IMF Staff Completes 2017 Article IV Mission to Papua New Guinea

IMF News, September 18, 2017

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Canonical URL: IMF Staff Completes 2017 Article IV Mission to Papua New Guinea

IMF staff team led by Mr. Scott Roger visited Port Moresby during August 31–September 14 for the 2017 Article IV consultation.
End-of-mission press releases convey preliminary findings; views expressed are those of IMF staff and do not necessarily represent the views of the IMF’s Executive Board.
The IMF Executive Board is expected to discuss the 2017 Article IV Consultation in December 2017.

In 2015–16, the PNG economy slowed sharply due to falls in major export commodity prices, the end of a huge LNG pipeline investment project, and a severe drought.
In 2017–18, the mission anticipates a continuation of sluggish growth, averaging around 2.4 percent, reflecting:
- weak commodity prices,
- fiscal restraint,
- adverse impact on activity from foreign exchange shortages.
Inflation is projected to ease towards the core rate of around 2–3 percent.
A large current account surplus will continue, together with a correspondingly large outflow on the financial account.

The mission welcomes the government’s 100-Day Economic Stimulus Plan and finds it will help cut the 2017 fiscal deficit significantly.
The measures envisaged in the 100-Day Plan are estimated to cut the 2017 fiscal deficit to a little over 3 percent.
On unchanged policies, little improvement in the fiscal balance is likely, as indicated in the recently published Mid-Year Economic and Fiscal Outlook Report.
To stabilize and start bringing the public debt-to-GDP ratio down below the statutory ceiling of 30 percent, the government should target a budget that is close to balance by 2020.
Action needed:
- raise tax revenues,
- cut expenditures,
- pursue measures to improve tax compliance vigorously,
- rapidly reverse the ballooning of public sector wage costs in recent years while ensuring delivery of basic health, education, and public security services and reducing inefficiency and leakage.

The mission recommends increasing PNG’s exchange rate flexibility to address foreign exchange shortages that are delaying economic recovery.
Losses in PNG’s external competitiveness over the past few years threaten the government’s longer-term objective of strengthening the non-resource sector.
Recommendation on pace: a gradual approach aiming to restore a competitive level of the exchange rate, and complete elimination of foreign exchange shortages by 2020.
Monetary policy should aim to support greater exchange rate flexibility and reduce excess liquidity.
Steps should be taken to reduce excess liquidity and strengthen BPNG’s operating framework.

The mission strongly supports the government’s intention to strengthen its revenue base over the medium term.
To achieve its Sustainable Development Goals, PNG will need to harness significantly higher revenue from the resource and non-resource sectors in an efficient and equitable manner.
With adequate resourcing and external technical support, including from the IMF, this can be achieved over the medium term.

A twin track approach is recommended: near-term actions to address the persistent fiscal deficit and shortage of foreign exchange, and medium-term measures to put the economy on a sounder footing.
The mission thanks the authorities for their cooperation and hospitality during the visit.

IMF staff statement, September 18, 2017.