enhancing data quality

### Data quality, capacity development, and statistics
- Authorities broadly agreed with the data adequacy assessment (Annex IV) and report significant recent progress in the quality of external sector, monetary, and government finance statistics, partly due to CD support from the IMF and other partners.
- Commitments and planned activities:
  - Continue requesting CD to strengthen data adequacy, including to produce expenditure-based GDP and international investment position statistics, while noting the need to strengthen absorptive capacity.
  - Upcoming release of the census expected to help better assess the distribution of population and improve resource allocation.
  - National Statistics Office planning the first household survey in more than a decade—which could support the rebasing of the GDP and the consumption basket—but stressed that it requires additional funding to proceed.
- Ongoing and planned IMF CD activities (since 2024 and planned for 2025) include:
  - FAD: expenditure controls and cash management, income tax policy reforms, revenue administration (TADAT), climate policies (CPD, CPIMA); expected 2025 topics include TSA implementation, CIT incentives and public investment management.
  - ICD: macro-fiscal forecasting TA to the Treasury and BPNG.
  - MCM: FSSR, peripatetic TA for the Roadmap implementation, TA on local currency bond market development (with the World Bank); TA on ELA planned.
  - STA: TA for improving the quality of external sector statistics.
  - PFTAC: TA on national accounts, macroeconomic forecasting and prudential rules.
  - Complementary partner support: anti-corruption (UN and EU), governance of SOEs (ADB), national accounts and AML/CFT (Australia).
- Implementation of all RMs under the RSF arrangement is benefitting from extensive CD coordinated between development partners.

### Program modalities, monitoring, and conditionality
- Program monitoring:
  - ECF-EFF and RSF program performance to be monitored through semi-annual program reviews based on QPC and ITs (Table 11), SBs (Table 12) and RMs (Table 13).
  - Six new SBs proposed, adding to three SBs already ongoing due for the next two reviews.
- Specific proposed adjustments and deadlines:
  - Ceiling on the PV of external debt proposed to be modified to USD1,660 million for the second half of 2025 (continuous QPC, MEFP ¶17 and TMU ¶21).
  - Floors on non-resource tax revenue for the 2025 test dates proposed to be revised down on account of the lower-than-expected base in 2024 (IT).
  - Deadlines for submission of amendments to the IRCA and for appointment of the ICAC’s oversight committee proposed to be reset to end-July and end-September 2025, respectively.

### Waiver, legacy guarantee call, and operational measures
- Waiver request:
  - Authorities request a waiver for the non-observance of the continuous QPC on new external arrears, breached due to the call on a legacy government guarantee (¶13).
  - Staff supports the waiver based on the small size of these arrears and their clearance on 30 April 2025.
- Guarantee management and operational improvements:
  - Direct government guarantees to entities with private sector participation are significantly limited since 2021 due to the new State Guarantee Policy introducing mandatory Treasury approval (MEFP ¶20).
  - Treasury will regularly reach out to guarantee beneficiaries to monitor timeliness of payments and will check comprehensiveness of its records on legacy guarantees.
  - Authorities are working on an interface between their debt reporting system (Meridian) and the IFMS to automate transfer and reconciliation of debt data across the two IT systems (ongoing SB by end-September 2025, MEFP ¶18).

### Financing, burden sharing, and Fund financing role
- Program financing and burden sharing:
  - Program is fully financed, with firm commitments for the upcoming 12 months and good prospects for the remainder of the arrangements.
  - Fund assistance continues to play a catalytic financing role with other multilateral and bilateral partners.
  - Reduction in bilateral budget support reflects donor country dynamics; staff do not expect this to result in new BoP pressures, but it has increased the Fund burden share from an average of 34.7 percent at program approval to 40.8 percent across the program.
- RSF disbursement:
  - Upon completion of the first review of the RSF arrangement, an amount of SDR 19.74 million will be made available for disbursement.

### Capacity to repay the Fund and debt-service projections
- Assessment:
  - PNG’s capacity to repay the Fund is assessed to be adequate, although program risks are elevated amid high global and domestic uncertainty.
- Projected peaks (including projected purchases under ECF/EFF and RSF):
  - Fund credit outstanding will peak in 2026 at 4.3 percent of GDP, equivalent to around 9.2 percent of exports of goods and services and 40.2 percent of gross international reserves (GIR).
  - Total debt service to the Fund will peak at 1.1 percent of exports of goods and services in 2030, and at 5.6 percent of GIR in 2029 (Table 8).
- Downside risks:
  - Weaker external demand for PNG’s exports, volatility in commodity prices, and natural disasters.
  - Risks partially mitigated by commitment to fiscal sustainability and macroeconomic stability, and conservative assumptions regarding prospects of new resource projects (not part of baseline projections).

### Safeguards, central bank governance, and financial-sector measures
- Safeguards assessment and governance:
  - Since the October 2023 update safeguards assessment, vacant BPNG management and board positions have been filled.
  - The amended CBA took effect in late 2024, strengthening some aspects of central bank autonomy and governance, though other weaknesses remain.
  - BPNG published its FY2023 financial statements in October 2024, but timeliness of financial reporting remains a challenge.
  - Internal audit function needs strengthening; BPNG intends to formally appoint its chief internal auditor shortly (MEFP ¶26) and accelerate publication of FY2024 financial statement.
- Monetary policy and liquidity management recommendations:
  - A tighter monetary policy stance is necessary to ensure consistency with the exchange rate arrangement; the KFR remains well below the implied interest parity.
  - Further rate hikes would help reduce FX pressures and support the exchange rate regime.
  - Recalibrate the CRR to decrease liquidity captive and unremunerated, enhance liquidity management practices, and allow greater reliance on interest rates.
  - Enhance BPNG’s liquidity management toolkit and develop the interbank market, including finalizing the Master Repo Agreement and aligning it with international best practice.
  - Increase effectiveness of systemic risk analysis and operationalize BPNG’s lender of last resort function to support financial stability.

### Macroeconomic outlook, growth, inflation, and vulnerabilities
- Short-term projections and outlook:
  - Real growth expected to rise to 4.7 percent in 2025, supported by increased production in the resource sector and improved access to FX.
  - Headline inflation expected to rebound to nearly 5 percent from a historical low base in 2024, mainly driven by increases in betel nut prices and the waning effect of education subsidies.
  - Expected initiation of new resource projects could materially improve growth prospects and help address development needs.
- Vulnerabilities and recommended preparedness:
  - Economy remains highly vulnerable to shocks; significant downside risks include weaker external environment, lower commodity prices, political and social instability, and natural disasters.
  - Need for contingency plans and building buffers given highly uncertain external environment and longstanding vulnerabilities.

### Fiscal framework, public debt, and policy recommendations
- Fiscal performance and public debt:
  - Fiscal deficit reduced in recent years; 2025 deficit projected to stand at half of its pre-program level.
  - Public debt—while on a sustainable path—is elevated, and the risk of debt distress remains high.
- Recommended policy actions:
  - Sustained fiscal consolidation and a prudent borrowing strategy to reduce public debt vulnerabilities.
  - Accelerate implementation of the MTRS to increase revenue mobilization, broaden the tax base, and ensure fair contributions by the resource sector.
  - Reprioritize funds toward development needs, improve spending efficiency, enhance expenditure controls, and reform public investment management.
  - Improve debt management capabilities and modernize cash management practices to optimize financing strategy and enable prudent borrowing.
- Fiscal rules proposal (Box 1):
  - Adopt a clear debt anchor and an operational rule to guide fiscal policies.
  - Consider a primary balance rule with a tightening period when primary balance runs above the debt-stabilizing balance; the tightening phase followed by gradual fiscal relaxation until a debt-stabilizing primary deficit of 0.7 percent of GDP is reached, keeping public debt around its anchor.

### Governance, AML/CFT, competitiveness, climate, and inclusion
- Governance and AML/CFT:
  - Promote good governance and enhance effectiveness of the AML/CFT framework to improve business environment and investment climate.
  - Staff supports authorities’ commitment to implementing priority recommendations of APG’s mutual evaluation report by end of the observation period and beyond.
  - Allocating sufficient budget resources to the ICAC remains critical.
  - Increase transparency of financial dealings of state holding companies in the resource sector to enhance public accountability and budget contributions.
- Competitiveness and structural reforms:
  - Develop a foreign exchange repair strategy, remove barriers to trade, enhance export capacity and returns, and diversify the economy to increase resilience to shocks.
  - Improve business environment by addressing law and order, infrastructure connectivity, governance, and human capital constraints.
  - Promote financial literacy in rural areas and address gender gaps to support more inclusive growth.
- Climate and RSF progress:
  - Early progress under the RSF arrangement is encouraging.
  - Addressing climate challenges requires strengthening disaster risk management, integrating climate considerations in infrastructure governance, creating an enabling environment for climate finance, and setting up fiscal incentives for forest protection and fuel efficiency.
  - Authorities should continue to explore concrete and innovative initiatives to scale up resources for climate action, building on the recent climate finance roundtable.

### Social and gender issues (Box 2)
- Gender gaps and priorities:
  - Gender inequality in PNG is high relative to peers; PNG ranked 151th out of 166 countries in the UNDP’s Gender Inequality Index in 2022.
  - Labor market: similar labor force participation by gender, but gaps in job types, earnings (a 14 percent gender earnings gap per PNG’s Business Coalition for Women’s survey), and seniority (female share in senior and middle management was 18 percent in 2022).
  - Health and education: maternal mortality remains much higher than peers; secondary school enrollment shows eight girls for ten boys.
  - Legal rights: legal gender gap has remained broadly unchanged over three decades; World Bank Women Business in the Law Report (2024) identifies gaps on women’s safety, parenthood, childcare, pay, and entrepreneurship.
- Recommended measures:
  - Encourage entry of women into the formal labor market and enable access to family and household care.
  - Adopt and enforce regulations to reduce earnings and seniority gaps.
  - Develop awareness campaigns on maternal health and benefits of girls’ education, especially in rural and remote areas.
  - Bridge legal gaps on childcare, entrepreneurship, and women’s safety.

### Program status, reviews, and administrative recommendations
- Program performance:
  - Since the beginning of the ECF/EFF arrangement, all but one QPC have been met, and most SBs have been fully implemented.
  - Climate reforms progressing with one RM fully implemented.
  - Staff supports completion of the fourth reviews under the EFF and ECF arrangements and first review under the RSF arrangement and requests for waiver of nonobservance and for modification of QPCs.
- Administrative recommendations:
  - Staff recommends the next Article IV consultation for Papua New Guinea be held on a 24-month cycle in accordance with the Executive Board decision on consultation cycles for members with Fund arrangements.

*Source: 1pngea2025001-print-pdf (excerpt).*

### Box 3. Papua New Guinea: The Blue Economy in Papua New Guinea

### Box 3. Papua New Guinea: The Blue Economy in Papua New Guinea

### Overview
- Pacific Island economies (PIEs) depend heavily on the Blue Economy—ocean-related activities such as tourism, fishing, sea transportation, and shipping—for socio-economic development.
- Marine ecosystems face acute threats from human degradation and climate change, jeopardizing long-term sustainability and resilience of ocean-centric economic strategies.
- According to IMF staff estimates, Blue Economy sectors accounted for about one fifth of PNG’s value added in 2019.

### Size and composition of PNG’s Blue Economy (2019)
- Tourism (broadly defined to include travel, local transport, accommodation, and restaurant services): about 11 percent of value added.
- Fishing: 1.3 percent of value added.
- While these percentages are lower than for some other PIEs (in part because of the significance of PNG’s mining and petroleum sectors), the Blue Economy in PNG "represents more activity in nominal terms than all other PICs combined," given PNG’s much larger economy.

### Risks and projections
- Climate change and human pressures threaten fish populations and marine resources.
- Under a high-emissions scenario (RCP 8.5), climate change could lead to a reduction of up to a third of tuna catches in PNG territorial waters by 2050.

### Policy implications and recommendations
- Pursuing an ocean-centric strategy could bring substantial benefits if associated risks are well-managed; investing in Blue Economy sectors can support more inclusive growth and tap larger foreign demand for tourism and fish resources.
- Tourism-specific recommendations:
  - Address foreign exchange (FX) shortages and impediments to business such as security and infrastructure connectivity to unlock ocean-based tourism potential.
  - Consider special economic zones as testing grounds for new tourism activities, ensuring tax incentives are well calibrated and fiscal costs carefully assessed.
  - Prioritize adaptation investment to mitigate climate-related damage to tourism infrastructure.
- Fishing-specific recommendations:
  - Strengthen regulation and coral reef preservation efforts to ensure sustainability of fish resources and protect livelihoods of coastal communities.
  - Combat marine pollution and illegal activities that can lead to overfishing.

*Source Gonguet F. and J. Zhou (    ). “Size and resilience of the Blue Economy in Pacific Island economies”. IMF Working Paper WP/24/255. International Monetary Fund. Washington, DC.; Source: Bell et al. (2021).*

### 11.8 million

### 1pngea2025001-print-pdf - 11.8 million

### Macroeconomic outlook and key indicators
- Population: 11.8 million
- GDP per capita (2021): US$2,217
- Quota: SDR 263.2 million

- Real GDP growth (annual):
  - 2021: -0.5
  - 2022: 5.7
  - 2023: 3.8
  - 2024 Est.: 3.8
  - 2025 Proj.: 4.7
  - 2026 Proj.: 3.5
  - 2027–2030 Proj.: 3.1, 3.1, 3.1, 3.1

- Sectoral and resource indicators (percent of GDP unless stated):
  - Resource growth 2/: 2021: -11.6; 2022: 5.1; 2023: 1.3; 2024 Est.: 1.7; 2025–2030 Proj.: 4.7, 1.4, 0.1, 0.2, 0.2, 0.2
  - Non-resource growth: 2021: 4.2; 2022: 5.9; 2023: 4.7; 2024 Est.: 4.5; 2025–2030 Proj.: 4.8, 4.2, 4.1, 4.1, 4.0, 4.0
  - Mining and quarrying (percent of GDP): 2021–2030: 8.2; 8.2; 8.5; 9.9; 12.2; 13.4; 12.8; 12.7; 12.5; 12.3
  - Oil and gas extraction (percent of GDP): 2021–2030: 17.1; 23.7; 18.9; 18.3; 16.4; 16.2; 15.5; 14.7; 13.9; 13.1

- Inflation:
  - CPI (annual average): 2021: 4.5; 2022: 5.3; 2023: 2.3; 2024 Est.: 0.6; 2025–2030 Proj.: 4.8, 4.6, 4.6, 4.6, 4.5, 4.5
  - CPI (end-period): 2021: 5.7; 2022: 3.4; 2023: 3.9; 2024 Est.: 0.7; 2025–2030 Proj.: 4.0, 4.3, 4.3, 4.3, 4.5, 4.5

- Terms of trade (2010=100, end-period): 2021: 48.3; 2022: 70.4; 2023: 64.0; 2024: 62.7; 2025–2030: 67.7; 66.8; 67.0; 68.1; 69.3; 70.3

- Nominal GDP (in billions of kina): 2021: 91.6; 2022: 111.4; 2023: 110.6; 2024: 121.5; 2025–2030: 134.9; 144.2; 153.4; 162.6; 172.5; 183.3
- Non-resource nominal GDP (in billions of kina): 2021: 68.4; 2022: 75.9; 2023: 80.3; 2024: 87.3; 2025–2030: 96.3; 101.6; 109.9; 118.1; 127.0; 136.7

Sources: Papua New Guinea authorities; and IMF staff estimates and projections.
Notes: 1/ Based on period average exchange rate. 2/ Resource sector definition provided in source.

### Fiscal operations: central government (levels and percent of GDP)
- Central government (percent of GDP unless noted)
  - Revenue and grants: 2021: 15.1; 2022: 16.6; 2023: 17.9; 2024 Est.: 17.0; 2025–2030 Proj.: 17.9; 18.6; 18.8; 18.9; 19.1; 19.3
  - Resource revenue (percent of GDP): 2021: 1.1; 2022: 3.9; 2023: 3.9; 2024 Est.: 3.5; 2025–2030 Proj.: 4.2; 4.5; 4.6; 4.5; 4.6; 4.7
  - Expenditure and net lending: 2021: 22.0; 2022: 21.9; 2023: 22.3; 2024 Est.: 20.4; 2025–2030 Proj.: 20.5; 19.7; 18.8; 18.9; 18.9; 19.0
  - Net lending(+)/borrowing(-): 2021: -6.8; 2022: -5.3; 2023: -4.3; 2024 Est.: -3.4; 2025–2030 Proj.: -2.6; -1.2; 0.0; 0.0; 0.2; 0.3
  - Non-resource net lending(+)/borrowing(-): 2021: -8.0; 2022: -9.1; 2023: -8.2; 2024 Est.: -6.9; 2025–2030 Proj.: -6.8; -5.7; -4.6; -4.5; -4.4; -4.3

- Central government (in millions of Kina, selected lines)
  - Revenue and Grants (2021–2030): 13,860; 18,538; 19,810; 22,855; 20,707; 25,955; 24,192; 26,802; 28,905; 30,757; 33,028; 35,443
  - Revenue (2021–2030): 11,772; 17,066; 18,651; 20,650; 19,646; 23,700; 22,692; 25,174; 27,206; 28,992; 31,202; 33,551
  - Resource revenue (2021–2030): 1,016; 4,336; 4,309; 4,050; 4,267; 4,996; 5,608; 6,497; 7,028; 7,386; 7,955; 8,541
  - Expenditure (2021–2030): 20,131; 24,390; 24,615; 27,665; 24,845; 29,472; 27,709; 28,469; 28,864; 30,766; 32,636; 34,836
  - Net lending (+)/borrowing (-) (2021–2030): -6,270; -5,852; -4,805; -4,810; -4,138; -3,516; -3,516; -1,668; 41; -839; 260; 7

- Fiscal balances and measures:
  - Gross operating balance (millions of Kina): -2,620; -1,402; -1,156; 145; -885; 1,549; 1,384; 3,277; 5,229; 5,959; 7,021; 8,151
  - Primary balance (millions of Kina): -4,021; -3,279; -2,043; -1,791; -1,185; 25; -562; 2,074; 3,589; 3,454; 3,765; 3,851

- Public debt (end-period)
  - Government gross debt (percent of GDP): 2021: 52.6; 2022: 48.2; 2023: 53.9; 2024: 52.1; 2025–2030: 50.5; 48.9; 46.3; 44.1; 41.9; 39.4
  - External debt-to-GDP ratio (percent): 2021: 25.0; 2022: 23.5; 2023: 27.0; 2024: 27.4; 2025–2030: 29.7; 30.5; 30.3; 28.8; 27.4; 25.4
  - Gross government debt (millions of Kina, selected): 48,173; 53,680; 59,569; 65,898; 63,298; 70,784; 68,118; 70,446; 70,998; 71,726; 72,255; 72,278
  - Domestic debt (millions of Kina): 25,258; 27,534; 29,710; 28,486; 29,942; 28,441; 28,033; 26,533; 24,475; 24,833; 24,956; 25,646
  - External debt (millions of Kina): 22,916; 26,146; 29,859; 37,412; 33,356; 42,343; 40,084; 43,913; 46,523; 46,893; 47,299; 46,633

- Contingent liabilities (millions of Kina and percent of GDP):
  - Contingent liabilities: 2,431; 2,431; 2,381; 2,381; 2,381; 2,331; 2,331; 2,281; 2,231; 2,181; 2,131; 2,081
  - Contingent liabilities, percentage of GDP: 2.7; 2.2; 2.2; 2.2; 2.0; 1.8; 1.7; 1.6; 1.6; 1.5; 1.3; 1.2

Notes: 1/ Does not include projected revenues from new mining projects where the investment decision has not yet been reached. 2/ Grants include spending executed by provincial/local governments. 5/ Contingent liabilities include future unfunded superannuation liabilities with Nambawan Super and SOE borrowing.

### Balance of payments and external sector
- Exports f.o.b. (percent of GDP): 2021: 10.8; 2022: 14.6; 2023: 12.7; 2024 Est.: 13.5; 2025–2030 Proj.: 14.9; 15.1; 15.8; 16.7; 17.6; 18.5
- Imports c.i.f. (percent of GDP): 2021: -4.4; 2022: -5.9; 2023: -5.4; 2024 Est.: -4.5; 2025–2030 Proj.: -6.1; -6.8; -7.1; -7.4; -7.8; -8.1
- Current account (including grants; percent of GDP): 2021: 3.3; 2022: 4.6; 2023: 2.8; 2024 Est.: 4.9; 2025–2030 Proj.: 3.5; 4.2; 3.9; 4.2; 3.9; 4.4
- Gross official international reserves (percent of GDP): 2021: 12.6; 2022: 14.4; 2023: 9.0; 2024 Est.: 15.6; 2025–2030 Proj.: 10.8; 12.7; 11.3; 11.8; 10.7; 11.4
- Gross official international reserves (in months of goods and services imports): 2021: 4.5; 2022: 5.9; 2023: 6.4; 2024 Est.: 5.0; 2025–2030 Proj.: 3.7; 4.3; 4.3; 3.6; 3.7; 4.6

- Balance of Payments (US$ millions, selected):
  - Current account balance: 2020–2030 (Est./Proj.): 3,424; 3,284; 4,567; 2,799; 4,986; 2,882; 3,559; 2,950; 2,037; 2,631; 3,011
  - Trade balance: 5,489; 6,474; 8,736; 7,415; 8,806; 8,562; 8,274; 8,604; 9,144; 9,757; 10,273
  - Exports (f.o.b.): 9,073; 10,842; 14,615; 12,801; 13,372; 14,138; 14,381; 14,995; 15,815; 16,724; 17,558
    - Resource exports (US$ mn): 7,232; 8,529; 12,080; 10,972; 11,268; 11,800; 11,881; 12,335; 12,996; 13,733; 14,434
    - Nonresource exports (US$ mn): 1,840; 2,313; 2,535; 1,830; 2,105; 2,338; 2,500; 2,660; 2,819; 2,991; 3,124
  - Imports (f.o.b.): -3,584; -4,368; -5,880; -5,387; -4,567; -5,576; -6,107; -6,391; -6,671; -6,967; -7,285

- Memorandum items:
  - Current account (percent of GDP): 2021: 14.4; 2022: 12.6; 2023: 14.4; 2024: 9.1; 2025–2030: 15.8; 8.8; 10.6; 8.5; 5.7; 7.1; 7.8
  - Net international reserves (end-year, US$ mn): 2021: 2,126; 2022: 2,343; 2023: 3,179; 2024 Est.: 2,853; 2025–2030 Proj.: 2,407; 1,336; 1,635; 1,833; 1,432; 1,731; 2,110

### Monetary developments and liquidity
- Bank of Papua New Guinea (end-period, millions of Kina, selected):
  - Net foreign assets: 2021: 8,221; 2022: 11,116; 2023: 10,726; 2024: 9,620; 2025–2026 Proj.: 5,683; 7,134
  - Reserve money: 2021: 6,702; 2022: 8,679; 2023: 7,922; 2024: 8,240; 2025–2026 Proj.: 8,113; 8,615
  - Currency in circulation: 2021: 2,666; 2022: 2,970; 2023: 3,256; 2024: 3,468; 2025–2026: 3,849; 4,114

- Depository corporations (end-period, millions of Kina):
  - Broad money: 2021: 27,087; 2022: 31,060; 2023: 34,150; 2024: 31,980; 2025–2026 Proj.: 29,248; 31,490
  - Claims on private sector: 2021: 13,076; 2022: 13,973; 2023: 16,056; 2024: 16,565; 2025–2026: 18,780; 20,802

- Annual percentage changes:
  - Net foreign assets (percent change): 2021: 10.8; 2022: 38.7; 2023: -0.7; 2024: -11.9; 2025: -36.5; 2026: 22.7
  - Net domestic credit (percent change): 2021: 15.9; 2022: 1.5; 2023: 12.1; 2024: 1.6; 2025: 3.6; 2026: 2.3
  - Broad money (percent change): 2021: 13.4; 2022: 14.7; 2023: 9.9; 2024: -6.4; 2025: -8.5; 2026: 7.7

- Gross international reserves (US$ mn): 2021: 3,240; 2022: 4,032; 2023: 3,858; 2024 Est.: 3,666; 2025–2026 Proj.: 2,993; 3,543

### Financial soundness indicators (2019–2024)
- Capital adequacy:
  - Capital to risk-weighted assets: 2019–2024: 36.1; 39.2; 41.1; 30.4; 39.6; 40.7
  - Tier 1 capital to risk-weighted assets: 2019–2024: 28.2; 31.9; 32.5; 21.9; 29.6; 29.9
- Asset quality:
  - Nonperforming loans to total loans: 2019–2024: 3.8; 5.3; 6.2; 4.8; 5.4; 4.7
  - Provisions to nonperforming loans: 2019–2024: 55.8; 44.2; 47.3; 39.6; 41.1; 48.4
- Earnings and profitability:
  - Return on assets: 2019–2024: 4.1; 3.8; 4.4; 3.9; 3.9; 4.2
  - Return on equity: 2019–2024: 14.4; 28.8; 33.1; 28.8; 24.3; 27.2
- Liquidity:
  - Liquid assets to total assets: 2019–2024: 17.7; 18.3; 18.9; 22.5; 19.2; 19.6
  - Loan-to-deposit ratio: 2019–2024: 71.3; 65.8; 59.8; 55.6; 55.6; 60.5

Source: Bank of Papua New Guinea; and IMF staff calculations.

### IMF financing arrangements and schedules
- ECF/EFF schedule of disbursements (SDR million / percent of quota):
  - Availability dates include 22 March 2023; 18 September 2023; 18 March 2024; 18 September 2024; 18 March 2025; 18 September 2025; 18 March 2026; 18 September 2026.
  - Total Amount (SDR Million): 684.32
  - Percent of Quota: 260.0
  - Total ECF component (SDR Million): 228.11
  - Total EFF component (SDR Million): 456.21

- RSF schedule of disbursements:
  - Total: 197.40 SDR million, 75.0 percent of quota.
  - Disbursements listed at 18 March 2025; 18 September 2025; 18 March 2026; 18 September 2026, each line typically SDR 19.74 (7.5 percent of quota) linked to implementation reviews of reform measures.

- Indicators of capacity to repay the IMF (selected projections):
  - Fund obligations based on existing and prospective credit (Total Obligations in millions of SDRs): 2025–2047 (selected): 47.6; 86.1; 93.8; 106.7; 140.3; 152.4; 147.5; 150.4; 141.3; 120.8; 75.9; 46.7; 37.5; 36.8; 36.1; 35.3; 34.6; 33.8; 33.1; 32.4; 29.6; 19.2; 11.2
  - Outstanding Fund credit based on existing and prospective credit (millions of SDRs, selected): 879.1; 1,066.0; 1,009.7; 940.2; 836.4; 718.7; 603.1; 481.4; 365.6; 267.3; 212.6; 184.6; 164.8; 145.1; 125.3; 105.6; 85.9; 66.1; 46.4; 26.6; 7.9; -; -

- Net use of Fund credit (disbursements and purchases, millions of SDRs): Disbursements and purchases: 321.1; 239.5; 0; ...; Repayments and repurchases: 26.3; 52.6; 56.3; 69.5; 103.8; 117.7; 115.6; 121.7; 115.8; 98.3; 54.8; 28.0; 19.7; 19.7; 19.7; 19.7; 19.7; 19.7; 19.7; 19.7; 18.8; 7.9; -

Notes: Papua New Guinea's quota is 263.2 million SDR.

### External financing program, borrowing, and debt service
- Projected external borrowing program (January 1, 2025 to December 31, 2025; USD million):
  - Total sources of debt financing reported: 1,967.3; 1,648.9; 1,694.2 (three columns presented in source)
  - Concessional debt (USD mn / percent): 304.0 / 15; 180.3 / 11; 180.3 / 11
  - Non-concessional debt (USD mn / percent): 1,663.3 / 85; 1,468.6 / 89; 1,513.9 / 89
    - Semi-concessional: 1,346.3; 1,151.6; 1,151.6
    - Commercial terms: 317.0; 317.0; 362.3
  - By creditor type (percent shares):
    - Multilateral: 857.9 / 44; 638.5 / 39; 638.5 / 38
    - Bilateral - Paris Club: 822.4 / 42; 788.4 / 48; 833.7 / 49
    - Bilateral - Non-Paris Club: 188.0 / 10; 132.7 / 8; 132.7 / 8
    - Other: 99.0 / 5; 89.3 / 5; 89.3 / 5
  - Uses of debt financing:
    - Infrastructure: 1,456.4 / 74; 1,246.5 / 76; 1,291.8 / 76
    - Social Spending: 30.0 / 2; 27.1 / 2; 27.1 / 2
    - Budget Financing: 310.9 / 16; 256.4 / 16; 256.4 / 15
    - Other: 170.0 / 8.6; 118.9 / 7.2; 118.9 / 7.0
  - By interest rate: Fixed Interest Rate 936.0; Variable Interest Rate 1,031.3
  - By currency: USD denominated loans 1,801.9; Loans denominated in other currency 165.4

- Decomposition of public debt service by creditors (US$ million, 2024-2026):
  - Total debt service (2024): 1,631.0 (100 percent)
  - External debt service (2024): 833.9 (51 percent of total) — 475; 568; 711 (debt service by year 2024, 2025, 2026)
  - IMF (component of multilateral): 1,098 (2024 figure shown under multilateral creditors row)
  - Domestic debt service (2024): 797.1 (49 percent of total) — T-Bills, Bonds, Loans detailed in source
  - Memo: Nominal GDP (2024): 31,496 (US$ million)

Notes: Some public debt may not be shown due to confidentiality. Debt ratios in source use end-period exchange rate.

### External financing requirements and sources (2021–2030)
- Total financing requirements (US$ mn, 2021–2030): -2,871; -4,587; -2,512; -4,322; -4,267; -3,524; -3,122; -3,468; -2,923; -2,553
- Current account deficit, excl. budget grants (US$ mn): -3,284; -4,567; -2,799; -4,986; -3,548; -4,241; -3,929; -4,226; -3,943; -4,389
- Public sector loan amortization (US$ mn): 342; 131; 241; 325; 426; 519; 552; 1,103; 666; 717
- Reserve accumulation excl. RSF (-=fall in reserves) (US$ mn): 217; 836; -326; -446; -1,176; 141; 199; -401; 299; 1,091
- Financing sources (US$ mn, selected):
  - Net foreign direct investments: -1,646; -1,264; -284; -961; -953; -984; -1,014; -1,042; -1,069; -1,093
  - Public sector project loan disbursements: -456; 171; 762; 1,221; 1,257; 1,000; 718; 879; 395; 311
  - Other capital inflows (net): -1,744; -4,253; -3,568; -5,335; -5,070; -3,779; -2,903; -3,482; -2,176; -1,698
- Financing gap and prospective financing:
  - Financing gap: 1,002; 791; 603; 742; 573; 312; 150; 0; 0; 0
  - Prospective financing lines include bilateral budget support and multilateral budget support; IMF financing shown for 2023–2026 with annual IMF financing (percent of quota) peaks at 92% in 2025 and cumulative IMF financing percent of quota rising to 405% by 2026 in the projections.

### Quantitative performance criteria, indicative targets, and structural benchmarks
- Quantitative Performance Criteria and Indicative Targets (December 2024–June 2026; selected outcomes):
  - Fiscal deficit of the government (ceiling, cumulative from the beginning of the year): Approved 4,810; Outcome 4,138 — met; Subsequent tests and targets reported with various approved/proposed revisions.
  - Stock of net international reserves of the BPNG (floor, US$ mn): Approved 2,050; Outcome 3,183 — met; subsequent targets listed for test dates through 2026.
  - BPNG's gross credit to government (ceiling): 2,400 (approved) with outcomes met in early tests.
  - Continuous quantitative criterion not met: New external payment arrears of the government (ceiling, US$ mn): 0 approved; outcome 8.5 — not met.

- Structural benchmarks (December 2024—June 2026; status highlights):
  - Budget repair measures:
    - Introduce amendments to the Income Tax Act to Parliament (End-December 2024): Not met (implemented with delay in March 2025).
    - Amend the Internal Revenue Commission (IRC) Act 2014 to establish an IRC Board (End-December 2024): Not met (proposed reset to end-July 2025).
    - Finalize NCD data cleansing exercise for payroll integrity (End-March 2025): Not met (partially implemented).
    - Formulate TSA implementation plan (End-December 2025): In progress.
    - Interface Meridian debt monitoring with IFMS (End-September 2025): In progress.
    - Carry out analysis of tax expenditures and incentives (End-March 2026): Newly proposed.
    - Modify MoU between BPNG and Treasury for T-bill and T-bond auction transparency (End-September 2025): Newly proposed.
  - Governance and operations of BPNG:
    - Limit access to central bank bill auctions to reserve-maintaining supervised institutions (End-January 2025): Met (January 2025).
    - Issue 28-day CBB auctions every four weeks (End-February 2025): Met (since January 2025).
    - Develop liquidity forecasting framework (End-July 2025): In progress.
    - Issue ELA guidelines pursuant to Central Banking Act (End-December 2025): Newly proposed.
    - Align interbank Master Repo Agreement with GMRA standard (End-December 2025): Newly proposed.
  - Governance and anti-corruption:
    - Appoint ICAC oversight committee (End-March 2025): Not met (proposed reset to end-September 2025).
    - Adopt MoUs between ICAC and key agencies (End-December 2024): Not met (partially implemented with delay in May 2025).
    - Adopt dividend policy at National Executive Council for state holding companies (End-February 2025): Not met (implemented with delay in April 2025).
    - Publish forestry sectoral risk assessment for AML/CFT compliance (End-December 2025): Newly proposed.
    - Update AML/CFT guidance for financial institutions and DNFBPs (End-December 2025): Newly proposed.

### Key risks and program emphasis (as reflected by source data)
- Heavy reliance on resource sector with volatility evident in resource GDP and resource revenues: resource revenue contribution to GDP and central government revenue shows strong year-to-year variation (e.g., resource revenue percent of GDP: 1.1 in 2021; 3.9 in 2022–2023; projected 4.2 in 2025).
- External financing needs driven by current account movements and public sector amortization; financing program includes substantial planned external borrowing for infrastructure.
- Reserve vulnerability: gross international reserves projected to decline in some years (e.g., 2025: 2,993 US$ mn) and months-of-imports metrics vary (in months of goods and services imports: 2025: 4.3).
- Program conditionality includes fiscal consolidation (declining fiscal deficits toward near-balance by 2027–2030), strengthening public financial management (TSA, debt-monitoring integration), and governance/anti-corruption reforms.

*Source: Papua New Guinea authorities; IMF staff estimates and projections (content unit: 1pngea2025001-print-pdf).*

### 1. Enhancing

### 1. Enhancing

### Enhancing Disaster Risk Management (DRM) Efforts
- Diagnostic findings:
  - Knowledge about climate-related hazards is fragmented and incomplete, hampering the effectiveness of DRM efforts.
  - The legal framework for DRM is outdated.
  - There is no strategic understanding of disaster risk financing, and existing modalities are insufficient to cover disaster response needs.
- Reform measures, timelines, implementing agencies, and status:
  - RM1. Set up a public website providing access to existing hazard mapping data, based on a stock take of current hazard mapping systems. The agency in charge of coordinating this exercise should be formally appointed. [NDC]
    - Implementing partners/diagnostic references: CPIMA, WB1, UNDP
    - Expected outcomes: Information and mapping about climate-related hazards is improved, allowing to raise stronger awareness and develop more effective ex ante DRM policies.
    - Target date: September 18, 2025.
    - Status: In progress.
    - Fiscal/external impacts highlighted:
      - Improved external, financial, and fiscal resilience to natural disasters.
      - Reduces ex-ante exposure to disaster risks, thus limiting potential financial losses while supporting investor confidence and attracting new investments (including FDI).
      - Contains natural disasters-related damages and fiscal costs and facilitates rapid recovery of growth and net exports; and subsequently reduces external and fiscal financing needs.
  - RM2. Submit to parliament amendments to the 1984 Disaster Management Act to update and modernize the DRM framework. Amendments will clarify roles and responsibilities in DRM, codify and develop ex ante DRM actions, set up a DRM structure below provincial levels and more broadly align the DRM framework with more modern international practice [NDC]
    - Implementing partners/diagnostic references: CPD, UNDP
    - Expected outcomes: DRM practices are appropriately codified and better aligned with international practice.
    - Target date: March 18, 2026.
    - Status: In progress.
  - RM3. Develop, adopt, and publish a comprehensive disaster risk financing strategy aimed at improving financial resilience against disasters. [Treasury, NDC, CCDA]
    - Implementing partners/diagnostic references: CPD, CPIMA, WB1, IMF (FAD)
    - Expected outcomes: Disaster response needs are better covered, with a stronger strategic view of the different modalities for disaster risk financing.
    - Target date: September 18, 2026.
    - Status: In progress.

### Integrating Climate Considerations Into Public Investment Management Processes
- Diagnostic findings:
  - Resilience to climate-related natural disasters is not taken into account when new investment projects are appraised and selected for inclusion in the budget.
  - Climate change is not embedded in public investment management regulations, which are also incomplete.
  - The few existing maintenance standards and methodologies do not consider climate risks.
- Reform measures, timelines, implementing agencies, and status:
  - RM4. Develop a methodology for climate-related disaster risk screening and incorporate a requirement in the budget circular (starting from the draft circular for the 2026 Budget) to undertake that screening for any new proposed major capital project (i.e. above PGK 10 million), by including the assessment in the project identification documents [DNPM, Treasury and sectoral institutions]
    - Implementing partners/diagnostic references: CPIMA, IMF (FAD)
    - Expected outcomes: Climate resilience is more systematically taken into account as part of investment planning and budgeting.
    - Target date: March 18, 2025.
    - Status: Met.
    - Fiscal/external impacts highlighted:
      - Improved fiscal and external sustainability.
      - Limits adverse economic impact of climate-related shocks, including by reducing fiscal costs and the subsequent need for external financing.
      - Reduces reconstruction needs and associated import demand.
      - Facilitates rapid recovery of growth and net exports.
  - RM5. Develop and adopt Public Investment Management regulations to incorporate climate change considerations into the capital project cycle (including planning, appraisal, selection, maintenance). [DNPM, Treasury, CCDA]
    - Implementing partners/diagnostic references: CPIMA, IMF (FAD)
    - Expected outcomes: Climate change is formally taken into account at each step of the investment project cycle.
    - Target date: March 18, 2026.
    - Status: In progress.
  - RM6. Pilot the incorporation of climate change considerations in maintenance standards and costing applied to national roads. [DoWH]
    - Implementing partners/diagnostic references: CPIMA, WB, ADB
    - Expected outcomes: Climate change is taken into account to assess road maintenance needs and costs, paving the way for a standardized approach across sectors.
    - Target date: March 18, 2026.
    - Status: In progress.

### Supporting The Development Of Green And Inclusive Finance
- Diagnostic findings:
  - The taxonomy of green and inclusive finance activities is not operational and lacks concrete guidelines for implementation by financial institutions.
  - There is no comprehensive database of ongoing climate projects and funding sources.
- Reform measures, timelines, implementing agencies, and status:
  - RM7. Develop and formalize supervisory guidelines to financial institutions (FIs) on mandatory regulatory reporting of FIs’ exposures aligned with the Taxonomy along with implementation timelines. The guidelines will focus on all exposures related to 3 priority sectors with technical screening criteria completed by mid-2025. It will be implemented on banks representing at least 90 percent of total banking sector assets. [BPNG, GFC]
    - Implementing partners/diagnostic references: Inclusive Green Finance Policy, IFC, AFD, ADB
    - Expected outcomes: A supervisory guidance note on collecting and reporting climate-related loan activities along with implementation timeline will help strengthen the climate information architecture landscape.
    - Target date: March 18, 2026.
    - Status: In progress.
    - Impacts highlighted:
      - Financial sector resilience: Reduces financial sector losses when climate risks materialize, lowering recapitalization needs for banks.
      - Investment promotion: Clarifying climate-related exposures attracts investments by reducing uncertainty.
      - Improved external sustainability: Greater information on the availability of climate-related and resilient investments and lending activity can boost investor confidence and contribute to attracting external capital inflows.
  - RM8. (i) Empower the Green Finance Center (GFC) with the authority to collect data on climate investments from other institutions (government agencies and commercial banks) through a memorandum of understanding between BPNG and Treasury. (ii) Develop a centralized national database with climate mitigation and adaptation projects in line with the updated NDC and the taxonomy. [BPNG, GFC]
    - Implementing partners/diagnostic references: Inclusive Green Finance Policy and C-PIMA, GGGI, UNCDF
    - Expected outcomes: The centralized database on climate projects and funding sources will improve project identification and investor confidence.
    - Target date: September 18, 2026.
    - Status: In progress.

### Supporting mitigation policies
- Diagnostic findings:
  - Fuel taxation does not take the carbon content of fuels into account, incentivizing fuel imports and consumption.
  - The logging industry is at the source of significant forest degradation, with limited lasting benefits to local communities.
- Reform measures, timelines, implementing agencies, and status:
  - RM9. Submit amendments to the Excise Tariff Act to parliament to shift the tax burden towards fuels with higher carbon content [Treasury]
    - Implementing partners/diagnostic references: CPD, IMF (FAD)
    - Expected outcomes: The shift of taxation towards more carbon-intensive fuels will help to incentivize more efficient fuel use.
    - Target date: March 18, 2025.
    - Status: Delayed.
    - Impacts highlighted:
      - External sustainability: (1) Supports the transition to cleaner energy and electricity, thus reducing LT reliance on fossil fuel imports whose prices are volatile; and (2) Reduces forest degradation, which supports climate-resilient agriculture and the need for food imports. It also helps contain the impact of natural disasters on local communities, reducing the need for reconstruction-related imports.
  - RM10. Carry out a comprehensive review of existing royalties, taxes, and levies in the logging sector to help identify appropriate tax policy measures to ensure a balance between mitigation objectives and the socio-economic footprint of the sector. [Treasury, IRC, Customs, PNGFA]
    - Implementing partners/diagnostic references: CPD, ADB
    - Expected outcomes: Implementation of the findings of this review could help discourage unsustainable logging activities and incentivize forest protection.
    - Target date: September 18, 2025.
    - Status: In progress.

*IMF staff summary based on the Papua New Guinea RSF Reform Measures and Timeline (excerpt).*

### References

### References

### Bibliographic entries
- IMF, 2023a, Papua New Guinea: Requests for an Arrangement under the Extended Credit Facility and an Extended Arrangement under the Extended Fund Facility-Press Release; Staff Report; and Statement by the Executive Director for the Papua New Guinea, Country Report No. 2023/126 (Washington, DC: International Monetary Fund).
- IMF, 2023b, Papua New Guinea: First Reviews under Extended Arrangement under the Extended Fund Facility and an Arrangement under the Extended Credit Facility, and Request for Modification of Quantitative Performance Criteria-Press Release; Staff Report; and Statement by the Executive Director for Papua New Guinea, Country Report No. 2023/385 (Washington, DC: International Monetary Fund).
- IMF, 2024, Papua New Guinea: Second Reviews under Extended Arrangement under the Extended Fund Facility and an Arrangement under the Extended Credit Facility, and Request for Modification of Quantitative Performance Criteria-Press Release; Staff Report; and Statement by the Executive Director for Papua New Guinea, Country Report No. 2024/231 (Washington, DC: International Monetary Fund).
- Nakatani,  yota,     , “External Ad ustment in a  esource- ich Economy  The Case of Papua Ne  Guinea”, IMF Working Papers, Volume 217, Issue 267, Washington, DC.

### Historical current account (CA) data and revisions
- Historical data on the CA balance in PNG was overstated due to long-standing challenges in classifying large income account outflows, including external debt service payments related to resource projects.
- Consecutive TA missions led to continuous revisions and migration to BPM6 standards (see Annex V in IMF Country Report No. 23/385)—a process that will endure under the current Fund-supported program.
- Improved data allow staff to estimate that the CA has undergone a structural change in the early     ’s, when the CA recorded significant deficits given large investments in natural resource projects, which were followed by surpluses close to 15pp of GDP once the projects entered their production phase (post 2015).
- Somewhat more moderate surpluses are expected to continue until at least the end of the decade, justifying the proposed adjustment to the norm (set equal to the average over 2014-2030).

### Risk Assessment Matrix — major risks, likelihoods, impacts, and policy advice
- Purpose: The Risk Assessment Matrix (RAM) shows events that could materially alter the baseline path. “Short term” = within 1 year; “medium term” = within 3 years.
- Relative likelihood labels: “lo ” = probability belo     percent, “medium” = probability bet een   and 3  percent, “high” = probability bet een 3  and 5  percent.

Regional/Domestic Risks
- Natural disasters and extreme climate events
  - Relative Likelihood: High
  - Expected Impact: High: Negative impact on GDP growth, export and fiscal revenues, higher inflation.
  - Staff Advice: Invest in disaster risk reduction and resilience with the help of development partners. Build fiscal and external buffers for post-disaster relief effort. Implement reform measures under the RSF arrangement.
- Widespread social discontent and political instability
  - Relative Likelihood: High
  - Expected Impact: High: Adverse impact on foreign direct investment and confidence, negatively impacting growth; can exacerbate pre-existing inequalities, causing socio-economic hardship (unemployment, poverty).
  - Staff Advice: Focus on transparent and effective communication on key policies. Implement policies to support vulnerable households for which there is a need to build fiscal buffers through fiscal consolidation.
- Major natural resource projects initiated; higher LNG revenues over the medium term
  - Relative Likelihood: High (Upside risk)
  - Expected Impact: High: Favorable impact on GDP, external balance, and fiscal position.
  - Staff Advice: Fast-track their implementation; Build fiscal and external buffers, and avoid Dutch disease effects, by enhancing the competitiveness of the non-resource sectors.

Global Risks
- Commodity price volatility
  - Relative Likelihood: Medium
  - Expected Impact: High: Volatility in commodity prices will have an impact on external position and fiscal balance. This leads to bouts of price and real sector volatility.
  - Staff Advice: Higher resource revenue should help create fiscal space. Continue with fiscal spending, in line with capacity constraints, to support the most vulnerable but ensure fiscal consolidation remains priority. Build buffers to prepare for lower commodity prices.
- Trade policy and investment shocks
  - Relative Likelihood: High
  - Expected Impact: High: Given the USD as a currency anchor for the crawl-like arrangement, USD appreciation would result in Kina’s appreciation against other trading partners’ currencies, affecting export competitiveness negatively, and leading to downward price pressures. The current and financial accounts would worsen.
  - Staff Advice: Maintain adequate level of foreign reserves. Proceed with the implementation of broad-based reforms to return to kina convertibility, reduce trade concentration risks, and improve business environment.
- Sovereign debt distress
  - Relative Likelihood: High
  - Expected Impact: High: The current and financial accounts would worsen and borrowing costs would increase, adding to existing debt vulnerabilities.
  - Staff Advice: Continue with fiscal repair strategy to build buffers and reduce debt vulnerabilities. Maintain adequate level of foreign reserves and proceed with the implementation of broad-based reforms to return to kina convertibility.
- Cyberthreats
  - Relative Likelihood: High
  - Expected Impact: Medium: Disrupt the provision of critical government services, trigger financial and economic instability with widespread social unrest.
  - Staff Advice: Invest in advanced IT security systems and train key personnel on cyber/ ransomware attacks. Develop business recovery sites and backup for important government services and financial sector.

### Annex IV — Data issues and data adequacy assessment
- Participation: Papua New Guinea participates in the Enhanced General Data Dissemination System (e-GDDS) and first posted its metadata in February 2012 but is yet to disseminate the data recommended under the e-GDDS.
- Other data gaps: Climate change related data suffers from incompleteness and fragmentation.
- Corrective actions and capacity development priorities:
  - Authorities committed to further improve the quality of statistics, including under the ongoing ECF/EFF arrangement.
  - NSO is working to develop the expenditure breakdown of GDP and to produce quarterly GDP, with IMF and Australia TA support, and is preparing the release of new census data (delayed).
  - NSO is developing a monthly CPI release and plans to rebase the CPI basket.
  - To improve ESS, the BPNG initiated an inter-agency working group in 2024, and continues to work closely with IMF's CDOT on enhancement and expansion of ESS, including production of IIP statistics.
- Use of data/estimates different from official statistics: No use of alternative statistics in general. In preparing the DSA, staff cross checks official data with the World Bank's IDS data for projected debt service granularity.
- Changes since last Article IV: Quality of statistics is gradually improving, supported by capacity development from IMF and other partners; regional weights for CPI updated; coverage of ESS improved with shift to BPM6 and efforts to reduce errors and omissions.
- Data Quality Characteristics: Data provision has substantial shortcomings on real sector and external sector that somewhat hamper surveillance. National accounts releases are annual (no quarterly data), often published with significant delay, and lacking expenditure-side components. External sector statistics hampered by large unexplained residuals, continuous and significant historical revisions, absence of IIP statistics and irregular publication. CPI basket not rebased since 2012.

### Annex IV. Table highlights (Table of Common Indicators Required for Surveillance — as of April 30, 2025)
- Exchange Rates: Date of Latest Observation 03/31/2025; Date Received 04/2024; Frequency of Data D; Frequency of Reporting M; Expected Frequency D; Papua New Guinea expected timeliness D.
- International Reserve Assets and Reserve Liabilities of the Monetary Authorities: Date of Latest Observation 02/2025; Date Received 04/2024; Frequency of Data M; Frequency of Reporting M; Expected Frequency M; Papua New Guinea expected timeliness 1M 1Q.
- Reserve/Base Money: Date of Latest Observation 02/2025; Date Received 04/2024; Frequency of Data M; Frequency of Reporting M; Expected Frequency M; Papua New Guinea expected timeliness 2M 2M.
- Broad Money: Date of Latest Observation 02/2025; Date Received 04/2024; Frequency of Data M; Frequency of Reporting M; Expected Frequency M; Papua New Guinea expected timeliness 1Q 2M.
- Central Bank Balance Sheet: Date of Latest Observation 02/2025; Date Received 04/2024; Frequency of Data M; Frequency of Reporting M; Expected Frequency M; Papua New Guinea expected timeliness 2M 2M.
- Consolidated Balance Sheet of the Banking System: Date of Latest Observation 02/2025; Date Received 04/2024; Frequency of Data M; Frequency of Reporting M; Expected Frequency M; Papua New Guinea expected timeliness 1Q 2M.
- Interest Rates: Date of Latest Observation 12/2024; Date Received 04/2024; Frequency of Data M; Frequency of Reporting Q; Expected Frequency M; Papua New Guinea expected timeliness ... 2M.
- Consumer Price Index: Date of Latest Observation 4Q2024; Date Received 02/2025; Frequency of Data Q; Frequency of Reporting Q; Expected Frequency M; Papua New Guinea expected timeliness 2M 2M.
- Revenue, Expenditure, Balance and Composition of Financing — Central Government: Date of Latest Observation 12/2024; Date Received 04/2025; Frequency of Data M; Frequency of Reporting M; Expected Frequency Q; Papua New Guinea expected timeliness 1Q 1Q.
- Stocks of Central Government and Central Government-Guaranteed Debt: Date of Latest Observation 4Q2024; Date Received 03/2025; Frequency of Data Q; Frequency of Reporting Q; Expected Frequency Q; Papua New Guinea expected timeliness 2Q 2W.
- External Current Account Balance: Date of Latest Observation 3Q2024; Date Received 04/2025; Frequency of Data Q; Frequency of Reporting Q; Expected Frequency Q; Papua New Guinea expected timeliness 1Q 24M.
- Exports and Imports of Goods and Services: Date of Latest Observation 3Q2024; Date Received 04/2025; Frequency of Data Q; Frequency of Reporting Q; Expected Frequency M; Papua New Guinea expected timeliness 12W 4M.
- GDP/GNP: Date of Latest Observation 2023; Date Received 01/2025; Frequency of Data A; Frequency of Reporting A; Expected Frequency Q; Papua New Guinea expected timeliness 1Q 1Q.
- Gross External Debt: Date of Latest Observation 4Q2024; Date Received 03/2025; Frequency of Data Q; Frequency of Reporting Q; Expected Frequency Q; Papua New Guinea expected timeliness 2Q 2W.
- International Investment Position: N/A (Lack of capacity prevented the authorities from providing the data).

### Annex V — Enhancing PNG’s competitiveness and attractiveness for foreign investment
- Objective: Propose a multipronged approach to make PNG more competitive and an attractive destination for foreign investment.
- Key premise: Restoring the convertibility of the kina—a key policy objective under the ECF/EFF arrangement—remains critical to improving competitiveness, and should be complemented with reforms to reduce barriers to trade, diversify the economy, enhance infrastructure and human capital, and strengthen governance and law and order.

A. Current Situation and Policies — Current Situation (selected findings)
- PNG’s economy increasingly relies on resource-related activities.
  - The mining and hydrocarbon resource sector currently represents more than a quarter of gross value added, compared to less than 15 percent in the early 2010s, before the opening of the PNG LNG project.
  - Resource export volumes have grown by a factor of 2.5, leading to large trade balance surpluses and further FX accumulation, some of which have been kept offshore.
- Export concentration and import dependence
  - PNG’s main exports—including LNG and Gold—represented just over 70 percent of total exports in the late 2010s but reached close to 80 percent of the volume of exports in the early 2020s.
  - Export destinations are concentrated: China, Japan, Singapore, and Australia accounted for over 3/  of PNG’s shipments in    3.
  - Given PNG’s largely undiversified economy, it remains heavily dependent on imported goods and services for production and consumption.
  - Trade concentration indices show high market concentration for both exports and imports, while product concentration is only prevalent for exports.

*Source: 1pngea2025001-print-pdf - References*

### 3.      Despite large and increasing resource sector exports, FX shortages have been

### 3. Despite large and increasing resource sector exports, FX shortages have been persistent in recent years

### FX shortages: causes and dynamics
- Resource exports moved the current account further into positive territory, but resource exporters are allowed to keep part of their export proceeds offshore per existing project development agreements, reducing FX inflows to the economy.
- April 2014: authorities set a trading band for the exchange rate, moving de facto to a stabilized exchange rate regime and leading to the overvaluation of the kina; this misalignment varied in size but persisted over the years and exacerbated the structural mismatch between FX supply and demand.
- Difficulty accessing FX in a timely fashion led resource exporters to keep more export proceeds offshore; some importers stopped activities, causing import compression.
- Foreign firms refrained from bringing dividend repatriation orders to the FX market, generating hard-to-gauge pent-up FX demand.
- FX inflows became increasingly reliant on official borrowing (Annex V. Figure 4).
- FX shortages started easing in 2024 (see ¶7) but FX inflows remain susceptible to commodity price cycles and idiosyncratic (or regional) shocks, posing risks to FX generation and fiscal accounts.
- BPNG intervention: since the beginning of the ECF/EFF arrangement and as of end-March 2025, the BPNG has sold USD3.2 billion of FX to help bridge the gap between FX supply and demand and help cover essential FX orders.

### Structural challenges hampering competitiveness and investment
- PNG lags on governance relative to Pacific Island (PI) and Asia-Pacific (AP) averages, with lower scores across the six World Bank Worldwide Governance Indicators—particularly: control of corruption, government effectiveness, rule of law, and political stability.
- Access to key infrastructure is lagging, especially in power, water, and transportation, driven by challenging geography, limited investment efficiency, and low maintenance spending.
- Freedom of trade and business regulation outcomes are mixed:
  - Lower tariffs, fewer capital controls, and more flexible labor regulations than AP average.
  - Lower financial openness than regional average; local businesses face higher bureaucracy and price controls—gaps that have severely worsened in the past decade.

### Business leaders’ perceptions of impediments
- According to the Business Advantage PNG 100 CEO Survey, access to foreign exchange is the most critical impediment to doing business in PNG—top impediment in most annual surveys since 2016 (except 2019 and 2022).
- Other key impediments identified:
  - Governance-related shortcomings: weak law and order, corruption.
  - Infrastructure constraints: unreliable utilities and telecommunications, weak logistics.
  - Limited local capacity: lack of government capacity, shortage of domestic skills, supply chain constraints, lack of market intelligence, lack of office space, limited available land.
  - High costs: inflation, labor costs, real estate costs.
- Perceived impact of most impediments eased somewhat in 2025 relative to 2024, but they remain highly relevant for policymakers.

### Recent policies and impact on FX market
- Authorities are gradually restoring exchange rate equilibrium and making it more flexible, including phasing out exchange restrictions; return to kina convertibility is a key commitment under the ECF/EFF arrangement.
- BPNG Roadmap of central bank reforms since August 2023 aims, among other things, to alleviate FX shortages.
- Achievements:
  - Shift to a de facto crawl-like arrangement in January 2024 and gradual narrowing of the Kina’s overvaluation.
  - Easing of FX rationing measures, while prioritization of FX orders by FX dealers remains critical while the mismatch persists.
- FX market outcomes:
  - FX turnover improved significantly since the beginning of the ECF/EFF arrangement, supported by gradual depreciation, increased FX provision by BPNG, high export prices, and changes in fuel import arrangements.
  - Cumulative FX intervention and official exchange rate movements show active BPNG involvement (Annex V. Figure 7).

### Enhancing price competitiveness: exchange rate, transport costs, and taxation
- Exchange rate reform rationale and trade-offs:
  - Overvaluation acts like a tax on domestic production and a subsidy on imports; bringing the kina to a market-clearing rate should alleviate FX shortages and boost export competitiveness and foreign investment attractiveness.
  - A slower convergence to equilibrium can limit inflationary pressures and be more politically/socially feasible but may deter foreign investment if it generates expectations of further weakening.
  - Interim FX interventions constitute an expensive drain on FX reserves; urban households and importing firms may face higher prices initially, while rural households deriving income from agricultural commodity exports (representing up to half of PNG’s population) should benefit rapidly from depreciation.
- Transportation costs and risk premia:
  - PNG faces some of the highest maritime transport costs in the AP region due to remoteness, island structure, and limited trade/transport infrastructure; maritime connectivity is significantly lower than that of low-income peers.
  - World Bank data: average cost to export goods from PNG stood at $700 in 2019, compared to $460 from Singapore and $572 from Indonesia.
  - FX shortages may induce foreign suppliers to embed risk premia in pricing to hedge against payment delays, contributing to higher import prices.
- Taxation and tariffs:
  - Statutory corporate income tax (CIT) rates: 30 percent for resident nonfinancial companies, 45 percent for banks, and 48 percent for non-resident companies.
  - CIT level does not appear to be a major impediment to activity and is not highlighted in business surveys—possibly due to lower effective CIT rates for most sectors.
  - Trade tariffs: simple average MFN rate at 3.9 percent, down from 5.1 percent in 2010 (WTO 2019).
  - Import duty protection rates, initially implemented to shield domestic industries, could be revisited to balance consumer costs and support domestic production, particularly given that kina depreciation benefits domestic producers.

*Source: Chapter 3, 1pngea2025001-print-pdf (Papua New Guinea), IMF.*

### Annex V. Figure 8. Papua New Guinea:

### Annex V. Figure 8. Papua New Guinea:

### Statutory Corporate Income Tax Rate and Shipping Connectivity
- Statutory Corporate Income Tax Rate (Percent, 2018).
- Note: PNG-d refers to CIT rate for resident companies, and PNG-f refers to CIT rate for non-resident companies.
- Liner shipping connectivity index (2021).
  - Sources: OurWorldInData, PwC and IMF staff calculations; WDI and IMF staff calculations.
  - Note: The LSCI is defined as an index that considers various factors, including the total number of shipping services available to and from the country, the number of container ships serving the country, the capacity and frequency of these services, and the connectivity of ports with major global shipping routes. A higher LSCI indicates better connectivity, facilitating trade and economic growth by providing more efficient access to international markets.

### Trade Policies (non-price): Key Findings
- Addressing non-tariff barriers is crucial to enhance PNG's trade competitiveness and the investment climate.
- Time to clear imports and exports in PNG customs stood at four days, compared with a regional average of 1.6 days (APEC 2011).
- PNG is a signatory to four regional trade agreements (RTAs): (i) European Union–PNG/Fiji Economic Partnership Agreement (EPA); (ii) Melanesian Spearhead Group Trade Agreement (MSGTA); (iii) Pacific Island Countries Trade Agreement (PICTA); and (iv) South Pacific Regional Trade and Economic Cooperation Agreement (SPARTECA).
  - Overlapping RTA membership may produce complex trade regimes and risk greater trade (and investment) diversion than creation (WTO 2019).
  - Harmonization and simplification of rules of origin across agreements is a priority to address overlaps and facilitate regional trade.

### Increasing FX Receipts and Export Capacity (analysis and recommendations)
- To increase FX returns from hydrocarbon and mineral exports:
  - Negotiate favorable FX arrangements during contracting for new resource projects.
  - Establish a framework encouraging commodity exporters to keep FX proceeds onshore.
  - Consider renegotiating more favorable terms under existing contracts when possible and/or appropriate.
- Agricultural sector opportunities and constraints:
  - Agriculture accounts for 18 percent of GDP, but its contribution to total exports remains limited.
  - Coffee (mainly arabica) is vital in the Highlands, with double-digit annual growth in coffee exports to over 30 countries since 2021 and demand capable of absorbing double the current volume of high-quality smallholder products.
  - Constraints to meet market quantity and quality demands include:
    - Insufficient tailored extension packages and replanting strategies; most coffee trees are over 40 years old.
    - Market access constraints lowering farm-gate prices and reducing investment incentives for smallholders.
    - Inconsistent quality between smallholder and plantation production methods.
  - Recommended actions for coffee sector and agricultural export capacity:
    - Integrate coffee further into the global value chain.
    - Prioritize projects to expand or revive production.
    - Support growth of small- and medium-sized enterprises, including by improving access to finance.
    - Use commodity boards to develop new export markets, establish branding, provide industry information, and enable access to government resources and programs.

### Diversification and Special Economic Zones (SEZ)
- High concentration of exports calls for a broader economic and export diversification strategy to improve resilience to external shocks and reduce Dutch disease risks.
- Diversification policy options (medium to long run; government incentives possible):
  - Invest in new sectors/products with comparative advantage or potential (e.g., tourism, broader Blue Economy).
  - Upgrade quality of existing products and introduce higher-value goods and services.
  - Diversify trading partners to avoid concentration risks.
- SEZs potential and risks:
  - Following the 2019 SEZ Authority Act, PNG has licensed two SEZs, with another eleven in the pipeline, aiming to industrialize and diversify away from natural resources into areas such as tourism and downstream processing.
  - SEZ success requires clear strategic objectives aligned with the medium-term development plan, actual business demand, appropriate private-sector incentives, and effective implementation capacity (Zeng 2021).
  - The SEZ Act’s broad tax incentive definitions could pose significant revenue integrity risks through large foregone revenue or domestic profit shifting.
  - Recommended SEZ design principles:
    - Well-targeted and curtailed tax incentives focused on non-traditional export sectors and excluding mining and petroleum sectors (IMF 2024).
    - Swift finalization and adoption of strategic guidelines for SEZ establishment and local ownership of SEZ investments.

### Business Environment: Policy Priorities
- Strengthening law and order:
  - Security concerns arise from heightened tribal and social tensions (armed tribal conflicts in some regions, social unrest episodes such as riots and urban property destruction in January 2024) and limited public security forces.
  - Recommendation: Preserve fiscal space for increased spending in security, justice and law and order sectors, focusing on urban and activity-intensive areas; build crime prevention, law enforcement and prosecution capacities.
- Improving infrastructure efficiency:
  - Need for further capital investment to increase density of network infrastructure (power, transportation, water, telecommunications).
  - Routine and capital maintenance spending required to address aging infrastructure, reduce future repair costs and improve utility reliability (Blazey et al. 2020).
  - Given limited fiscal space, complement investments with public investment management reforms to improve outcomes per dollar spent (IMF, 2015 and 2018) and enhance climate resilience (IMF, 2021).
  - Key reform priorities:
    - Ensure infrastructure gaps in the Medium-term Development Plan IV inform project selection for budgets and SOE investment plans.
    - Strengthen project appraisal processes for sound design, cost efficiency, and resilience.
    - Develop methodologies to assess routine and capital maintenance needs, including adaptation needs.
    - Strengthen financial position of utility SOEs, particularly in power and water, so they can maintain infrastructure and deliver reliable utilities.
- Developing domestic and skilled labor resources:
  - Large working-age population represents at least 60% of total population but is largely untapped; most jobs are low-skilled and in the informal sector.
  - Formal employment represented about 4 percent of the population in 2020.
  - Employment composition: about a quarter of the total workforce in the government sector, another quarter in agriculture, about 13 percent in manufacturing and only 7 percent in the mining and petroleum sector.
  - Key reform priorities:
    - Preserve and increase spending in education, prioritize universal enrollment in primary and secondary levels, develop domestic tertiary education and vocational training, and encourage college study programs abroad.
    - Analyze data on foreign worker permits and create incentives for foreign firms to hire local workers, particularly for middle-skilled positions initially.
    - Facilitate issuance of work permits and visas for foreign skilled workers in sectors with labor shortages.
    - Develop easily-accessible job placement services for local workers to improve labor matching.
- Enhancing governance and AML/CFT framework:
  - Complex or hard-to-access laws and regulations can be barriers to entry; customary land tenure rights can significantly complicate securing land for investment.
  - The Asia-Pacific Group on Money Laundering (APG) mutual evaluation report identified critical shortcomings in the AML/CFT framework, which could raise risk premia and reduce attractiveness for foreign investors.
  - Recommended reforms:
    - Continue operationalizing the anti-corruption framework and ensure the ICAC has proper resources.
    - Address gaps in the AML/CFT framework.
    - Streamline the legal and regulatory framework applicable to businesses and set up one-stop-shop access to regulations.
    - Review laws and regulations pertaining to land ownership and management and explore innovative ways to facilitate investor access to land while preserving customary land tenure rights.

### Conclusion
- Improving PNG’s competitiveness and attractiveness for foreign investment requires a multipronged, multisectoral strategy.
- Key prerequisites include tackling the misalignment of the kina and restoring its convertibility, while also addressing structural impediments: closing infrastructure gaps, enhancing human capital, improving governance, and ensuring adequate law and order.
- Reducing non-tariff barriers and facilitating greater economic diversification would help increase competitiveness and reduce dependence on commodity exports.
- The Working Committee on Foreign Exchange Repair, planned formation, could explore options to address FX shortages and consider wide-ranging structural reforms to enhance price and non-price competitiveness, focusing on impediments highlighted by business leaders.
- Reforms should preserve the integrity of the fiscal repair strategy; tax incentives and additional spending priorities must be carefully assessed to avoid impeding progress in reducing debt vulnerabilities and mobilizing revenue.

*Source: Annex V. Figure 8. Papua New Guinea, 1pngea2025001-print-pdf - Annex V. Figure 8. Papua New Guinea*

### Appendix I. Letter of Intent

### Appendix I. Letter of Intent

### Program summary and requests
- The Government of Papua New Guinea requests:
  - Completion of the Fourth Reviews under the ECF and EFF arrangements and the First Review under the RSF arrangement, and the release of related purchases and disbursements.
  - Setting of the end-March 2026 indicative targets and end-June 2026 performance criteria under the ECF-EFF.
  - Modification of the continuous performance criterion on the present value of new external debt for the second half of 2025 to reflect the latest external borrowing plan.
  - Upon IMF Executive Board approval, an immediate disbursement of SDR 140.81 million (53.5 percent of quota), composed of:
    - SDR 40.36 million (15.3 percent of quota) under the ECF,
    - SDR 80.71 million (30.7 percent of quota) under the EFF,
    - SDR 19.74 million (7.5 percent of quota) under the RSF.
- The Government requests waivers and deadline resets:
  - Waiver for non-observance of the continuous QPC on new external payment arrears (breach: USD 8.5 million, 0.02 percent of GDP), with full repayment made on April 30, 2025.
  - Reset deadline for the structural benchmark on amendments to the Internal Revenue Commission (IRC) Act to end-July 2025.
  - Reset deadline for the structural benchmark on appointment of the Independent Commission against Corruption (ICAC)’s oversight committee to end-September 2025.

### Recent economic developments and outlook
- 2024 outturns:
  - GDP growth: 3.8 percent (2024), similar to 2023.
  - Non-resource sector growth: 4.5 percent (2024).
  - Resource sector growth: 1.7 percent (2024).
  - Average headline inflation: 0.6 percent (2024), down from 2.3 percent (2023).
  - Average core inflation: 3.2 percent (2024).
  - Current account balance: around 16 percent of GDP (2024), up from 9.0 percent (2023).
- Near-term and medium-term projections:
  - Growth: expected to strengthen to 4.7 percent in 2025.
  - Average headline inflation: projected to increase to 4.8 percent in 2025.
  - Core inflation: projected to increase to 4.0 percent in 2025.
  - Current account surplus: expected to be 11 percent of GDP in 2025.
  - Medium-term growth: projected to average about 3 percent annually.

### Program performance (ECF/EFF and RSF)
- Quantitative performance criteria (QPC) and indicative targets (IT) for end-December 2024:
  - All but one QPC were met; the breached continuous QPC concerned new external payment arrears by 0.02 percent of GDP (repaid in full in late April 2025).
  - Fiscal deficit in 2024 stood below the QPC ceiling.
  - Present value of newly contracted external debt remained significantly below the continuous QPC ceiling.
  - Net international reserves fluctuated above the QPC floor.
  - Compliance with the QPC ceiling on BPNG’s gross credit to government (no additional monetary financing).
  - All ITs for end-December 2024 were met.
- Structural benchmarks (SB) under ECF/EFF (due by end-May 2025):
  - Fully met: 2 SBs (including limiting access to central bank bill (CBB) auctions to reserve-maintaining and supervised financial institutions and issuance of a new 28-day CBB every four weeks).
  - Implemented with delay: 2 SBs (amendments to the Income Tax Act; adoption of a dividend policy for state holding companies).
  - Partially implemented: 2 SBs (payroll data cleansing exercise in the National Capital District; signature of ICAC’s memoranda of understanding with other anti-corruption agencies—partially implemented with delay, with alternative reforms supporting the policy objective).
  - Two SBs remain delayed and deadline-reset requests submitted (see above).
- Reform measures (RM) under the RSF:
  - Of two RMs with passed tentative target dates:
    - Implemented: disaster risk screening procedures for new investment projects (RM4).
    - Delayed: amendments to the Excise Tariff Act (RM9); to be implemented in a later RSF review after further policy review with IMF support.

### Fiscal developments, commitments, and outlook
- Fiscal repair strategy:
  - Objective: balanced budget by 2027 via strengthened domestic revenue mobilization, improved expenditure quality and composition, and prudent borrowing to lower public debt.
- 2024 fiscal outcomes:
  - Fiscal deficit: 3.4 percent (2024), a narrowing of 0.9 percentage point relative to 2023, and below the QPC ceiling.
  - Total revenue and grants: declined by 1.0 percentage point of GDP in 2024, driven by GST decline (-0.8 pp of GDP) and lower non-tax revenues (delayed NTRA implementation and lower dividends from state entities).
  - Total expenditure: declined by 2.0 percentage points of GDP in 2024, driven by cuts in goods and services (-0.7 pp of GDP), lower capital spending (-0.6 pp of GDP), contained wage bill growth (-0.3 pp of GDP), and lower transfers to local governments (-0.3 pp of GDP).
- 2025 fiscal plan and ceilings:
  - Target fiscal deficit ceiling for 2025: below PGK3.5 billion (2.6 percent of GDP).
  - Revenue-side measures expected for 2025:
    - Additional non-tax revenue of about PGK1.0 billion relative to 2024 from the new dividend policy for state holding companies and continued NTRA implementation.
    - Additional MPT revenue of PGK0.4 billion from decline in accelerated capital depreciation deductions.
    - Met the indicative target on non-resource tax revenues at the end-March 2025 indicative test date (despite SIGTAS cyberattack-related reconciliation delays); request to recalibrate this IT to account for seasonality and GST moderation in 2024.
  - Expenditure-side measures for 2025:
    - Contain current spending and reprioritize towards capital investment, education, health, and law and order.
    - Interest payments expected to increase by around PGK0.5 billion due to higher domestic and global financing costs.
    - Active management of financing strategy to limit the size of the cheque float.
- Other fiscal governance measures:
  - Continued implementation of the Non-tax Revenue Administration Act (NTRA).
  - Treasury single account strategy development requested with IMF technical assistance.
  - Improving debt management in the lead-up to a large bullet payment in 2028.

### Key structural and governance reforms and priorities (next 12 months)
- Raise domestic revenue in line with the Medium-Term Revenue Strategy (MTRS), including options to broaden the tax base and improve spending efficiency.
- Pass amendments to the Internal Revenue Commission Act to strengthen governance for revenue collection.
- Strengthen expenditure control and government cash management; devise strategy to move to a treasury single account (IMF TA requested).
- Improve debt management ahead of a large bullet payment in 2028.
- Continue monetary policy and exchange rate framework implementation:
  - Reinforce BPNG’s ability to manage and forecast liquidity.
  - Enable BPNG’s lender-of-last-resort function to enhance financial stability.
- Sustain support to full operationalization of the ICAC:
  - Ensure adequate and stable funding.
  - Finalize selection of the oversight committee (deadline reset request to end-September 2025).
- AML/CFT enhancements:
  - Address priority recommendations from the recent mutual evaluation report.
- Climate resilience and green finance:
  - Enhance disaster risk management, mainstream climate change in infrastructure governance, support development of green and inclusive finance, and develop fiscal incentives for forest preservation and fuel efficiency.
- Continued commitments:
  - Maintain consistent and timely reporting and engagement with the IMF.
  - Consult with the IMF on additional measures and provide requested information to assess program implementation.
  - Consent to publication of this Letter of Intent, the MEFP, TMU and related board documents.

*Source: Appendix I. Letter of Intent, 1pngea2025001-print-pdf*

### 9. While our fiscal targets are ambitious, we are confident that they are achievable. We

### 1pngea2025001-print-pdf - 9. While our fiscal targets are ambitious, we are confident that they are achievable. We

### Fiscal framework and fiscal targets
- Fiscal framework hinges on successful revenue policy and revenue administration reforms, supported by IMF and other development partners, and on continued favorable commodity prices.
- Consideration of introducing a public debt anchor to help bring debt to a safe level over the medium term.
- Resource revenue is volatile; policy for revenue outcomes:
  - In the event of revenue overperformance: use additional amount to reduce the deficit, accelerate clearance of domestic payment arrears, and increase priority spending.
  - If revenue significantly underperforms: undertake additional expenditure adjustments to meet fiscal deficit target.
- Contingency measures being identified include spending items that could be reappropriated and programs that could be deferred (e.g., lower-priority investment projects and goods and services); these measures will be communicated to the Fund.

### Revenue mobilization and tax policy reforms
- Accelerate implementation of reform measures under the MTRS to increase revenue mobilization and compliance; MTRS to guide reforms through to 2027 and serve as reference for reform conditionalities.
- Adoption of amendments to the Income Tax Act (ITA) in March 2025 is a major milestone (SB implemented with delay); ITA poised to enter into effect in early 2026 and expected to improve business environment and tax administration over time through enhanced compliance.
- Planned in-depth analysis of CIT tax expenditures, incentives and gaps (with IMF TA) to include:
  - (i) listing of existing tax expenditures and incentives;
  - (ii) their estimated costing;
  - (iii) an assessment (at least qualitative) of the extent to which they meet their desired policy objectives (proposed new SB due by end-March 2026).
- Additional assessments to cover incentives under the Special Economic Zones (SEZ) Authority Act and estimated foregone CIT revenue from the informal economy.
- Additional measures:
  - Quantify total tax debt, categorize into collectable and non-collectable, and implement targeted compliance and enforcement strategies to reduce collectable tax debt.
  - Migrate small and medium enterprises from the informal (black) economy into the formal system.

### Tax and customs administration modernization
- Continued modernization of the Internal Revenue Commission (IRC) and Customs operations to strengthen compliance, enforcement, institutional capacity, and accountability, guided by IMF TADAT findings.
- IRC committed to develop a well-sequenced reform roadmap with IMF technical assistance; amendments to the IRC Act to establish an oversight board are being finalized (requesting additional time; SB with proposed reset deadline to end-July 2025).
- NEC approval secured for supplier of the Integrated Tax Accounting System (ITAS) and GST Monitoring Systems; procurement and installation anticipated shortly.
- PNG Customs Services:
  - Reviewing the Customs Act 1956 to enhance enforcement and strengthen compliance; aim to submit amendments to Parliament by the end of the year.
  - Readying implementation of a Single Window to streamline customs declaration processes and enhance risk management.

### Expenditure efficiency, payroll and human resources
- Commitment to reduce overall spending envelope as percent of GDP; total expenditure and net lending in 2024 was 20.4 percent of GDP, which is 1.8 percent lower than the 2023 expenditure outcome.
- Containment of spending by targeting critical operational expenditures in social sectors (health, education, law and order and utilities) and restraining travel and other discretionary costs.
- Progress in assessing and containing payroll costs of national departments; continuing to process retirements to reduce payroll cost.
- Continued redirection of expenditure towards priority social spending (education, health, law and order) above the program target (IT) consistent with PRGS objectives.
- Use of forthcoming IMF Public Investment Management Assessment (PIMA) to identify reform priorities to enhance capital spending efficiency and infrastructure outcomes.
- Payroll data cleansing:
  - Department of Personnel Management (DPM) completed most of payroll data cleansing in the National Capital District (NCD) (SB partially implemented).
  - Plans to complete cleansing and expand exercises to other sectors (including teachers) and provinces; future cleansing of allowance, leave and positional data and implementation of further payroll controls.

### Domestic arrears, arrears verification, and cash management modernization
- Arrears Verification (AV) program established January 2020 to gradually clear stock of domestic arrears on goods and services.
  - As of March 2025, AV Committee received submissions of claims amounting to PGK6.48 billion, of which PGK4.123 billion have been successfully verified and PGK1.649 billion were already paid.
  - PGK300 million appropriated in the 2025 budget for the AV program.
- Lease management system helped monitor and reduce rental and utilities arrears:
  - Rental arrears PGK169.7 million at end-March 2025, down from PGK284.9 million at end-September 2024.
- Commitment to prevent new domestic arrears through enhanced commitment controls and improved IT functionality:
  - As of end-December 2024, no further payroll arrears accumulated and domestic debt continued to be paid on time (IT).
  - Three-stage strategy to modernize IT systems for automated, timely, and effective budget execution monitoring:
    - Phase 1: move Integrated Financial Management System (IFMS) to the cloud (expected by end-May 2025).
    - Phase 2: upgrade to a new version of the IFMS software.
    - Phase 3: study finance solution requirements for broader government financial IT systems reform.

- Treasury Single Account (TSA) and trust accounts:
  - Consolidated balances of trust accounts were PGK0.6 billion at end-December 2024.
  - Sequenced implementation plan for a TSA being formulated with IMF TA (ongoing SB due by end-December 2025).
  - Undertaking National Banking Review to identify redundant or underutilized government bank accounts and National Trust Review to identify trust accounts suitable for TSA integration and strengthen oversight.

### Prudent borrowing strategy and debt management
- Strategy to substitute costly financing with concessional financing from multilateral and bilateral partners and rely on longer tenors in domestic financing to reduce rollover risks.
- PV limit on new public external debt contracted for December 2024 (continuous QPC of US$1,425 million) met by an ample margin; fewer external loans contracted in 2024 totaling US$592 million in PV terms.
- Request to modify the approved PV limit (QPC) on new public external debt ceiling for end-December 2025 test dates to US$1.66 billion, guided by the DSA.
- Commitment to link borrowing plan to financing needs for the budget, maintain a transparent borrowing program, and limit excessive use of cheque floats.
- Debt management capacity strengthening:
  - Creation of interface between debt reporting system (Meridian) and IFMS to automate transfer and reconciliation of debt data (ongoing SB by end-September 2025).
  - Modify memorandum of understanding between BPNG and Treasury for T-bill and T-bond issuances to require:
    - (i) publication of the budget year’s T-bill and T-bond auction calendar shortly after parliamentary approval of the budget, then updated quarterly; and
    - (ii) publication of auction results according to a template designed with IMF support (proposed SB for end-September 2025).
  - Publish historical auction results on BPNG’s website, covering at least the period since end-2022.
  - First annual Debt Bulletin, containing debt statistics as of the close of 2023, expected to be published by end of June 2025.
- Medium-Term Debt Strategy guides borrowing to support PNG’s economic growth, diversify financing sources, optimize external and domestic borrowing, implement annual borrowing plans, and enhance debt management capabilities.
- Preparations for redemption of the US$500 million Sovereign Bond maturing in 2028; Borrowing Committee analyzing options including Debt Swaps, funding by international partners, and action plan to accumulate needed financial resources; additional IMF TA requested.

### External arrears and state guarantees
- Cleared external arrears resulting from a sovereign guarantee to a joint venture; a small breach of the continuous QPC of non-accumulation of new external debt payment arrears occurred (0.02 percent of GDP), with the balance of the loan fully cleared on April 30, 2025.
- Clarification in process regarding potential government liability for a separate claim originating from a 2016 state guarantee to Central Dairies; legal opinion requested from Office of the State Solicitor.
- 2021 State Guarantee Policy introduces strict procedural and legal controls including Ministerial approval based on Department of Treasury advice, mandatory Head of State approval for loan purpose, detailed assessments, public reporting to Parliament, continuous monitoring, and strict documentation, fee, and legal compliance requirements.
- Treasury reviewing records on legacy guarantees and will ensure more regular monitoring of timeliness of payments by guarantee beneficiaries.

### Monetary policy, exchange rate roadmap, and forex management
- Roadmap for monetary policy and exchange rate reform approved August 2023; primary objective is price stability as set out in amended Central Banking Act (CBA).
- Roadmap measures include strengthening monetary and exchange rate policy frameworks and operations, improving government cash management, reinforcing inflation forecasting and monitoring, and enhancing central bank governance (including creation of the Monetary Policy Committee).
- Crawl-like exchange rate arrangement:
  - MPC confirmed a revised annual rate of crawl of 6 percent for 2025, consistent with the framework approved in December 2023.
  - Since January 2024, the USD/PGK exchange rate has gradually depreciated by 8 percent (as of end-March 2025).
  - Real overvaluation of the kina not fully addressed due to USD appreciation against currencies of major trading partners; further adjustment required.
  - Consideration of using a basket of currencies as the anchor in the current crawl-like arrangement to facilitate a more effective adjustment (would require additional capacity development support).
  - Crawl-like arrangement seen as transitional toward more exchange rate flexibility and convertibility.

- FX rationing and auctions:
  - Gradual elimination of FX rationing measures committed to; active intervention in FX market to alleviate shortages and clear essential payments.
  - Multiple-price FX auction mechanism implemented since June 2024 to pave the way for a more competitive interbank market and better match distribution of essential FX orders; weekly interventions started to reduce waiting times.
  - Interventions helped address essential orders and aging of import orders; total stock of import orders older than two months was significantly brought down (IT).
  - Monthly intervention target US$125 million; average unused intervention budget of US$38 million over the first quarter of 2025, indicating room to extend intervention budget to non-essential orders such as dividends.
  - BPNG will continue enforcing priority list requiring authorized foreign exchange dealers to clear essential orders first while allowing remaining intervention budget to be used on certain non-essential current account orders.

- Monetary policy stance and banking sector liquidity:
  - In March 2025, MPC maintained the Kina Facility Rate (KFR) at 4.0 percent, unchanged since September 2024.
  - Cash reserve requirement ratio (CRR) lowered from 12 to 11 percent in March 2025 in response to tighter liquidity.
  - MPC will continue to monitor liquidity and adjust policy tools accordingly.

### Liquidity management and monetary operations reforms
- Reforms to improve liquidity management and monetary transmission with IMF TA:
  - Introduced fixed rate full allotment (FRFA) auction, mid-rate corridor bounded by standing overnight repo and reverse repo facilities, and partial reserve averaging.
  - Financial institutions not subject to reserve requirements no longer have access to CBB auctions (SB met).
  - Commenced issuance of 28-day CBB to reserve-maintaining and supervised financial institutions once every four weeks in competitive auctions, with BPNG as price taker (SB met).
- Planned enhancements:
  - Clarify reserve averaging calculation with banks to encourage use.
  - Revise calendar of reserve maintenance period to better align with 7-day CBB issuances and monetary policy decisions.
  - Avoid irregular closing times for repo and reverse repo facilities.
- Development of liquidity forecasting framework and liquidity monitoring tables to prepare weekly forecasts for the Monetary Operations Committee with IMF TA (ongoing SB by end-July 2025).
- Support emergence of an interbank market and ease uneven liquidity distribution:
  - Align draft interbank Master Repo Agreement with Global Master Repurchase Agreement standard to ensure enforceability and share with commercial banks, with formal letter explaining benefits (proposed SB by end-December 2025).

*Source: 1pngea2025001-print-pdf - 9. While our fiscal targets are ambitious, we are confident that they are achievable. We*

### 26. We are committed to the effective implementation of the recently amended CBA to

### 1pngea2025001-print-pdf - 26. We are committed to the effective implementation of the recently amended CBA to

### Central bank mandate, governance, and safeguards
- Reinforce the mandate, governance, autonomy, transparency and accountability of the BPNG through the recently amended CBA.
- Operationalization progress:
  - All Monetary Policy Committee (MPC) members have been appointed.
  - The first MPC meeting was held on March 11, 2025.
- Safeguards assessment commitments:
  - Preparation of Board and committee charters.
  - Timely publication of financial statements.
  - The BPNG’s financial statement for FY23 has been externally audited and published.
  - Commitment to restore timeliness of publication going forward.

### Financial stability, supervision, and banking sector competition
- Financial Sector Development Strategy −3 outlines priorities: financial sector regulation and supervision, capital market development, payment system development, while balancing on financial inclusion.
- Banking sector measures:
  - Prudently issue more new banking licenses to enhance competition.
  - Ensure new banks comply with financial sector regulations in a timely manner.
- IMF Financial Sector Stability Review (FSSR) diagnostic identified reform priorities:
  - Establishment of a Financial Stability Committee.
  - Development of stress testing to improve systemic risk assessment.
- Emergency liquidity assistance (ELA) framework:
  - Working with IMF technical assistance to operationalize ELA consistent with lender of last resort regime introduced under the amended CBA in 2024.
  - Plan to develop and issue ELA guidelines, pursuant to Section 76 of the CBA (proposed SB by end-December 2025).

### Governance, Anti-Corruption and AML/CFT Reforms (Pillar 3)
- ICAC operationalization and capacity:
  - ICAC has effectively started investigating cases, leading to a first arrest in March 2025.
  - Staffing increased from 18 to 75 since July 2023 (quadrupled).
  - Developed new premises, guidelines and manuals, upgraded IT systems, built forensic capabilities, and enhanced engagement and prevention programs.
  - ICAC’s 2025 budget allocation: PGK52 million in the 2025 Budget; authorities will disburse without delay and sustain funding.
  - Request to reset the deadline of the SB for appointment of the ICAC oversight committee from end-March 2025 to end-September 2025 due to delays in advertisement and interview processes.
- Inter-agency cooperation:
  - Bilateral MoU between ICAC and BPNG’s Financial Analysis and Supervision Unit (FASU) signed.
  - MoUs not yet signed with Police, Ombudsman’s Office, Auditor General’s Office (AG), or Public Prosecutor’s Office (SB partially implemented with delay).
  - Establishment of Anti-Money Laundering Joint Task Force (AMLJTF) and Asset Recovery Money Laundering Operations Committee (ARMLOC) includes ICAC and most agencies, contributing to enhanced cooperation.
  - ICAC has started working on a successor to the National Anti-Corruption Plan of Action 2020-2025.

### State-owned enterprises, dividends, and corporate transparency
- Improve clarity on financial relationships between the government and state-owned enterprises (SOEs) and state holding entities.
- Dividend policy:
  - National Executive Council approved in April 2025 a dividend policy for all state holding entities (Kumul Consolidated Holdings, Kumul Petroleum and Kumul Minerals) clarifying principles and rules for calculation and distribution of annual dividend payments (SB implemented with delay).
- Commitments on financial reporting and sustainability:
  - Improve reliability and quality of financial information for state holding entities and SOEs.
  - Improve timeliness and publication of audited financial statements and annual reports for state holding entities.
  - With ADB support, aim to gradually improve operational and financial sustainability of holding entities and SOEs by aiming at full cost recovery and reviewing tariff frameworks, particularly in power and water sectors, while ensuring Community Service Obligations are properly funded and implemented.
  - Exploring options to privatize some SOEs.

### AML/CFT priorities and forestry sector risks
- APG Mutual Evaluation Report (MER) identified critical shortcomings in AML/CFT framework and implementation.
- National Coordinating Committee (NCC), co-chaired by BPNG and Department of Justice and Attorney General, endorsed a strategic implementation plan addressing MER priority actions.
- FASU continues to monitor implementation and engage with APG.
- Forestry sector context and risks:
  - PNG has the third largest rainforest in the world, with a significant forestry exporting sector.
  - National risk assessment highlighted that over private ports for export exist with a general value of illegal logging in PNG estimated between 70-90 percent of the total forestry products exported.
  - MER notes corruption and significant involvement of foreign companies operating around regulatory standards make the sector extremely vulnerable to money laundering and other predicate offences in private ports and logging camps (smuggling, human trafficking, links with organized crime groups).
  - Illegal logging meets the threshold for a predicate offence of money laundering and is subject to confiscation of proceeds and assets; in practice it is predominantly dealt with as a regulatory matter.
- Forestry sector risk assessment:
  - PNG undertook a forestry risk assessment prepared with UNODC support, but it has not been published.
  - With ADB support, a public version is being prepared removing confidential information.
  - Commitment to publish this forestry sectoral risk assessment, including guidance and recommendations on improving forestry sector compliance with PNG’s AML/CFT requirements (proposed SB by end-December 2025).
- Guidance and legal framework reforms:
  - Complement existing technical guidance for financial institutions and DNFBPs by including greater guidance on treatment of low-risk customers in accordance with latest FATF guidelines, and guidance for non-bank financial institutions, lawyers, accountants, real-estate agents and precious metal dealers (proposed SB by end-December 2025).
  - New sector-specific guidance will cover risk assessment, obligations on politically exposed persons and reporting of suspicious transactions, as required under PNG’s legislation.
  - Conduct a holistic review across agencies of deficiencies concerning market entry and fit and proper tests for financial institutions and DNFBPs to ensure criminals do not own or control those businesses.
  - Work to address critical technical compliance gaps in legal framework highlighted in MER, particularly criminalization of money laundering and terrorist financing, and reporting of suspicious transactions.

### Data, national accounts, and external sector statistics
- Address critical gaps in national accounts and external sector statistics to enhance data quality and transparency.
- Commitments:
  - Actively seek resources to conduct a national household income and expenditure survey as soon as possible to rebase the consumption basket and improve national accounts data.
  - Request additional IMF technical assistance to support the survey and rebasing process.
  - Conduct a reconciliation exercise of data on exports and imports of goods to resolve inconsistency between national accounts and external sector statistics (ESS).
  - Continued TA support on ESS to help produce international investment position (IIP) statistics in 2025.
- Inter-agency working group on ESS:
  - Started in June 2024, comprises representatives from NSO, Treasury Department, PNG Customs Service and BPNG, and continues to meet to support ESS production.

### RSF arrangement, climate commitments, and disaster risk management
- RSF arrangement objectives:
  - Build policy buffers and support implementation of climate-related reform agenda to enhance resilience to climate change.
  - Climate commitments reflected in enhanced Nationally Determined Contribution, National Adaptation Plan and PRGS include building resilience in agriculture, water, infrastructure; reducing forest degradation and deforestation; increasing share of renewables in energy mix.
  - Fourfold RSF focus: (i) enhancing disaster risk management efforts; (ii) integrating climate change into public investment management processes; (iii) supporting development of green and inclusive finance; (iv) incentivizing low-carbon-growth activities.
  - Commitments involve IMF and other development partner capacity development support and set of specific RMs to be implemented during the program.
- Disaster risk management (DRM) measures:
  - With UNDP support, developing a new public portal to make climate hazard mapping data publicly available and include an online disaster reporting system (RM1 targeted by September 2025).
  - Established a technical working group to review the 1984 Disaster Management Act to modernize DRM legal framework and submit amendments to Parliament (RM2 targeted by March 2026).
  - IMF capacity development support to prepare a disaster risk financing strategy (RM3 targeted by September 2026).

### Climate-smart public investment and green finance
- Integrating climate considerations into public investment management (PIM):
  - Introduced a new requirement as part of 2026 Budget preparation for departments and agencies to screen new investment projects for climate-related disaster risk using agreed methodology and new project identification template (RM4 met).
  - Received additional IMF support to provide training to departments and agencies subject to the new requirement.
  - Drafting PIM regulations to integrate climate considerations into the project cycle (RM5 targeted by March 2026); work will benefit from upcoming IMF PIMA.
  - Department of Works and Highways is integrating climate change into maintenance standards and costing methodologies for national roads with World Bank and ADB support (RM6 targeted by March 2026).
- Green and Inclusive Taxonomy and Green Finance Center (GFC):
  - BPNG’s GFC receiving technical assistance from ADB, Agence Française de Développement and International Finance Corporation to develop technical screening criteria in renewable energy, energy efficiency, and clean transportation sectors, with a 2025 target.
  - Phased-in approach for RM7 deliverables including capacity development to banks and BPNG staff in 2025.
  - Develop and formalize supervisory guidelines for banks on mandatory regulatory reporting of exposures in the three sectors, with implementation timelines (RM7 targeted by March 2026).
  - Developing a national climate project database; drafting MOU between BPNG and Treasury to empower GFC to collect information and populate database (RM8 targeted by September 2026).
- Climate finance roundtable (March 2025):
  - Co-convened by authorities, IMF, World Bank, and ADB.
  - Agreed to explore: developing a project preparation facility and empowering newly established Climate Finance Unit; a guarantee and refinancing facility; a renewable energy platform; operationalizing PNG biodiversity and climate fund; technical assistance on forestry and carbon markets; exploring potential for a debt-for-nature swap.
  - Outcomes and initial partner commitments to be communicated through a joint press release by the COP30.

### Low-carbon incentives, taxation, and forestry sector fiscal measures
- Incentivize low carbon-growth while protecting vulnerable households:
  - Assessing options to revise fuel excise rates to shift tax burden towards fuels with higher carbon content while not increasing taxes for lower-income and vulnerable households.
  - Aim to implement this reform in the second or third RSF reviews (RM9 targeted by March 2025, delayed).
- Logging sector fiscal review:
  - Initiated review of existing royalties, taxes, and levies in the logging sector with ADB support to identify tax policy measures balancing forest preservation and socio-economic considerations (RM10 targeted by September 2025).

### Structural reforms, poverty reduction, and development priorities
- Structural reform agenda guided by PRGS and MTDP IV 2023-2027 focuses on macroeconomic stability, inclusive and sustainable growth, development and climate needs.
- Development challenges and objectives:
  - Poverty remains high; most people live in rural areas with limited infrastructure and services and high climate vulnerability.
  - Need to invest in basic infrastructure (power, utilities, transport), critical social services (education, health, security), and resilience.
  - MTDP IV 2023-2027 developmental objectives include: growing the economy to PGK200 billion by 2030; doubling both domestic revenue and export proceeds; creating one million additional jobs; improving quality of life for all citizens.
- Connect PNG program funding in 2025 Budget:
  - PGK690 million going directly to PNG Connect corridors in the 2025 Budget, and more to other ancillary roads and connections.
- Financing constraints and reforms:
  - 13-year budget repair plan aims to reduce fiscal deficits, put public debt on a downward path, and redirect resources to social and infrastructure priorities.
  - Central banking and governance reforms expected to improve business environment, attract foreign investment, and improve competitiveness, leading to higher economic growth and fiscal revenue increases.
  - Successful implementation of climate reforms under RSF expected to catalyze climate financing from bilateral and multilateral donors and the private sector.

### Financing strategy and program monitoring
- Role of Fund arrangements:
  - ECF/EFF arrangements help address immediate balance of payments needs, enable engagement with development partners, and accumulate durable buffers for a more flexible exchange rate system.
  - Fund arrangements reinforce Government commitment to sound macroeconomic policies and structural reforms, laying ground for durable, sustainable and inclusive growth and poverty reduction.
  - Fund financing helps build and maintain international reserve buffer to address FX market mismatches in line with roadmap for monetary policy and exchange rate reform, and allows for an ambitious but carefully paced fiscal consolidation path that preserves needed social spending.
  - Recently approved RSF will help address prospective balance of payments needs arising from climate change.

*Source: Excerpt from 1pngea2025001-print-pdf (page 26 onward).*

### 40. We are targeting an international gross reserves level of US$3.6 billion (4.4 months of

### 1pngea2025001-print-pdf - 40. We are targeting an international gross reserves level of US$3.6 billion (4.4 months of

### Reserves and external financing
- Target international gross reserves: US$3.6 billion (4.4 months of imports) by end-2026.
- Net international reserves (NIR) closed 2024 at US$3.2 billion (TMU definition), about US$1.1 billion above the QPC target floor.
- This reserves level factors in: continued reduction of the backlog of FX orders, external payment obligations, and disbursements of budget support loans at year close.
- Estimated external financing needs for the year: US$573 million.
  - Of this, 56 percent will come from disbursements under the Fund ECF/EFF arrangements, which will continue to be channeled toward budget support.

### Program monitoring, test dates, and reviews
- Review cycle: 6-monthly reviews for disbursements under the blended ECF/EFF arrangement based on quantitative performance criteria.
- Scheduled ECF/EFF reviews:
  - Fifth review: on or after September 18, 2025.
  - Sixth review: on or after March 18, 2026.
  - Seventh review: on or after September 18, 2026.
- Next three test dates:
  - June 30, 2025.
  - December 31, 2025.
  - June 30, 2026.
- Additional indicative assessment dates to guide implementation:
  - September 30, 2025.
  - March 31, 2026.
- RSF arrangement reviews will take place concurrently with ECF/EFF reviews; the RSF second, third and fourth reviews coincide with the ECF/EFF fifth, sixth and seventh reviews.
- Both ECF/EFF and RSF disbursements are used as budget support; memoranda of understanding between the Treasury and the BPNG have been signed to that effect.

### Program coordination and data sharing
- The Program Monitoring Committee coordinates PNG’s interactions with IMF staff, holds frequent meetings to provide updates on data and program performance, and requests Fund assistance.
- Continuous technical communication is maintained with Fund staff, including close contact with the IMF Resident Representative.
- Program monitoring coordinators appointed at the Treasury and BPNG to ensure timely transmission of comprehensive program-related data updates.
- Internally, the Committee brings together main stakeholders to coordinate program activities across PNG.

### Key quantitative performance criteria and indicative targets (selected highlights from Table 1)
- Fiscal deficit of the government (ceiling, cumulative from the beginning of the year):
  - Approved (December 2024): 4,810 (mn PGK) — Outcome: 4,138 — met
  - March approved: 1,159 — Outcome: 349 — met
  - June approved: 2,203; Proposed revision: 3,020; Approved proposed revision: 3,516; Indicative proposed: 629; 1,195 (mn PGK)
- Stock of net international reserves of the BPNG (floor, US$ millions):
  - December 2024 approved: 2,050 — Outcome: 3,183 — met
  - March approved: 1,988 — Outcome: 2,723 — met
  - June approved: 1,925; Proposed revision: 1,863; Approved: 1,800; Proposed: 1,850; Proposed: 1,900 (US$ millions)
- BPNG's gross credit to government (ceiling): 2,400 (mn PGK) across reported dates; outcomes met (e.g., 2,128; 2,062).
- Continuous QPC — New external payment arrears of the government (ceiling, US$ millions): 0 (approved), Outcomes reported: 8.5 (not met) in multiple entries.
- Present value of new external debt contracted or guaranteed by the government (ceiling, US$ millions):
  - Examples: Approved 1,425; Outcome 592 — met; Approved 810; Outcome 0 — met; Other figures include 810, 1,660, 500.
- Indicative targets — Non-resource tax revenue (floor, cumulative from the beginning of the year, mn PGK):
  - Approved 14,677; Outcome 14,740 — met
  - Quarterly and mid-year figures include 3,268; 3,350 — met; 6,537; 6,114; 12,173; 11,387; 16,676; 15,598; 3,426; 6,681.
- Social and other priority spending (floor, cumulative from the beginning of the year, mn PGK):
  - Approved 4,059; Outcome 8,439 — met
  - Quarterly/mid-year: 550; 1,458 — met; 1,650; 4,008; 5,500; 600; 1,800.
- Stock of unmet import-related FX payments in the orderbook (ceiling, mn PGK): Approved 75; Outcome 40 — met; subsequent targets include 50, 25, 0.

(Note: Table 1 contains the full matrix of QPCs, ITs and SBs for December 2024–June 2026; sources are Papua New Guinea authorities and Fund staff estimates.)

### Structural benchmarks (selected items, Table 2)
Budget repair
- Submit to Parliament amendments to the Internal Revenue Commission Act to establish a Board for IRC’s oversight — Implementation date: End-July 2025.
- Formulate a sequenced implementation plan for a Treasury Single Account (TSA) — Implementation date: End-December 2025.
- Create an interface between Meridian debt monitoring system and the IFMS to automate transfer and reconciliation of debt information — Implementation date: End-September 2025.
- Carry out in-depth analysis of tax expenditures, incentives and gaps affecting the corporate income tax base (listing, costing, assessment) — Implementation date: End-March 2026.
- Modify memorandum of understanding between BPNG and Treasury relating to T-bill and T-bond issuances to require publication of auction calendar and auction results — Implementation date: End-September 2025.

Governance and operations of the BPNG
- Develop liquidity forecasting framework and monitoring tables for weekly forecasts to the Monetary Operations Committee — End-July 2025.
- Develop and issue guidelines on emergency liquidity assistance (ELA), pursuant to section 76 of the Central Banking Act — End-December 2025.
- Align draft interbank Master Repo Agreement (MRA) with GMRA standard and share with commercial banks — End-December 2025.

Governance and Anti-corruption Framework
- Appoint the ICAC’s oversight committee as mandated by Part XII of the ICAC law — End-September 2025.
- Publish forestry sectoral risk assessment with guidance to improve forestry sector compliance with PNG’s AML/CFT requirements — End-December 2025.
- Update AML/CFT guidance for financial institutions and DNFBPs in consultation with Fund staff to include FATF-aligned low-risk guidance and sector-specific guidance — End-December 2025.

### RSF Reform Measures and timelines (selected RM entries, Table 3)
1. Enhancing Disaster Risk Management (DRM)
- RM1: Set up a public website providing access to existing hazard mapping data and formally appoint the coordinating agency — Target date: September 18, 2025.
- RM2: Submit amendments to the 1984 Disaster Management Act to update the DRM framework — Target date: March 18, 2026.
- RM3: Develop, adopt, and publish a comprehensive disaster risk financing strategy — Target date: September 18, 2026.

2. Integrating Climate Considerations into Public Investment Management
- RM4: Develop methodology for climate-related disaster risk screening and require screening for proposed major capital projects above PGK 10 million (included in project ID docs) — Target date: March 18, 2025: Met (completed in May 2025).
- RM5: Develop and adopt Public Investment Management regulations to incorporate climate change considerations — Target date: March 18, 2026.
- RM6: Pilot incorporation of climate change considerations in maintenance standards and costing for national roads — Target date: March 18, 2026.

3. Supporting Development of Green and Inclusive Finance
- RM7: Develop supervisory guidelines on mandatory regulatory reporting of FIs’ exposures aligned with the taxonomy for 3 priority sectors, implemented on banks representing at least 90 percent of total banking sector assets — Target date: March 18, 2026.
- RM8: (i) Empower the Green Finance Center (GFC) to collect data on climate investments through an MOU between BPNG and Treasury; (ii) Develop centralized national database on climate mitigation and adaptation projects — Target date: September 18, 2026.

4. Supporting mitigation policies
- RM9: Submit amendments to the Excise Tariff Act to shift tax burden toward fuels with higher carbon content — Target date: March 18, 2025: Delayed.
- RM10: Carry out comprehensive review of royalties, taxes, and levies in the logging sector to inform tax policy measures — Target date: September 18, 2025.

### Technical Memorandum of Understanding (TMU) — assessment framework and definitions
- TMU sets understanding between Papua New Guinea authorities and the IMF on definitions of performance criteria and indicative targets under the ECF/EFF program (starting March 2023) and reaffirms data transmission terms and timeframes.
- Assessment criteria: Fifth Review assesses end-June 2025 test date; Sixth Review assesses end-December 2025 test date; Seventh Review assesses end-June 2026 test date. Indicative assessment dates: end-September 2025, end-March 2026, end-September 2026.
- Government definition: central government of the Independent State of Papua New Guinea; central government includes Extra Budgetary Units; budgetary central government excludes extra budgetary units; general government includes national and provincial governments, Autonomous Bougainville government, and commercial and statutory authorities.
- Exchange rates (end of period, 2022) used for conversions:
  - PGK/USD 3.524
  - PGK/AUD 2.387
  - USD/SDR 1.330
- Debt definition: in line with Executive Board Decision No. 15688-(14/107), Point 8(a) and (b); debt includes loans, suppliers’ credits, leases (present value at inception), and arrears/penalties/judicially awarded damages arising from failure to make payment under contractual obligations that constitute debt.

*Source: Papua New Guinea authorities and IMF staff as presented in the provided content.*

### 5.      For the purposes of this ECF/EFF program, debt shall include borrowing by, or that

### 5.      For the purposes of this ECF/EFF program, debt shall include borrowing by, or that 

### Definitions: Debt and External Debt
- Debt includes borrowing by, or that receives guarantees from, the central government and the Bank of Papua New Guinea (BPNG) as set out in paragraph 9.
- Accumulation of liabilities for the purposes of conducting monetary policy by the BPNG, including the issuance of securities or other marketable instruments such as central bank bills or notes, is excluded from the definition of debt.
- External debt of the government is defined as a debt denominated, or requiring payment, in a currency other than the Kina.
- A debt and/or guarantee is considered contracted when all conditions for its coming into effect have been met, including approval by the National Executive Council.
- Contracting of credit lines with no predetermined disbursement schedules or with multiple disbursements is considered contracting of debt.
- The definition of “debt” for program purposes references the “Guidelines on Performance Criteria with respect to External Debt” (Decision No. 14416-(09/91) as revised on August 3, 2009).

### Fiscal Performance Criteria: Cumulative Fiscal Deficit (QPC)
- The fiscal deficit is calculated on a modified cash basis as the net acquisition of financial assets less net incurrence of financial liabilities by the budgetary central government from the start of the fiscal year on January 1, as set out in Table E (“Transactions in Assets and Liabilities”) in the 2023 Final Budget Outcome.
- Net acquisition of financial assets = net change in domestic financial assets (balances of Treasury accounts at the BPNG + government check and transfer float balances) + net change in external financial assets.
- Net incurrence of liabilities = net incurrence of domestic liabilities + net incurrence of external liabilities.
  - Domestic liabilities include: debt securities outstanding; loans received from residents of PNG; insurance, pension and standardized guarantee schemes; financial derivatives and employee stock options; and other accounts payable.
  - External liabilities include: debt securities outstanding; loans received from lenders not resident of PNG; and any other liabilities meeting the external debt definition.
- For program assessment, cumulative fiscal deficits at end-June 2025, end-December 2025 and end-June 2026 (PCs) and end-September 2025 and end-March 2026 (ITs) must be smaller than or equal to the amounts specified in Table 1 of the MEFP.

### Net International Reserves (NIR) of BPNG — Floor
- Net international reserves (stock) = gross foreign assets − the use of IMF credit.
- Gross foreign assets are the sum of:
  - BPNG’s holdings of monetary gold (excluding amounts pledged as collateral);
  - Holdings of Special Drawing Rights (SDRs);
  - BPNG holdings of convertible currencies in cash or in nonresident financial institutions (deposits, securities, or other financial instruments);
  - Papua New Guinea’s reserve tranche position with the IMF.
- Gross foreign assets exclude:
  - Any foreign currency claims on residents;
  - Capital subscriptions in international institutions;
  - Assets obtained through currency swaps of less than three months duration;
  - Pledged, swapped, or any encumbered reserve assets (including reserve assets used as collateral or guarantees for third-party external liabilities);
  - Precious metals other than gold, assets in nonconvertible currencies and illiquid foreign assets.
- The use of IMF credit includes credit outstanding under IMF financing programs with Papua New Guinea (including resulting from the ongoing ECF/EFF arrangements and proposed RSF arrangement).
- For program assessment, the stock of net international reserves at end-June 2025, end-December 2025 and end-June 2026 must be equal or greater than the amounts specified in Table 1 of the MEFP.
- Adjustor for shortfall in disbursements: The floor on NIR will be adjusted downward by the amount of the shortfall in program loan and grant disbursements from multilateral institutions and bilateral partners, relative to the baseline projection reported in Table 2.
  - Program loan and grant disbursements are defined as external loan and grant disbursements (excluding project financing disbursements) from official creditors that are freely usable for financing budget operations.
- Table 2: Expected disbursements of program loans and grants by multilaterals and bilateral partners (cumulative from January 1, 2025), in millions of US dollars:
  - June 2025: 0
  - September 2025: 0
  - December 2025: 250

### Ceiling on BPNG’s Gross Credit to Government
- BPNG’s gross credit to government is defined as the sum of:
  - government securities held by BPNG at amortized cost, including T-bills and T-bonds;
  - advances made by BPNG to the central government excluding temporary advances made within the Temporary Advance Facility (TAF);
  - loans made by BPNG to the central government excluding on-lent IMF or other external financing by BPNG to the government.
- For program assessment, BPNG’s gross credit to government at end-June 2025, end-December 2025 and end-June 2026 must be lower than or equal to the amounts specified in Table 1 of the MEFP.

### Continuous Performance Criterion: PV Ceiling on New External Debt Contracted or Guaranteed
- Present value (PV) of any external borrowing by the government = stream of annual discounted future debt service payments for each loan, using a discount rate of 5 percent.
- For variable-rate debts (benchmark rate + fixed spread), the PV uses a program reference rate plus the fixed spread (in basis points) specified in the contract.
  - Program reference rate for the six-month USD LIBOR is 2.73 percent and will remain fixed for the duration of the program.
  - If the variable rate is linked to a benchmark other than six-month USD LIBOR, a spread reflecting the difference between that benchmark and six-month USD LIBOR (rounded to the nearest 50 bps) will be added.
  - For interest rates on the Australian Dollar, the spread over six-month USD LIBOR is 50 basis points.
- Continuous ceiling (PV terms) on contracting or guaranteeing new external debt by the Government or the BPNG applies to cumulative amount contracted/guaranteed from January 1 of each year for which value has not yet been received (including private debt with official guarantees).
  - 2025 ceilings (subject to adjustor in paragraph 22): USD810 million from the date of the completion of the Fourth Review until June 30, 2025; and USD1,660 million from July 1 until December 31, 2025.
  - 2026 ceiling (subject to adjustor): USD500 million from January 1, 2026 onwards.
- Adjustor of up to 5 percent of the external debt ceiling (PV terms) applies if deviations are prompted by a change in financing terms (interest, maturity, grace period, payment schedule, upfront commissions, management fees). The adjustor cannot be applied when deviations are prompted by an increase in the nominal amount of total debt contracted or guaranteed.
- A debt is considered contracted when all conditions for its entry into effect have been met, including approval by the National Executive Council. Contracting of credit lines with no predetermined disbursement schedules or with multiple disbursements is considered contracting of debt.
- Government debt guarantee = explicit legal obligation of the central government or the BPNG to service a debt in the event of nonpayment by the borrower.

### Ceiling on New External Payment Arrears
- External payment arrears of the government = external debt obligations of the government that have not been paid when due in accordance with contractual terms (taking into account contractual grace periods).
- Exclusion: the outstanding claim of USD2.6 million related to a guarantee issued on May 20, 2016 by the authorities in favor of Bank Leumi Le-Israel B.M., the validity of which the authorities are currently disputing, is excluded until the authorities cease to dispute its validity and the claim is unpaid when due.

### Other Assessment Criteria
- During the program period, Papua New Guinea will not:
  - Impose or intensify restrictions on the making of payments and transfers for current international transactions;
  - Introduce or modify multiple currency practices (MCPs);
  - Conclude bilateral payment agreements inconsistent with Article VIII of the IMF Articles of Agreement;
  - Impose or intensify import restrictions for balance of payments reasons.

### Indicative Targets and Definitions
- Indicative targets are set for test dates (end-June 2025, end-December 2025 and end-June 2026) and assessment dates (end-September 2025 and end-March 2026); they serve to assess progress but are not binding quantitative criteria.
- Definitions:
  - Non-resource tax revenues: defined in line with the GFSM 2014; consist of taxes on income, profits, and capital gains; taxes on payroll and workforce; taxes on property; taxes on goods and services; and taxes on international trade and transactions, excluding mining and petroleum taxes.
  - New domestic payment arrears of the budgetary central government: overdue domestic payment obligations owed to entities legally incorporated in Papua New Guinea and residents of Papua New Guinea; include obligations to domestic service providers but exclude government liabilities to other public sector units and exclude obligations related to purchases of goods and services.
    - Payments are in arrears when:
      - Domestic debt remains unpaid for more than 30 days after the due date stipulated in the agreement; or
      - Wages or pensions remain unpaid 90 days after their due date.
  - Stock of unmet import-related FX orders: total amount of FX orders related to imports of goods compliant with BPNG’s published FX regulations and submitted by authorized foreign exchange dealers to BPNG’s orderbook more than two months prior to the assessment date.
  - Social and other policy priority spending: measured on a cash basis and comprises budgetary central government spending in health, education and law and order (both capital and operating expenses).

### Program Monitoring and Data Reporting
- A Program Monitoring Committee composed of senior officials from the Treasury and the BPNG shall:
  - Monitor program performance, inform the Fund regularly, and transmit supporting materials necessary for evaluation of benchmarks.
  - Report any non-observance of continuous QTs to the IMF promptly.
- The Committee will prepare and provide electronically to Fund staff the information contained in the data reporting table.
- Selected reporting items and specifics (sample entries):
  - Net acquisition of financial assets and net incurrence of financial liabilities (Budget operations) — Treasury — Monthly — Reporting lag: 1 month.
  - External loans disbursed and external debt instruments issued, repaid and redeemed — Debt — Treasury — Monthly — 1 month.
  - Domestic financial assets accumulated including deposits at the BPNG — Debt — Treasury — Bi-annual — 1 month.
  - Stock of cheque float and transfer float at end-month — Cash — Treasury — Monthly — 1 month.
  - Payments incurred by the budgetary central government on education, health, and law and order (both capital and current spending) — Debt — Treasury — Monthly — 1 month.
  - Stock of domestic arrears and verified/unverified claims under the Arrears Verification program — Domestic Arrears — Treasury — Monthly — 1 month.
  - Total non-resource tax revenues received by the central government — Revenue — Treasury — Monthly — 6 weeks.
  - Monthly cash plan — Cash — Treasury — Monthly — 1 month.
  - Stock of external debt, disbursements, amortization, interest, fees, face value, maturity, interest rate, payment schedule — External debt — Treasury — Monthly — 1 month.
  - Detailed BPNG balance sheet data, amount of government securities held by BPNG at amortized cost — Monetary — BPNG — Monthly — 1 month.
  - Daily sale of FX (in USD) by the BPNG to authorized FX dealers (detailed by dealer) — FX — BPNG — Weekly — 1 week.
  - Net international reserves, including reserve assets/liabilities by original currency — BOP — BPNG — Monthly — 1 month.
  - Balance of Payments data in the reporting template — BOP — BPNG — Quarterly — 3 months.
  - Financial Soundness Indicators, lending activity of banks, depository corporations survey, exchange rates, auction results, and other specified monetary, financial and external sector data — various types — BPNG — Monthly/Quarterly/Weekly as specified with reporting lags from 1 week to 3 months.

*Source: 1pngea2025001-print-pdf*

### 1.      The de jure exchange rate arrangement is floating. The exchange rate of the kina is

### 1pngea2025001-print-pdf - 1.      The de jure exchange rate arrangement is floating. The exchange rate of the kina is

### Exchange rate framework and recent classification
- De jure arrangement: floating; the exchange rate of the kina is determined in the interbank market with authorized dealers participating.
- BPNG interventions: intervenes to smooth extreme fluctuations; publishes intervention data in its annual report and semi-annual monetary policy statement.
- Historical policy actions and classification:
  - On June 4, 2014, the BPNG introduced an exchange rate trading margin with a kina buying rate within 75 basis points (bps) above the interbank midrate and a kina selling rate within 75 bps below the midrate.
  - From May 2023, the exchange rate followed a depreciating trend with a 2 percent band against the U.S. dollar, with one realignment in October 2023.
  - De facto arrangement reclassified to “crawl-like” from “stabilized”, effective May 4, 2023.

### Temporary crawl-like arrangement (since January 3, 2024)
- Purpose: support the gradual return to kina convertibility.
- Anchor currency: U.S. dollar.
- Rate of crawl calculation: relies on both the latest estimate of the real misalignment of the kina and inflation differentials with major trading partners.
- Band and review:
  - A two percent-wide crawling band for the nominal exchange rate is implemented.
  - The rate of crawl is reviewed and updated on a biannual basis.

### Exchange restrictions and Article VIII status
- Current exchange restrictions subject to IMF approval under Article VIII, Section 2(a), arising from:
  - (i) requirement to obtain a tax clearance certificate (TCC) evidencing the payment of all taxes prior to making payments or transfers for certain current international transactions;
  - (ii) rationing of FX, resulting in undue delays and arrears in current international payments.
- Multiple currency practices: Papua New Guinea does not currently maintain any multiple currency practices subject to Fund approval under Article VIII, Section 3.

### IMF engagement and technical assistance (May 2023 – April 2025)
- Monetary and Capital Markets Department (MCM)
  - Design of a reform roadmap (“Roadmap”) for transition to greater exchange rate flexibility and to a monetary regime based on an exchange rate nominal anchor (Jun 5 – 17, 2023).
  - Peripatetic TA support addressing capacity challenges and operationalization of the 2024 Central Banking Act amendments; TA engagements over Nov 11 – 29, 2024 and Feb 17 – 28, 2025.
  - Financial Sector Stability Review (FSSR): four TA missions over Sep 26 – 28, 2023; Jan 11 – 15, 2024; Jun 20 – Jul 1, 2024; Mar 19 – 21, 2025.
  - Local Currency Bond Market (LCBM) development: joint IMF/World Bank mission (Jan 2-29, 2025); follow-up mission with PFTAC (Mar 17 -28, 2025).
- Fiscal Affairs Department (FAD)
  - Tax policy and Income Tax Act (ITA) amendments: initial TA Jun 1-12, 2023; follow-up engagements Nov 7-20, 2023; Aug 5-16, 2024; Oct 28 – Nov 1, 2024; Mar 12-19, 2025.
  - TADAT reassessment (Nov 18 – Dec 5, 2024) to evaluate IRC administration and establish new baselines under the MTRS and IRC Strategic Plan (2023 – 2028).
  - Public Financial Management TA (Mar 13-26, 2024) on expenditure control, cash management, and preparing for a treasury single account.
  - Climate policy TA: CPD (Jul 2 –15, 2024); CPIMA (Jul 24 – Aug 2, 2024) and follow-up (Feb 19-25, 2025).
- Statistics Department (STA)
  - External Sector Statistics TA with CDOT: missions Nov 27 – Dec 8, 2023 and Nov 25 – Dec 6, 2024.
  - GFS/PSDS engagement with PFTAC: missions Aug 2-15, 2023; Feb 12-23, 2024; Feb 17-28, 2025.
- Institute for Capacity Development (ICD)
  - Financial Programming and Policies (FPP) 2.0 engagement with PFTAC: missions May 10-25, 2023 and Jul 3-7, 2023.

### PFTAC engagement and areas of support (as of end-April 2025)
- Tax Administration and Policy: support to IRC on revenue administration management, people performance systems, IT systems quality review, and participation in TADAT reassessment (November 2024).
- Public Financial Management: support on CPIMA evaluation and expenditure control/cash management; expected support for FAD’s upcoming PIMA mission and request on financial reporting standards.
- Financial Sector Regulation and Supervision: five years of assistance; February 2025 engagement focused on implementation of Pillar 2 of the Basel Framework and developing a prudential standard for Basel III Net Stable Funding Ratio.
- Economic and Financial Statistics: ongoing GFS and PSDS support; assistance on national accounts and expenditure-based GDP development.
- Macroeconomic Analysis: support since 2024 on nowcasting tools for GDP, construction of expenditure-based GDP measure, and macroframework strengthening.
- Public Debt Management: support for Medium-Term Debt Management Strategy and annual Debt Financing Plan; January 2025 LCBM diagnostic mission and March 2025 follow-up on quarterly issuance plan and auction templates.

### Debt Sustainability Analysis (DSA) — summary findings and risks
- Joint Bank-Fund DSA (May 28, 2025) outcomes:
  - Risk of external debt distress: High
  - Overall risk of debt distress: High
  - Granularity in the risk rating: Sustainable
  - Application of judgment: No
- Drivers and vulnerabilities:
  - Weak debt-carrying capacity noted; Composite Indicator (CI) of 2.57 based on October 2024 WEO and World Bank CPIA (2023).
  - External debt risks elevated due to liquidity risk associated with the bullet payment on the existing Eurobond in 2028 and higher official bilateral and multilateral debt service payments in the first half of the forecast horizon.
  - Domestic debt vulnerabilities elevated, contributing to persistent breaches of the PV of overall debt to GDP ratio.
- Policy implications:
  - Planned fiscal consolidation helps address debt vulnerabilities.
  - Breaches of liquidity indicators can be addressed by debt management operations and enhanced revenue generation.
  - PNG is susceptible to trade-related and contingent liabilities shocks, as well as climate change, underscoring downside risks to the public debt outlook.
  - Fiscal consolidation, structural reforms fostering private sector growth, and climate-related adaptation and mitigation measures would lower the risk of public debt distress and support sustainability.
  - Conditional on implementation of the authorities’ planned fiscal consolidation and conservative financing strategies, public debt is assessed as sustainable.

### Public sector debt coverage and contingent liabilities stress test
- Coverage in DSA: central government, state and local government, and guarantees to other entities in the public and private sector, including parts of SOEs.
- Known gaps and assumptions:
  - Debt numbers do not fully capture implicit government-guaranteed debts of SOEs and unfunded superannuation liabilities relating to pensions.
  - Contingent liabilities stress test assumptions:
    - Assume 9 percent of GDP as SOE debt not captured in official public debt data.
    - Stock of explicit government guarantees is around 1.3 percent of GDP.
    - 3 percent of GDP for other elements of general government (mainly unfunded superannuation liabilities related to pensions, estimated to be close to 2 percent of GDP in 2024).
    - Financial market shock of 5 percent (default value).
  - With these assumptions, the cumulative shock in the contingent liabilities stress test amounts to 17 percent of GDP—compared to 7 percent under default assumptions.
- Notes on data coverage and limitations:
  - Comprehensive data on the debt stock of SOEs in PNG is not publicly available.
  - The ADB has been supporting reforms to strengthen SOE governance and financial transparency, including adoption of an amended Kumul Consolidated Holdings Act in 2021.
  - Currency is used to define external debt; no material difference with currency denomination criteria in PNG.

*Source: https://www.imf.org/-/media/files/publications/cr/2025/english/1pngea2025001-print-pdf.pdf*

### 2.      Between 2017 and 2024, the stock of public debt in PNG increased from around

### Between 2017 and 2024, the stock of public debt in PNG increased from around 24 billion Kina to just above 65 billion Kina

### Debt stock, composition, and recent official financing
- Public debt increased from around 24 billion Kina to just above 65 billion Kina between 2017 and 2024.
- External loans account for almost two thirds of the increase, with creditor composition shifting away from commercial loans toward official multilateral and bilateral financing.
- Public and Publicly Guaranteed (PPG) external debt figures used for this DSA are consistent with the World Bank’s International Debt Statistics.
- IMF general allocation of SDRs:
  - SDR 252 million (US$ 357 million, or 95.7 percent of quota) allocated to PNG (effective August 2021); the authorities used the full allocation to support the 2021 budget and replaced costly financing.
  - For DSA purposes the SDR allocation is included in total public debt and associated debt service is reflected.
- IMF arrangements:
  - SDR 684.3 million (260 percent of quota) under the Extended Credit Facility (ECF) and the Extended Fund Facility (EFF) approved March 2023; arrangements extended in December 2024 by 7 additional months and now expected to expire in December 2026.
- Resilience and Sustainability Facility (RSF):
  - 24-month RSF approved December 2024; disbursements associated with the RSF would reach SDR 197.4 million (75 percent of quota) by the end of 2026.
  - RSF reform measures aim at (i) supporting climate mitigation policies, (ii) enhancing disaster risk management efforts, (iii) integrating climate considerations into public investment management processes, and (iv) supporting the development of green and inclusive finance.
- World Bank/IDA:
  - PNG is an IDA blend country with total IDA20 allocation SDR 208.1 million (US$ 274.4 million).
  - Under IDA21 (effective July 1, 2025), PNG would receive financing in Blend term fixed rate concessional credits, with no SMLs.
  - FY23 PPAs missed (including a US$1 billion PPG external borrowing limit), causing a 20 percent set-aside from FY24 IDA allocation; set-aside recovered at start of FY25 after meeting PPAs by June 2024.
  - FY25 PPAs include a US$1.425 billion PPG external borrowing ceiling (applied throughout the year) and implementation of a Dividend Policy for state holding companies.

### Macroeconomic outlook and assumptions (selected figures)
- Growth:
  - Real GDP growth 2024 estimated at 3.8 percent (resource sector 1.7 percent; non-resource sector 4.5 percent).
  - Real GDP growth projected 2025: 4.7 percent; 2026: 3.5 percent; 2027: 3.1 percent; 2028-2030: 3.1 percent (2025 ECF/EFF fourth rev. vintages).
  - Resource sector growth (2025 ECF/EFF fourth rev.): 4.7 (2025), 1.4 (2026), 0.1 (2027), 0.2 (2028-2030).
  - Non-resource sector growth (2025 ECF/EFF fourth rev.): 4.8 (2025), 4.2 (2026), 4.1 (2027), 4.0 (2028-2030).
- Inflation (annual average, consumer prices):
  - 2022 peak: 5.3 percent.
  - 2023: 2.3 percent.
  - 2024: 0.6 percent.
  - Projected: 2025 4.8 percent; 2026 4.6 percent; 2027 4.6 percent; 2028-2030 4.5 percent (2025 ECF/EFF fourth rev.).
- External sector:
  - Current account balance estimated 2024: 15.6 percent of GDP (up from 9.0 percent in 2023).
  - Projected current account (2025 ECF/EFF fourth rev.): 10.8 percent (2025), 12.7 percent (2026), 11.3 percent (2027 and 2028-2030).
  - Growth of exports of G&S (US$, percent): 10.4 (2025), 1.3 (2026), 4.3 (2027), 5.4 (2028-2030) — 2025 ECF/EFF fourth rev.
  - Growth of imports of G&S (US$, percent): 22.2 (2025), 8.1 (2026), 3.3 (2027 and 2028-2030) — 2025 ECF/EFF fourth rev.
- Macro assumptions note:
  - Long-term potential real growth rate estimated at around 3 percent.
  - Medium-term inflation projected to reach an annual average of 4.5 percent.
  - Current account surplus forecast to remain strong, moderating to around 10 percent of GDP in the medium term.

### Fiscal policy, consolidation plans, and financing
- Fiscal consolidation and objectives:
  - Authorities aim to strengthen debt sustainability through a multi-year fiscal consolidation program while protecting critical social and development needs; consistent with the Fiscal Responsibility Act target of government debt no more than 40 percent of GDP over the long term.
  - Revenue mobilization is critical; revenue expected to reach 17.9 percent of GDP in 2025 and increase toward 19 percent of GDP in the medium term based on the Medium-Term Revenue Strategy (MTRS).
  - Key revenue measures include amendments to the Income Tax Act (ITA), streamlining/phasing out the Infrastructure Tax Credit scheme, and narrowing exemptions in Special Economic Zones.
  - Authorities project higher tax revenues from the PNG LNG project as depreciation allowances decline; scope for higher dividends after loan amortization (not fully included in the baseline).
  - Primary surpluses are projected as early as 2026 under the significant fiscal consolidation built into the projection.
- Fiscal operations summary (Text Table 4 — selected rows, percent of GDP):
  - Revenue and grants: 17.9 (2025), 18.6 (2026), 18.8 (2027).
  - Taxes: 15.1 (2025), 15.6 (2026), 15.8 (2027).
  - Expenditure: 20.5 (2025), 19.7 (2026), 18.8 (2027).
  - Expense: 16.9 (2025), 16.3 (2026), 15.4 (2027).
  - Compensation of employees: 5.7 (2025), 5.5 (2026), 5.2 (2027).
  - Use of goods and services: 5.1 (2025), 4.9 (2026), 4.6 (2027).
  - Interest: 2.6 (2025), 2.6 (2026), 2.3 (2027).
  - Net acquisition of nonfinancial assets: 3.6 (2025), 3.4 (2026), 3.4 (2027).
  - Gross operating balance: 3.6 (2025), 4.9 (2026), 5.7 (2027).
  - Net lending (+)/borrowing (-): -2.6 (2025), -1.2 (2026), 0.0 (2027).
  - Primary balance: 0.0 (2025), 1.4 (2026), 2.3 (2027).
- Financing mix and domestic debt market:
  - DSA assumes composition of T-bills and T-bonds broadly balanced over the forecast horizon, approaching 50 percent T-bills of new issuances by the end of the decade.
  - In 2024 domestic financing relied largely on T-bills (close to 80 percent of issuances).
  - High concentration in short-term T-bills raises rollover and liquidity risks; these risks fall throughout the projection horizon as deficits convert to surpluses, particularly after 2027.
  - Continued development of the domestic debt market and shift to longer maturities remain necessary.

### Debt carrying capacity, stress tests, and risks
- Debt carrying capacity:
  - PNG’s Composite Indicator (CI) is 2.57 (October 2024 WEO and 2023 CPIA), indicating weak debt-carrying capacity.
  - Applicable DSA thresholds:
    - PV of external debt-to-GDP ratio: 30 percent.
    - PV of external debt-to-exports ratio: 140 percent.
    - External debt service-to-exports ratio: 10 percent.
    - External debt service-to-revenue ratio: 14 percent.
    - PV of public debt-to-GDP ratio: 35 percent.
- Scenario stress tests and assumptions:
  - A contingent liabilities stress test is included to account for SOE debt not captured in official public debt data.
  - Commodity price shocks included due to resource sector importance (commodities >95 percent of goods and services exports):
    - Fuel price shock: 35 percent.
    - Non-fuel commodity price shock: 26 percent (with 20 percent for base metals and precious metals, and 37 percent for agricultural commodities other than grain).
    - Price shocks to grain (wheat, corn, soybeans) not included.
    - Mitigating factors calibrated close to default values: 2 percent for fuel and 38 percent for non-fuel.
  - Market financing module activated by PNG’s single outstanding Eurobond (maturing in 2028).
  - A tailored natural disasters stress test was conducted given PNG’s vulnerability to climate change (see Climate Change Risks section in the source text).
- Main downside risks to the baseline:
  - Natural disasters (earthquakes, volcanic eruptions) and extreme weather events (flooding, landslides, droughts, storm surge, sea level rise).
  - Lower global growth leading to lower commodity prices, with adverse effects on payments and budget.
  - Social or political instability that could delay or hinder reforms and weaken the business environment.
  - Limited financing options in adverse scenarios and continued development needs constrain policy room.
- Upside risks:
  - Higher-than-expected commodity prices.
  - Start of major projects not included in the baseline (Papua LNG, P’nyang LNG, Wafi Golpu mining).

### DSA realism and assessment of fiscal adjustment
- Realism tools:
  - The LIC DSA’s realism tools indicate the government’s primary balance adjustment is moderately ambitious.
  - The 2025-2027 cumulative primary balance adjustment is about 3.5 percent, within the top 25 percent of historical experiences relative to peers.
  - Much of the adjustment occurs during 2025-2026.
  - Baseline growth projection is somewhat higher than the path implied by fiscal multipliers, due to supply-side improvements in the mineral sector and low historical correlation between fiscal consolidation and non-resource growth.

*Source: IMF staff report text as provided.*

### 16.      Under the baseline scenario, the debt-service to revenue indicator is projected to breach its

### 16. Under the baseline scenario, the debt-service to revenue indicator is projected to breach its threshold

### Baseline scenario: liquidity and solvency findings
- Debt-service-to-revenue indicator:
  - Projected to breach the threshold (14) under the baseline scenario.
  - A relatively large breach in 2028 arises due to the bullet payment for the US$500 million Eurobond, which was issued in 2018.
  - Marginal breaches also arise in 2026-2027 and 2029-2030 as the debt-service-to-revenue ratio surpasses 14 due to higher official bilateral and multilateral debt service payments given larger share of FX debt and a weaker Kina.
  - This liquidity indicator falls below the threshold in the second part of the forecast horizon.
- Other external solvency and liquidity indicators:
  - Present value of debt-to-GDP ratio, debt-to-exports, and debt service-to-exports ratios remain below their respective thresholds over the entire projection horizon under the baseline.
  - Solvency indicators remain below their respective thresholds and trend downwards from 2026 onwards.
- Authorities’ actions:
  - Authorities are preparing a redemption plan for the US$500 million Sovereign Bond maturing in 2028, and have requested additional technical assistance to enhance debt management capabilities.
  - Options under consideration include using accumulated buffers, a partial and a full rollover.

### Composite Indicator (CI) and applicable thresholds (selected values)
- CI Score components (A*B = C) and contributions:
  - CPIA: Coefficient 0.385; 10-year average 2.850; CI component 1.10; Contribution 43%
  - Real growth rate (in percent): Coefficient 2.719; 10-year average 2.644; CI component 0.07; Contribution 3%
  - Import coverage of reserves (in percent): Coefficient 4.052; 10-year average 41.599; CI component 1.69; Contribution 66%
  - Import coverage of reserves^2 (in percent): Coefficient -3.990; 10-year average 17.305; CI component -0.69; Contribution -27%
  - Remittances (in percent): Coefficient 2.022; 10-year average 0.002; CI component 0.00; Contribution 0%
  - World economic growth (in percent): Coefficient 13.520; 10-year average 2.967; CI component 0.40; Contribution 16%
  - CI Score: 2.57 (100%)
  - CI rating: Weak
- Applicable external debt burden thresholds:
  - TOTAL public debt benchmark: PV of debt in % of GDP = 35
  - PV of total public debt in percent of GDP = 35
  - PV of debt in % of Exports = 140
  - PV of debt in % of GDP = 30
  - Debt service in % of Exports = 10
  - Debt service in % of Revenue = 14

### Stress tests and shock scenarios: key results
- Exports shock:
  - Exports shocks would cause threshold breaches for all four external debt indicators.
  - For public debt, the exports shock is the most extreme: PV of public debt-to-GDP ratio peaks at 65.0 percent of GDP in 2027, compared with the 35 percent benchmark and a starting level of 47 percent of GDP in 2025.
- Natural disaster tailored stress test:
  - Only leads to marginal and short-lived breaches in the PV of debt-to-GDP ratio.
  - Breaches in the debt service-to-revenue ratio are only resolved by the beginning of the next decade.
  - Calibration: standard 10 percent of GDP one-off shock to external PPG debt-GDP ratio; one-off 4 percentage points decline in real GDP growth; standard 3.5 percentage points shock on exports growth.
  - Results illustrate limited scope for meeting additional financing needs in the stress scenario without putting pressure on external debt liquidity indicators in a protracted manner and jeopardizing overall public debt sustainability.
- Market financing risk module:
  - Indicates a moderate risk of heightened liquidity pressures primarily due to elevated GFNs.
  - A heightened market stress event would not have a substantial impact on debt burden indicators as few future external debt disbursements are projected on commercial terms.

### Public sector debt sustainability analysis: recent developments and projections
- Levels and trajectory:
  - Public debt PV ratios increased substantially in recent years and are expected to moderate from close to 50 percent of GDP recorded last year.
  - Starting from this level, the public debt sustainability indicator is in breach of the threshold for countries with weak debt-carrying capacity (35 percent of GDP) until 2029.
  - Under the baseline, public debt-to-GDP ratio: falls towards 50 percent of GDP by 2026 and approaches the 40 percent of GDP legal limit by the end of this decade.
  - Downward trend driven by stronger real GDP growth and smaller fiscal deficits relative to the past 5 years, as authorities’ fiscal consolidation efforts persist.
- Composition and rollover risk:
  - High concentration of domestic debt in short-term bills and an undiversified creditor base highlights rollover risks.
  - At end-2024, commercial banks held about 13 percent of GDP of T-bills and T-bonds.
  - The largest bank accounts for roughly two thirds of total financial system assets and held 3/5 of all government securities at end-2024.
  - Central bank holdings of government securities: 1.8 percent of GDP at end-2024 (capped under the IMF’s ECF/EFF arrangement).
  - Rest of public domestic debt mostly held by superannuation (pension) funds.
- Policy options to lower risks:
  - Diversifying issuance by issuing longer term Treasury bonds would lower rollover risks, make debt service costs more predictable, and help financial deepening.
  - Fall in short-term debt from a peak just above PGK14 bn in 2023 mitigates liquidity risks.
  - Residuals from unidentified debt creating flows recorded in 2021 (3.5 percent) are not anticipated to be repeated.
  - Domestic public debt-to-GDP and related service are expected to fall, approaching the median of LICs over the next decade under ambitious fiscal consolidation.
- Stress-test results for public debt:
  - Combined contingent liability shock causes deterioration felt most acutely through total public debt service-to-revenue ratio.
  - Contingent liabilities represent an important source of vulnerabilities.
  - Trajectory of PV of public debt-to-revenue ratio is most impacted by the exports shock.

### Climate change risks and alternative climate scenarios
- Vulnerability and long-term impacts:
  - PNG is highly vulnerable to climate change and climate-related natural disaster shocks (floods, droughts, landslides, rising sea levels).
  - Under a high emissions scenario and in the absence of additional adaptation, climate change could trigger a loss of PNG’s annual GDP of 4 percent by 2050 and 15 percent by 2100.
  - Climate impacts include: hindered growth and employment, food and water insecurity, damage to critical infrastructure, increased reconstruction costs, decreased fiscal revenues, and higher public debt.
- Natural disaster stress test:
  - Inspired by historical events; calibration assumes a shock to GDP growth equal to expected impact by 2050 in a high emissions scenario.
  - Results highlight limited scope for additional financing without prolonged pressure on external debt liquidity indicators and jeopardizing overall public debt sustainability.
  - Emphasizes need to expedite institutional reforms and capacity building to improve public investment efficiency, reduce leakages, and promote private contributions to climate-related investments.
- Climate alternative scenario (ADB pessimistic/higher emissions baseline plus adaptation financing):
  - Assumes permanent GDP level loss of 4 percent by 2050 relative to baseline.
  - Annual adaptation needs by 2030 financed with public resources: cost estimated at 2 percent of GDP every year for the next 10 years, with a financing mix of 55 percent external and 45 percent domestic.
  - Assumes adaptation investments mitigate GDP level loss to only 2 percent by 2040.
  - Fiscal revenues decrease relative to baseline; exports fall by 5 percent relative to baseline each year (½ of estimated agricultural production losses); bulk of adaptation investments rely on imported goods.
  - Results:
    - External and domestic debt indicators edge higher relative to baseline.
    - PV of debt-to-GDP breaches the relevant threshold before returning to a downward path.
    - Debt service-to-revenue ratio shows protracted breaches extending through most of the first 10 years when adaptation investments occur.
    - Overall public debt solvency indicator would fail to return below 35 percent of GDP during the forecast horizon.
    - If a natural disaster shock of similar magnitude were to occur under this alternative scenario, PNG’s public debt would assume an unsustainable path.
- Policy implications for climate response:
  - Authorities should increase climate responsiveness of existing investment plans while mobilizing additional highly concessional climate financing and private sector solutions supported by market incentives.
  - Development partner support is essential to calibrate public participation in adaptation consistent with preserving debt sustainability.
  - Implementation of reforms anchored in the IMF RSF would help by:
    - supporting climate mitigation policies;
    - enhancing disaster risk management efforts;
    - integrating climate considerations into public investment management processes;
    - supporting development of green and inclusive finance.

### Risk rating, vulnerabilities, and overall assessment
- Risk ratings:
  - PNG remains at “high” risk of external and overall debt distress (mechanical overall debt distress rating is “high”).
  - External debt distress rating is “high” due to breaches in the debt service-to-revenue ratio.
- Drivers of elevated debt-service-to-revenue in 2025:
  - Debt service on existing loans paired with relatively weak revenue generation.
  - As debt service reduces and revenues increase, barring further shocks to demand growth, the indicator is projected to trend downward from its 2025 peak.
- Main risks identified by stress tests:
  - Adverse shocks to exports, commodity prices, and contingent liabilities constitute the main risks to public debt sustainability.
  - Historical scenario suggests external debt reduction is possible, but shrinking overall debt remains challenging.
  - Market financing risks remain relevant, with the GFN threshold breached, indicating moderate market financing pressures.
- Final sustainability judgement:
  - Debt dynamics are assessed as sustainable conditional on:
    - Implementation of authorities’ plans for further fiscal consolidation;
    - Conservative financing strategies (e.g., substituting costly financing with concessional financing from multilateral and bilateral partners).
  - Baseline sustainability assessment relies on higher future resource revenue as tax exemptions expire from 2026 onwards.
  - The PV limit on new external borrowing under the Fund’s ECF/EFF programs and the non-concessional borrowing ceiling under the World Bank’s SDFP support these plans.

*Source: IMF staff analysis as presented in the supplied content.*

### 32.       The authorities agreed with staff’s assessment that PNG’s overall and external public debt

### 1pngea2025001-print-pdf - 32.       The authorities agreed with staff’s assessment that PNG’s overall and external public debt

### Debt assessment and authorities' view
- Authorities and staff: overall and external public debt "remain at high risk of distress, but debt is sustainable under the baseline projection."
- COVID-19 financing left "large financing requirements" that "continue to leave a mark on public debt."
- Authorities’ intentions and measures:
  - Redeem US$ 500 million Eurobond in 2028.
  - Strengthen debt management capacity; requested TA to strengthen debt management capacity.
  - Continue substituting costly financing with concessional financing from multilateral and bilateral partners.
  - Emphasize more proactive cash management practices given rising interest costs and shortening maturities.
  - Improved coordination with the central bank, implementation of the medium-term revenue strategy, and recently approved dividend policy as mitigating factors.

### External Debt Sustainability — Key baseline figures (selected from Table 1)
- External debt (nominal) (In Percent of GDP): 2022: 51.8; 2023: 49.1; 2024: 51.1; 2025: 52.5; 2026: 52.8; 2027: 52.8; 2028: 51.7; 2029: 51.3; 2030: 50.3; 2035: 41.1; 2045: 26.0; 2045: 67.4; 48.8. 
- Of which: public and publicly guaranteed (PPG) (Percent of GDP): 2022: 23.5; 2023: 27.0; 2024: 27.4; 2025: 29.7; 2026: 30.5; 2027: 30.3; 2028: 28.8; 2029: 27.4; 2030: 25.4; 2035: 14.8; 2045: 5.2; 17.6; 24.2.
- Change in external debt (Percent of GDP): 2022: -11.0; 2023: -2.7; 2024: 2.1; 2025: 1.4; 2026: 0.2; 2027: 0.1; 2028: -1.2; 2029: -0.4; 2030: -1.0; 2035: -2.2; 2045: -1.0.
- Identified net debt-creating flows (Percent of GDP): 2022: -29.4; 2023: -8.4; 2024: -19.7; 2025: -16.7; 2026: -17.1; 2027: -15.8; 2028: -16.0; 2029: -15.1; 2030: -15.8; 2035: -13.9; 2045: -14.1; -17.8; -15.6.
- Non-interest current account deficit (Percent of GDP): 2022: -16.2; 2023: -11.2; 2024: -16.9; 2025: -12.8; 2026: -13.6; 2027: -13.4; 2028: -13.6; 2029: -12.7; 2030: -13.5; 2035: -11.4; 2045: -10.4; -15.8; -12.8.
- Exports (Percent of GDP): 47.0; 42.7; 44.0; 46.8; 46.3; 46.5; 47.5; 48.6; 49.2; 40.7; 32.7; 32.3.
- Imports (Percent of GDP): 27.1; 26.7; 23.1; 27.1; 27.1; 28.6; 28.5; 28.5; 28.4; 24.9; 17.5.
- Net FDI (negative = inflow) (Percent of GDP): -4.0; -0.9; -2.9; -2.9; -2.9; -2.9; -2.9; -2.9; -2.8; -2.9; -3.9; -2.6; -3.1.
- Endogenous debt dynamics (Percent of GDP): 2022: -9.3; 2023: 3.8; 2024: 0.1; 2025: -1.0; 2026: -0.5; 2027: 0.5; 2028: 0.5; 2029: 0.5; 2030: 0.5; 2035: 0.5; 2045: 0.4; 0.2.
- Residual (Percent of GDP): 18.4; 5.7; 21.8; 18.0; 17.3; 15.9; 14.8; 14.7; 14.8; 11.7; 13.1; 13.5; 14.7.
- PV of PPG external debt-to-GDP ratio (selected projections): 2027: 26.4; 2028: 26.3; 2029: 24.8; 2030: 23.5; 2035: 21.7; 2045: 11.7; 3.1.
- Gross external financing need (Million of U.S. dollars) (selected): -2218.3; 17444.4; -4210.7; -2052.9; -2869.6; -1703.6; -1440.3; -1892.7; -2658.7; -3394.7; -9775.6.

### Public Sector Debt — Key baseline figures (selected from Table 2)
- Public sector debt (Percent of GDP): 2022: 48.2; 2023: 53.9; 2024: 52.1; 2025: 50.5; 2026: 48.9; 2027: 46.3; 2028: 44.1; 2029: 41.9; 2030: 39.4; 2035: 30.6; 2045: 29.4; 42.4; 39.8.
- Of which: external debt (Percent of GDP): 2022: 23.5; 2023: 27.0; 2024: 27.4; 2025: 29.7; 2026: 30.5; 2027: 30.3; 2028: 28.8; 2029: 27.4; 2030: 25.4; 2035: 14.8; 2045: 5.2; 17.6; 24.2.
- Change in public sector debt (Percent of GDP): -4.4; 5.7; -1.8; -1.6; -1.6; -2.6; -2.2; -2.2; -2.4; -0.8; 0.4.
- Primary deficit (Percent of GDP): 2.9; 1.8; 1.0; 0.0; -1.4; -2.3; -2.1; -2.2; -2.1; -0.2; 0.1; 2.5; -1.4.
- Revenue and grants (Percent of GDP): 16.6; 17.9; 17.0; 17.9; 18.6; 18.8; 18.9; 19.1; 19.3; 20.2; 20.1; 16.6; 19.5.
- Primary (noninterest) expenditure (Percent of GDP): 19.6; 19.8; 18.0; 18.0; 17.1; 16.5; 16.8; 17.0; 17.2; 20.0; 20.2; 19.1; 18.0.
- Automatic debt dynamics (Percent of GDP): -8.3; 3.0; -1.7; -3.0; -0.7; -0.3; -0.2; -0.2; -0.2; -0.2; 0.4.
- PV of public debt-to-GDP ratio (selected projections): 49.0; 46.9; 45.2; 42.6; 40.4; 38.3; 35.9; 27.7; 27.3.
- Debt service-to-revenue and grants ratio (Percent): 92.9; 93.6; 93.8; 84.4; 67.5; 52.5; 46.9; 33.5; 32.5; 28.0; 39.3.
- Gross financing need (Percent of GDP): 18.4; 18.6; 17.0; 15.2; 11.1; 7.5; 6.7; 4.2; 4.1; 5.4; 8.0.

### Key macroeconomic assumptions (selected)
- Real GDP growth (in percent): 5.7; 3.8; 3.8; 4.7; 3.5; 3.1; 3.1; 3.1; 3.1; 3.1; 3.1; 2.9; 3.3.
- GDP deflator in US dollar terms (change in percent): 14.7; -6.5; -1.2; -0.8; -1.2; 0.6; 0.2; 0.1; 0.6; 3.2; 2.0; 0.5; 1.2.
- Effective interest rate (percent) 4/: 3.3; 4.1; 2.8; 2.8; 2.5; 4.1; 4.1; 4.2; 4.2; 4.0; 3.9; 3.3; 3.9.
- Growth of exports of G&S (US dollar terms, in percent): 34.7; -11.8; 5.7; 10.4; 1.3; 4.3; 5.4; 5.7; 5.0; 3.1; 3.6; 5.5; 4.3.
- Government revenues (excluding grants, in percent of GDP): 15.3; 16.9; 16.2; 16.8; 17.5; 17.7; 17.8; 18.1; 18.3; 19.3; 19.4; 14.9; 18.4.
- Aid flows (Million of US dollars) 5/: 773.8; 998.9; 789.9; 566.2; 2397.7; 509.6; 518.5; 484.4; 514.3; 659.9; 782.4.
- Grant-equivalent financing (in percent of GDP) 6/: 1.8; 1.5; 1.4; 1.3; 1.2; 1.2; 1.1; 0.7; 1.3.
- Nominal GDP (Million of US dollars): 31,653; 30,729; 31,496.

### Stress tests, scenarios and sensitivity analysis — highlights
- Table 3 (External PPG DSA) — PV of debt-to-GDP ratio (Projections 2025–2035):
  - Baseline: 2025: 25; 2026: 26; 2027: 26; 2028: 25; 2029: 23; 2030: 22; 2031: 20; 2032: 18; 2033: 15; 2034: 13; 2035: 12.
  - Alternative Scenario: Climate change: 2025: 26; 2026: 29; 2027: 30; 2028: 30; 2029: 30; 2030: 29; 2031: 28; 2032: 27; 2033: 27; 2034: 27; 2035: 25.
- Table 3 — Key breaches and tail risks:
  - PV of debt-to-exports ratio under commodity price tailored test (C3) rises to values such as 53, 43, 43, 43, 42, 41, 39, 36, 34, 32 (2025–2035).
  - Debt service-to-exports ratio under commodity price tailored test (C3) shows large increases, with examples: 78, 128, 89, 101, 010, 99 (selected years).
- Table 4 (Public Debt sensitivity) — Baseline public debt (Percent of GDP): 2025: 47; 2026: 45; 2027: 43; 2028: 40; 2029: 38; 2030: 36; 2035: 28.
- Tailored stress tests considered include: Combined contingent liabilities, Natural disaster, Commodity price, Market Financing.
- Figure indicators (market-financing risk): maximum gross financing needs (GFN) over 3-year baseline projection horizon and EMBI spreads noted as risk metrics; thresholds and breaches highlighted in figures.

### Policy recommendations and priority actions (as presented by authorities and staff)
- Strengthen debt management capacity (authorities requested TA).
- Continue favoring concessional financing from multilateral and bilateral partners to substitute costly financing.
- Strengthen cash management practices in response to rising interest costs on domestic securities and shortened maturities.
- Enhance coordination with the central bank.
- Implement the medium-term revenue strategy.
- Implement the recently approved dividend policy to mitigate medium-term debt risks.

*Sources: Country authorities; and staff estimates and projections.*

### 1.      No updates since the last Assessment Letter.

### 1pngea2025001-print-pdf - 1.      No updates since the last Assessment Letter.

### A. No updates since the last Assessment Letter
- "No updates since the last Assessment Letter."

### B. Government Policies and Commitments — Adaptation and Priority Areas to Strengthen Resilience
- Reforms underway to enhance resilience:
  - National Internally Displaced Persons Policy: defines the Government’s responsibility for emergency shelters.
  - Establishment of an independent National Emergency Management Agency.
  - Approval of the Papua New Guinea Structural Engineering Standards amendment for earthquake loadings.
  - Development of a Bridges Manual for the Ministry of Transport.
- National Disaster Centre: reviewing the Disaster Management Act 1985 to align with modern disaster risk management approaches.
- Papua New Guinea Standards Council: advancing an update to the PNG Building Code to enhance seismic resilience; updated provisions align with international best practice and latest scientific understanding of seismic hazards to reduce vulnerability of new buildings, improve life safety outcomes, and ensure continuity of critical infrastructure services during and after major seismic events.
- Bank of Papua New Guinea (BPNG) / Green Finance Centre (GFC) reforms:
  - Issuance in 2023 of the Inclusive and Green Taxonomy of Papua New Guinea to categorize activities by environmental sustainability, including adaptation and resilience.
  - March 2025 Green Finance Summit aligned with PNG’s Green Finance Policy and Implementation Roadmap; event brought together senior government ministers, financial sector leaders, development partners, and private sector stakeholders.
  - At the Summit: GFC’s 5-year strategy launched; a green refinancing facility and a green guarantee facility introduced; focus highlighted on taxonomy, environment, social and governance (ESG), and thematic bonds.

### C. Government Policies and Commitments — Mitigation and Priority Areas to Reduce GHG Emissions
- National Climate Change (Management) Carbon Markets Regulation 2024 approved by the National Executive Council; provides institutional mechanism to administer mitigation activities and carbon credits in compliance with domestic regulations such as the Climate Change Management Act.
- GoPNG in process of updating its Nationally Determined Contribution (NDC); NDCs must be updated and submitted to the UNFCCC every five years.
- Green Climate Fund (GCF) Results-Based Payments (RBP) opportunity:
  - 2024: GCF approved an exceptional allocation for the RBP pilot window, allowing PNG to access RBPs as part of REDD+ commitments.
  - A funding proposal prepared with FAO support is at final stage of stakeholder consultations and validation before submission to the GCF Secretariat for the GCF Board decision in June 2025.

### D. Other Challenges
- "No updates since the last Assessment Letter."

### E. World Bank and IFC Engagement in Climate Change
- World Bank / Partnership for Market Implementation (PMI):
  - Carried out an assessment of PNG’s progress toward participation in international carbon markets; identified policy, institutional, and infrastructure gaps and outlined a roadmap.
  - March 2025 workshop organized to validate assessment results and prioritize next steps, focusing on compliance with Article 6 of the Paris Agreement.
- International Finance Corporation (IFC):
  - Assisting BPNG to establish policy environment for risk management and green finance.
  - Focus areas: develop technical screening criteria for priority sectors within PNG inclusive green finance taxonomy; explore role of capital markets to mobilize private finance for sustainable development; develop ESG standards for adoption by commercial banks in PNG.

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### Annex I. RSF Assessment Letter — Key Vulnerability Findings and Commitments (November 12, 2024)
- Economic vulnerability and social costs:
  - PNG economy highly vulnerable due to reliance on natural resources; highest economic growth volatility since the 1980s with a standard deviation of 5 percent from 1980 to 2021 (except for a few resource-dependent structural peers).
  - Fiscal context: since 2020, when fiscal deficit reached 8.9 percent of GDP, PNG has been in high risk of debt distress and began fiscal consolidation.
  - Poverty: Household Income and Expenditure Survey (2009) showed around 40 percent of population below US$2.15 per day (2017 PPP terms); 74.2 percent are multidimensionally poor.
- Climate exposure and impacts:
  - ND-GAIN ranks PNG 167th out of 187 countries for resilience; vulnerability high and readiness low.
  - EM-DAT records (from 2020): floods (15 events), tropical cyclones (4), extreme precipitation-caused landslides (12) affected over 650 thousand people.
  - Projections and risks:
    - By 2030, human and economic losses from river flooding expected to double, potentially affecting 20,000 more people and increasing GDP impact by US$90 million annually under a high-emissions scenario.
    - Cyclone-related losses from a single 1 in 50-year event projected to rise by 14-66 percent; average economic losses likely to increase by around 5 percent.
  - Social impacts: climate change amplifies drivers of conflict (e.g., resource scarcity and displacement); as of September 2024 PNG recorded 332 conflict-related deaths over the preceding 12 months.
- Adaptation commitments and frameworks:
  - National long-term vision and plans: enhanced NDC, PNG Vision 2050, PNG Development Strategic Plan 2010-2030, MTDP-IV 2023-2027, 2023 National Adaptation Plan (NAP).
  - Enhanced NDC targets for adaptation sectors (agriculture, health, transport, infrastructure):
    - (i) 100 percent of PNG’s population benefiting from introduced health measures to respond to malaria and other climate-sensitive diseases;
    - (ii) 70 percent of the population benefitting from improved early warning information;
    - (iii) 10 percent of the total population having increased resilience of food and water security, health and well-being;
    - (iv) investments in transport, utility infrastructure, and assets built and/or rehabilitated to climate-resilient codes and standards.
  - 2023 NAP and MTDP-IV 2023-2027 include implementation framework and roadmap with timelines, targets, and indicators for 2022 to 2030.
  - Climate Change Management Act (CCMA) (2015, amended 2022) mandates sectoral mainstreaming of adaptation through climate-compatible adaptation action plans; Climate Change and Development Authority (CCDA) coordinates climate policies.
- Mitigation commitments and targets:
  - Emissions profile: PNG not a major global emitter; carbon intensity lower than most Pacific nations but emissions have risen rapidly since 1990, notably from LULUCF and energy.
  - Enhanced NDC mitigation targets and measures:
    - Increase installed capacity of renewable energy from 30 percent in 2015 to 78 percent in 2030;
    - Reduce energy demand;
    - Establish framework for fossil fuel emission offsetting;
    - Enhance data collection on energy use;
    - Reduce annual emissions from deforestation and degradation by 10 million tons CO2 eq by 2030 (moving LULUCF from net GHG source in 2015 to net GHG sink by 2030);
    - Achieve a 25 percent reduction in area of annual deforestation and annual degradation (equivalent to a reduction of 8,300 ha of annual deforestation and 43,300 ha reduction of annual degradation compared to a 2015 baseline).
  - CCMA designates CCDA as lead for carbon pricing and mitigation actions; in 2023 CCDA drafted carbon markets regulation.
  - Forestry frameworks established: National REDD+ Strategy, Forest Reference Emissions Level (FREL), National Forest Monitoring System (NFMS), Safeguards Emission Systems (SIS), Benefit Sharing Mechanism (BSM), and Emission Reductions results reported under REDD+.
- Governance and investment challenges:
  - Major issues: governance and capacity limitations, limited capability for collective action, focus on short-term public action.
  - Need to strengthen CCDA capacity for cross-sector coordination; address decentralized LULUCF management and limited provincial capacity; strengthen coordination with NEA, CEPA, and PNG-FA.
  - Infrastructure investment needs: estimated at 17.8 billion PGK by 2027 for transport, energy, telecommunication, and water supply and sanitation in line with the “Connect PNG” plan to 2040.
- World Bank engagement and financial support:
  - PNG Agriculture Commercialization and Diversification Project: US$40 million approved in 2020 for climate-smart agriculture and resilient feeder roads.
  - PNG Crisis Response and Sustainable Recovery DPO: US$100 million approved in 2021, included Prior Action adopting the enhanced NDC.
  - Resilient Transport Project: US$108m approved 2022 to improve resilience of the Ramu Highway.
  - National Energy Access Transformation Project: US$204.2 million approved 2024 to support renewable energy-based electrification and resilient design toward the NDC target of 78 percent installed capacity from renewables by 2030.

*Source: 1pngea2025001-print-pdf - 1.      No updates since the last Assessment Letter.*

### 2030. Additionally, the Global Facility for Disaster Reduction and Recovery’s DRM-FCV Nexus

### Statement by Seong-Wook Kim, Nghi Phuong Luu, and Megan Garner — June 13, 2025

### Strong program ownership
- Authorities express deep appreciation for engagement during the fourth review mission of the Extended Credit Facility (ECF) and Extended Fund Facility (EFF), the first review of the Resilience and Sustainability Facility (RSF), and the Article IV consultation.
- Program progress:
  - Met all but one quantitative performance criteria and indicative target in the Fourth Review period.
  - A small value of external arrears arising from a legacy sovereign guarantee were outstanding at end-December 2024 and end-March 2025, but were cleared in April 2025.
  - The 2021 State Guarantee Policy limits the risk of external payment arrears occurring in the future.
- Structural reforms:
  - At end-May 2025, six out of eight structural benchmarks due had been fully or partially implemented.
  - Amendments to the Income Tax Act (ITA) were adopted by the parliament earlier this year.
  - Request to reset deadline for amending the Internal Revenue Commission (IRC) Act to set up a Board of oversight to end-July 2025.
  - Request to reset deadline for appointing the Independent Commission Against Corruption (ICAC) oversight committee to end-September 2025; recruitment process underway.
  - One RSF reform measure was also met.
- Context and constraints:
  - Papua New Guinea is a Fragile and Conflict-affected State; pace of reform is constrained by limited public sector capacity.
  - Authorities emphasize need to build public trust and communicate reforms to secure social acceptability.
  - Authorities view the IMF, including the continued presence of a resident representative, as a highly credible and trusted partner.

### Fiscal consolidation and debt reduction
- Fiscal objectives:
  - Authorities committed to achieving a balanced budget by 2027.
  - Committed to achieving the deficit target of 2.6 percent of GDP for the 2025 fiscal year.
- Revenue challenges and reforms:
  - Setbacks in revenue collection and reconciliation due to the cyberattack on the IRC earlier this year.
  - Reforms under the medium-term revenue strategy expected to contribute to domestic revenue mobilization.
  - Measures projected to yield more revenue over time include: new dividend policy for main state-owned enterprises (SOEs), continued implementation of the Non-tax Revenue Administration Act, and implementation of amendments to the ITA.
  - Planned review of corporate income tax expenditures, including potential impact of incentives granted under special economic zones, to identify reform options to broaden the tax base and reduce inefficiencies.
  - Authorities acknowledge shortcomings identified by the Tax Administration Diagnostic Assessment Tool (TADAT) and have requested follow up technical assistance to support implementation of recommendations.
- Expenditure and debt management:
  - Commitment to improving the efficiency of government expenditure and prioritizing social spending on education, health and law and order.
  - Authorities welcome the IMF’s forthcoming Public Investment Management Assessment to improve capital spending efficiency and effectiveness.
  - Continuing work on developing a plan to implement a treasury single account while being mindful of potential impacts on the domestic financial system.
  - Medium-term debt strategy focuses on sustainable debt management practices to support growth and development needs.
  - A borrowing committee including the Department of Treasury and BPNG has been formed to prepare for the maturity of the 2028 Eurobonds.
  - Technical assistance from the IMF to enhance debt management capabilities has been requested.

### Monetary policy and exchange rate reforms
- Kina convertibility and exchange rate policy:
  - Transition towards kina convertibility is progressing; the crawl-like arrangement has seen the kina depreciate against the US dollar by 8 percent between end 2023 and end-March 2025.
  - Exchange rate is still overvalued; authorities are considering switching to a crawl-like arrangement against a basket of currencies.
  - BPNG continues to actively intervene in the FX market to alleviate FX shortages; decline in backlog of essential FX orders and associated wait times noted.
- Monetary operations and institutional reforms:
  - Newly established Monetary Policy Committee held its second meeting in June and continues to monitor inflation trends closely.
  - Reforms to improve liquidity management and monetary policy transmission are reducing excess liquidity and encouraging domestic financial institutions to better manage liquidity needs.
  - BPNG will develop a liquidity forecasting framework and continue reforms to support development of the local interbank market.
  - Authorities committed to implementing the IMF Safeguards Assessment recommendations.
  - BPNG appreciates IMF technical assistance for calibration and sequencing of further reforms in the roadmap.
- Financial sector stability:
  - Authorities welcome the IMF Financial Sector Stability Review (FSSR) which identified key reform priorities.
  - BPNG is working to operationalize the emergency liquidity assistance framework, following the 2024 amendments to the Central Banking Act, with IMF technical assistance.

### Improving governance and fighting corruption
- AML/CFT and institutional measures:
  - Asia/Pacific Group on Money Laundering mutual evaluation report (MER) found a robust legislative framework but substantial challenges in enforcement.
  - Authorities developing a strategic implementation plan to address priority actions in the MER.
  - ICAC has led establishment of the Anti-Money Laundering Joint Task Force (AMLJTF) and the Asset Recovery and Money Laundering Operations Committee (ARMLOC) to enhance inter-agency cooperation and fast-track investigation, prosecution, and litigation of financially motivated crimes.
  - Prioritization of establishing the AMLJTF and the ARMLOC given pressing need to progress MER recommendations.
- ICAC and SOE governance:
  - Authorities committed to operationalizing the ICAC and strengthening governance and transparency of SOEs.
  - Recruitment of an ICAC oversight committee is underway with expectation to be established by end September 2025.
  - A bilateral memorandum of understanding (MoU) between the ICAC and the BPNG’s Financial Analysis and Supervision Unit was signed in May.

### Climate change adaptation
- Vulnerabilities and fiscal implications:
  - Papua New Guinea’s geography makes the country highly vulnerable to effects of climate change and frequently occurring natural disasters, presenting longer-term challenges for government finances, the balance of payments, and external sector stability.
- RSF-related integration and measures:
  - Under the RSF, authorities are working to integrate climate change adaptation considerations into public investment practices to shore up public finances.
  - Climate-related disaster risk screening has been incorporated into the methodology for assessing new public investment projects, in preparation for the 2026 Budget.
  - Upcoming reform measures will focus on integrating climate considerations into the public investment project cycle and preparing a disaster risk financing strategy.
- Climate finance and supervisory measures:
  - Authorities and the IMF are exploring options to scale up private and public climate finance for Papua New Guinea.
  - Authorities and donor partners held the first Green Finance Summit in March 2025 to promote sustainable development and discuss innovative climate finance solutions.
  - BPNG is operationalizing its Green and Inclusive Taxonomy and developing supervisory guidelines for financial institutions on regulatory reporting of exposures in the transport, energy, and telecommunications sectors.

### Other reform priorities
- Competitiveness and investment climate:
  - Authorities value staff’s analysis on enhancing competitiveness and attractiveness to foreign investment.
  - Moving towards more exchange rate flexibility and convertibility is expected to enhance external competitiveness and attract foreign investment.
  - Authorities identify scope to improve the local business environment, remove barriers to trade, and enhance existing export capacity while preserving revenue integrity when establishing new special economic zones.
- Data and statistics:
  - Authorities acknowledge critical shortcomings highlighted by staff’s Data Adequacy Assessment and the IMF’s ongoing technical assistance to improve data quality.
  - Seeking resources to conduct a national household income and expenditure survey as soon as possible.
  - National Statistics Office is focused on completing the first national census since 2011.

### Concluding remarks
- Authorities remain committed to reforms under the ECF/EFF and RSF arrangements to strengthen growth prospects and build external sector resilience.
- Authorities request Board approval of the Fourth Review under the ECF and EFF Arrangements and the first review under the RSF arrangement, and all other associated proposals.

*Statement by Seong-Wook Kim, Executive Director for Papua New Guinea; Nghi Phuong Luu, Alternate Executive Director; and Megan Garner, Advisor to Executive Director — June 13, 2025*

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_Source: https://www.imf.org/-/media/files/publications/cr/2025/english/1pngea2025001-print-pdf.pdf_