IMF Executive Board Concludes 2018 Article IV Consultation with Papua New Guinea
IMF News, December 3, 2018
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- Published: December 3, 2018
Macroeconomic outlook and recent developments
- 2018 growth was adversely affected by a large earthquake that temporarily halted production in much of the resource sector; overall GDP growth for the year is estimated to be close to zero.
- Growth is projected to recover to 3.8 percent in 2019 as resource output returns to normal.
- Inflation eased to around 4½ percent, driven by weak demand and improved agricultural supply.
- PNG faces a shortage of foreign exchange despite a large current account surplus; large resource export revenues are almost entirely offset by resource project debt repayments and dividends.
- Rationing of foreign exchange has dampened growth.
- International reserves stood at $1.7 billion at end-2017, equivalent to 5 months of imports.
- Monetary authorities have begun addressing the foreign exchange problem by facilitating exchange rate adjustment, increasing the supply of foreign exchange, and strengthening the monetary framework.
Fiscal position and public debt
- The new government narrowed the fiscal deficit in 2017-18 and adopted a medium-term revenue strategy, but progress on fiscal consolidation has stalled and the debt-to-GDP ratio is well above the medium-term target.
- Executive Directors welcomed confirmation of the government’s long-term debt/GDP target of 30 percent and the adoption of a zero non-resource primary balance as a medium-term objective.
- The recent issuance of a debut sovereign bond was welcomed; authorities intend to use the funds to improve the domestic public debt profile and help resolve foreign exchange shortages.
- Directors encouraged continued strengthening of the fiscal framework and noted that near-term additional fiscal consolidation is needed to reduce the risk of debt distress.
- Suggested consolidation measures include a combination of increases in revenue and reductions in spending, particularly on the government wage bill and grants.
- Directors welcomed the government’s commitment to domestic revenue mobilization through implementation of its Medium-Term Revenue Strategy and noted a significant increase in tax revenue through strengthened compliance and tighter government payroll controls.
- Directors welcomed progress in strengthening public financial management.
Exchange rate, foreign exchange operations, and financial sector
- Directors agreed that greater exchange rate flexibility pursued in recent months should be continued to support growth in the non-resource sector.
- Eliminating the backlog of foreign exchange orders and strengthening liquidity management and foreign exchange operations would support re-establishment of an interbank foreign exchange market.
- Carefully monitoring the impact of foreign exchange measures on the financial sector is important.
- Directors welcomed authorities’ intention to seek better terms in negotiations for new resource projects and to develop a framework for managing resource revenues.
Structural and governance priorities
- Development of the non-resource sector should be fostered through provision of public services and infrastructure and be considered in revenue mobilization.
- Directors supported elimination of corruption and strengthening of governance as important parts of PNG’s development strategy and commended recent progress.
- Improvements in macroeconomic statistics were welcomed; further progress is needed to improve data completeness, timeliness, and accuracy. Additional technical assistance was supported.
Risks and scenarios
- Near-term risks: roughly balanced.
- A weakening of global growth could lower commodity export prices, dampening growth and making fiscal adjustment more difficult.
- Reforms to exchange rate policy could have a more favorable impact on growth than expected.
- Medium-term risks: skewed to the upside owing to the likelihood that new resource sector projects will begin to get underway.
Executive Board assessment — key messages
- Growth in 2018 remained sluggish due to low commodity prices and earthquake impacts on oil, gas, and mineral exports; expected to strengthen in 2019.
- Strengthening macroeconomic policies and implementing structural reforms would reduce risks and support inclusive longer-term growth.
- Adoption of an expenditure rule consistent with the revenue target would help reconcile fiscal targets and guide budget policy.
- Continued efforts to strengthen domestic revenue mobilization, public financial management, and statistics are important.
Key statistics and indicators (selected, as presented)
- Nominal GDP (2016): US$21.1 billion 1/
- Population (2016): 7.9 million
- GDP per capita (2016): US$2,353
- Quota: SDR 131.6 million (14th Review: SDR 263.2 million)
Real sector (percentage change)
- Real GDP growth: 2014: 15.4; 2015: 5.3; 2016: 1.6; 2017: 2.5; 2018 Est.: 0.0; 2019 Proj.: 3.8
- Resource: 2014: 69.2; 2015: 39.0; 2016: 6.3; 2017: 4.3; 2018 Est.: -6.8; 2019 Proj.: 8.3
- Non-resource: 2014: 7.0; 2015: -3.1; 2016: -0.1; 2017: 1.8; 2018 Est.: 2.6; 2019 Proj.: 2.2
- Agriculture, forestry and fishing (share): 2014: 17.8; 2015: 18.4; 2016: 18.5; 2017: 18.2; 2018 Est.: 18.7; 2019 Proj.: 18.6
- Mining and quarrying (share): 2014: 9.1; 2015: 7.7; 2016: 8.0; 2017: 7.6
- Oil and gas extraction (share): 2014: 11.3; 2015: 14.1; 2016: 15.0
Prices and monetary indicators
- CPI (annual average): 2014: 5.2; 2015: 6.0; 2016: 6.7; 2017: 5.4; 2018 Est.: 4.8; 2019 Proj.: 4.7
- CPI (end-period): 2014: 6.6
Central government operations (percent of GDP)
- Revenue and grants: 2014: 20.9; 2015: 19.3; 2016: 17.6; 2017: 17.9; 2018 Est.: 16.7
- Of which: Resource revenue: 2014: 2.3; 2015: 1.1; 2016: 0.7; 2017: 1.0; 2018 Est.: 0.5
- Expenditure and net lending: 2014: 27.2; 2015: 24.1; 2016: 22.8; 2017: 20.3; 2018 Est.: 20.8; 2019 Proj.: 19.0
- Net lending(+)/borrowing(-): 2014: -6.3; 2015: -4.8; 2016: -5.2; 2017: -2.7; 2018 Est.: -2.9; 2019 Proj.: -2.2
Money and credit (percentage change)
- Domestic credit: 2014: 12.8; 2015: 23.5; 2016: 15.9; 2017: -1.0; 2018 Est.: 10.5; 2019 Proj.: -7.6
- Credit to the private sector: 2014: 3.5; 2015: 3.4; 2016: 7.2; 2017: -3.6; 2018 Est.: 3.1
- Broad money: 2014: 10.9; 2015: 0.9; 2016: 16.5; 2017: -10.5
- Interest rate (182-day T-bills; period average): 2014: 7.1; 2015: 7.4; 2016: 8.1
Balance of payments (in billions of U.S. dollars)
- Exports, f.o.b.: 2014: 8.8; 2015: 7.8; 2016: 8.7; 2017: 9.7; 2018 Est.: 9.6
- Of which: Resource sector
- Imports, c.i.f.: 2014: -4.5; 2015: -2.0; 2016: -2.5; 2017: -3.2
- Current account (including grants): 2014: 0.3; 2015: 2.4; 2016: 4.5; 2017: 4.9; 2018 Est.: 5.1; 2019 Proj.: 1.3
- Gross official international reserves: 2014: 11.8; 2015: 23.7; 2016: 23.9; 2017: 23.0 (in months of goods and services imports)
- Gross official international reserves (in billions of U.S. dollars): 2016: 1.9; 2017: 1.7
- Government gross debt: 2014: 27.1; 2015: 32.3; 2016: 37.8; 2017: 37.5; 2018 Est.: 36.8; 2019 Proj.: 36.2
- External debt-to-GDP ratio (in percent) 3/: 2014: 6.2; 2015: 7.9; 2016: 10.2; 2017: 15.1
- External debt-service ratio (percent of exports) 3/: 2014: 1.4
Exchange rates and terms of trade
- US$/kina (end-period): 2014: 0.3855; 2015: 0.3325; 2016: 0.3150; 2017: 0.3060
- NEER (2005=100, end-period): 2014: 114.2; 2015: 116.4; 2016: 104.2; 2017: 101.0
- REER (2005=100, end-period): 2014: 123.6; 2015: 131.4; 2016: 124.0
- Terms of trade (2010=100, end-period): 2014: 97.4; 2015: 102.0; 2016: 93.4; 2017: 85.0; 2018 Est.: 87.0; 2019 Proj.: 84.8
National accounts (kina)
- Nominal GDP (in billions of kina): 2014: 56.8; 2015: 57.1; 2016: 59.6; 2017: 65.5; 2018 Est.: 70.8; 2019 Proj.: 75.2
- Non-resource nominal GDP (in billions of kina): 2014: 45.2; 2015: 44.7; 2016: 45.9; 2017: 50.2; 2018 Est.: 55.4; 2019 Proj.: 58.1
Italic: IMF Executive Board Concludes 2018 Article IV Consultation with Papua New Guinea (Press Release No. 18/451), December 3, 2018.