IMF Executive Board Concludes 2022 Article IV Consultation and Review of the Staff Monitored Program with Papua New Guinea
IMF News, July 14, 2022
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- Published: July 14, 2022
Overview and recent developments
- The Executive Board concluded the Article IV consultation with Papua New Guinea (PNG) on June 13, 2022, and the IMF Managing Director approved the completion of the Review of the Staff-Monitored Program with Papua New Guinea.
- PNG’s economy "is weathering the pandemic well, despite many challenges." After a decline in 2020, real GDP growth in 2021 "was driven by the agricultural sector, buoyed by higher commodity prices and Government support."
- Output in the extractive sector in 2021 declined due to closures of the Ok-Tedi copper mine and Simberi and Porgera gold mines.
- Inflation in 2021 was at 5.7 percent, attributed to freight charges, higher prices of imported goods and fuel, and domestic supply chain disruptions.
- The kina is assessed as "still overvalued in real terms," and a shortage of foreign exchange (FX) in the non-resource sector persists.
- The 2021 fiscal deficit was lower than the budget projection, driven by higher tax revenues and foreign grants while tight control of expenditure was maintained.
Outlook and projections
- Growth is projected to strengthen in 2022, before slowing to 3.0 percent over the medium term.
- Recovery in the resource sector is expected with Ok-Tedi and Simberi mines returning to normal operations in 2022, and the reopening of the Porgera gold mine is assumed in late 2022, which will increase growth in 2023.
- Gradual easing of containment measures and higher capital spending by the government are expected to support recovery in the non-resource sector.
- The war in Ukraine is impacting PNG through higher commodity prices and higher inflation; higher commodity prices are noted as leading to a stronger balance of payments and fiscal revenues because PNG is a large commodity producer.
Executive Board assessment and policy recommendations
- Directors noted PNG “has weathered the pandemic well despite many challenges” and assessed the medium-term outlook as positive, supported by the resource sector.
- Directors commended authorities for "broadly satisfactory performance under the Staff Monitored Program (SMP)."
- Main policy priorities identified:
- Implement fiscal consolidation and strengthen the monetary policy framework and governance.
- Promote climate resilience, gender equality, and inclusive growth.
- Accelerate the COVID-19 vaccination campaign.
- Fiscal policy and revenue:
- Encourage continued fiscal consolidation to meet requirements of the Fiscal Responsibility Act, strengthen debt sustainability, and rebuild buffers against future shocks.
- Stress the importance of raising resource sector revenues and encourage the adoption of a moderate ad valorem levy on future resource projects.
- Call for additional revenue mobilization and improvements in the payroll system to contain expenditures and increase space for social and development spending over the medium term.
- Urge authorities to conduct and publish audits of COVID-19 related procurement contracts.
- Monetary and exchange rate policy:
- Underscore the importance of tightening monetary policy to avoid second-round effects if recent inflationary pressures persist.
- Recommend a comprehensive approach to reinstating kina convertibility, including: review of the monetary policy framework, improving liquidity management, and developing a plan to gradually allow greater exchange rate flexibility and remove exchange restrictions.
- Urge addressing remaining weaknesses in the Central Banking Act related to mandate, governance, autonomy, transparency, and accountability, with Fund technical assistance.
- Encourage further measures to increase financial inclusion and financial sector development.
- Governance and anti-corruption:
- Welcome efforts to strengthen governance, including operationalization of the Independent Commission Against Corruption and improvements in the AML/CFT framework and regulations.
- Underscore the importance of a sustained, multi-year program to further improve governance, with close external support, including from the Fund.
- Climate:
- Note PNG is "highly vulnerable to climate change" and stress policies should focus on developing and financing climate adaptation projects, reducing the rate of deforestation, and reaching PNG’s nationally determined contributions.
- Operational support:
- Directors welcomed the planned opening of the Fund’s resident representative office in PNG to support the policy agenda.
Key statistics and projections (as presented)
- Nominal GDP (2019): US$24.8 billion
- Population (2019): 8.6 million
- GDP per capita (2019): US$2,878
- Quota: SDR 263.2 million
- Real GDP growth (percentage change)
- 2017: 3.5
- 2018: -0.3
- 2019: 4.5
- 2020: -3.5
- 2021: 1.2
- 2022 (Est.): 4.2
- 2023 (Proj.): 4.7
- 2024 (Proj.): 3.0
- Resource (real growth, percentage change) 2/
- 2017: 8.1
- 2018: -9.2
- 2019: 11.3
- 2020: -8.3
- 2021: 4.8
- 2022 (Est.): 5.9
- 2023 (Proj.): -0.1
- 2024 (Proj.): 0.1
- Non-resource (real growth, percentage change)
- 2017: 1.5
- 2018: 4.0
- 2019: 1.6
- 2020: -1.2
- 2021: 3.2
- 2022 (Est.): 4.3
- 2023 (Proj.): 4.1
- 2024 (Proj.): 4.1
- Mining and quarrying (share)
- 2017: 10.2
- 2018: 10.4
- 2019: 10.8
- 2020: 10.0
- 2021: 9.4
- 2022: 12.1
- 2023: 11.9
- 2024: 11.5
- 2025: 11.0
- 2026: 10.5
- Oil and gas extraction (share)
- 2017: 16.5
- 2018: 17.5
- 2019: 17.6
- 2020: 16.4
- 2021: 17.7
- 2022: 20.7
- 2023: 17.3
- 2024: 14.9
- 2025: 12.8
- 2026: 11.2
- CPI (annual average)
- 2017: 5.4
- 2018: 4.4
- 2019: 3.9
- 2020: 4.9
- 2021: 6.4
- 2022 (Est.): 4.6
- CPI (end-period)
- 2017: 2.7
- 2018: 5.1
- 2019: 5.7
- 2020: 6.0
- 2021: 5.2
- Central government operations (percent of GDP)
- Revenue and grants:
- 2017: 15.9
- 2018: 16.3
- 2019: 14.2
- 2020: 14.7
- 2021: 15.0
- 2022 (Proj.): 14.8
- 2023 (Proj.): 15.3
- 2024 (Proj.): 15.8
- 2025 (Proj.): 16.1
- Of which: Resource revenue:
- 2017: 0.9
- 2018: 1.8
- 2019: 1.7
- 2020: 1.1
- 2021: 2.0
- 2022 (Proj.): 1.0
- 2023 (Proj.): 1.3
- 2024 (Proj.): 1.4
- 2025 (Proj.): 1.4
- Expenditure and net lending:
- 2017: 18.4
- 2018: 20.3
- 2019: 22.7
- 2020: 21.3
- 2021: 20.5
- 2022 (Proj.): 18.9
- 2023 (Proj.): 16.7
- 2024 (Proj.): 16.2
- Net lending(+)/borrowing(-):
- 2017: -2.5
- 2018: -2.6
- 2019: -4.4
- 2020: -8.6
- 2021: -6.6
- 2022 (Proj.): -5.5
- 2023 (Proj.): -4.2
- 2024 (Proj.): -3.1
- 2025 (Proj.): -1.7
- 2026 (Proj.): -0.6
- 2027 (Proj.): 0.0
- Non-resource net lending(+)/borrowing(-):
- 2017: -3.4
- 2018: -6.2
- 2019: -9.4
- 2020: -7.7
- 2021: -7.5
- 2022 (Proj.): -5.2
- 2023 (Proj.): -4.3
- 2024 (Proj.): -3.2
- 2025 (Proj.): -2.0
- 2026 (Proj.): -1.3
- Money and credit (percent change)
- Domestic credit:
- 2017: -6.7
- 2018: 2.3
- 2019: 10.3
- 2020: 0.2
- 2021: 6.8
- 2022 (Proj.): 6.1
- 2023 (Proj.): 6.3
- Credit to the private sector:
- 2017: -3.8
- 2018: 7.4
- 2019: 0.4
- 2020: 8.2
- 2021: 8.7
- 2022 (Proj.): 8.6
- 2023 (Proj.): 8.5
- Broad money:
- 2017: -0.9
- 2018: 7.0
- 2019: 13.4
- 2020: -2.1
- 2021: 5.5
- Interest rate (182-day T-bills; period average):
- 2017: 7.1
- 2018: 5.6
- 2019: 7.9
- 2020: 8.3
- 2021: 7.8
- 2022 (Est.): 7.5
- Balance of payments (in billions of U.S. dollars)
- Exports, f.o.b.:
- 2017: 10.1
- 2018: 9.7
- 2019: 12.3
- 2020: 12.7
- 2021: 12.9
- 2022 (Proj.): 13.2
- 2023 (Proj.): 13.5
- Of which: Resource sector:
- 2017: 7.7
- 2018: 6.6
- 2019: 8.4
- 2020: 8.8
- 2021: 9.1
- Imports, c.i.f.:
- 2017: -3.9
- 2018: -3.3
- 2019: -3.7
- 2020: -4.1
- 2021: -4.5
- Current account (including grants):
- 2017: 6.5
- 2018: 7.3
- 2019: 7.2
- 2020: 28.4
- 2021: 24.5
- 2022 (Proj.): 18.3
- 2023 (Proj.): 22.4
- 2024 (Proj.): 18.7
- 2025 (Proj.): 23.1
- 2026 (Proj.): 22.0
- 2027 (Proj.): 20.6
- Gross official international reserves (in months of goods and services imports)
- 2017: 2.2
- 2018: 2.8
- 2019: 2.6
- 2020: 6.9
- 2021: 5.0
- Government debt
- Government gross debt (percent of GDP):
- 2017: 32.5
- 2018: 36.7
- 2019: 40.2
- 2020: 47.1
- 2021: 50.9
- 2022 (Proj.): 49.5
- 2023 (Proj.): 48.9
- 2024 (Proj.): 50.5
- 2025 (Proj.): 41.7
- 2026 (Proj.): 39.9
- 2027 (Proj.): 37.5
- External debt-to-GDP ratio (in percent) 3/:
- 2017: 17.2
- 2018: 21.8
- 2019: 24.4
- 2020: 21.0
- 2021: 19.7
- 2022 (Proj.): 18.0
- Exchange rates
- US$/kina (end-period):
- 2017: 0.3095
- 2018: 0.2970
- 2019: 0.2935
- 2020: 0.2850
- 2021: …
- NEER (2005=100, end-period):
- 2017: 98.6
- 2018: 95.0
- 2019: 96.0
- 2020: 94.6
- 2021: 89.1
- REER (2005=100, end-period):
- 2017: 122.3
- 2018: 120.9
- 2019: 124.8
- 2020: 127.4
- 2021: 122.5
- Terms of trade (2010=100, end-period)
- 2017: 56.7
- 2018: 56.8
- 2019: 60.8
- 2020: 68.8
- 2021: 55.8
- 2022 (Proj.): 62.7
- 2023 (Proj.): 65.5
- 2024 (Proj.): 66.4
- 2025 (Proj.): 67.5
- 2026 (Proj.): 68.2
- 2027 (Proj.): 68.4
- Nominal GDP (in billions of kina)
- 2017: 72.5
- 2018: 79.4
- 2019: 83.8
- 2020: 85.4
- 2021: 109.3
- 2022 (Proj.): 116.0
- 2023 (Proj.): 120.8
- 2024 (Proj.): 126.2
- 2025 (Proj.): 133.9
- 2026 (Proj.): 142.3
- Non-resource nominal GDP (in billions of kina)
- 2017: 53.1
- 2018: 57.3
- 2019: 60.1
- 2020: 62.9
- 2021: 69.0
- 2022 (Proj.): 75.3
- 2023 (Proj.): 81.8
- 2024 (Proj.): 88.5
- 2025 (Proj.): 95.6
- 2026 (Proj.): 103.2
- 2027 (Proj.): 111.4
Sources cited in the release: Department of Treasury; Bank of Papua New Guinea; and IMF staff estimates and projections.
IMF Press Release No. 22/258 (July 14, 2022).