An International Monetary Fund (IMF) staff team, led by Mr. Scott Roger,
visited Port Moresby during August 31–September 14 for the 2017 Article IV
consultation. At the conclusion of the visit, Mr. Roger issued the
following statement:
“Papua New Guinea (PNG) faces significant economic challenges in the short
term, but also the opportunity, with a newly-elected government, to put in
place policies that will benefit the country over the long term. A twin
track approach should include near-term actions to address the persistent
fiscal deficit and shortage of foreign exchange, as well as measures that
will not have an immediate pay-off, but that will put the economy on a
sounder footing over the medium term.
“In 2015–16, the PNG economy slowed sharply in response to falls in major
export commodity prices, the end of a huge LNG pipeline investment project,
and a severe drought. In 2017–18, we anticipate a continuation of sluggish
growth, averaging around 2.4 percent, reflecting weak commodity prices,
fiscal restraint, and the adverse impact on activity 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. On unchanged
policies, little improvement in the fiscal balance is likely, as indicated
in the recently published Mid-Year Economic and Fiscal Outlook Report.
“Against this background, the mission welcomes the government’s 100-Day
Economic Stimulus Plan to begin addressing both the short-term
macroeconomic challenges and the longer-term promotion of sustainable and
inclusive growth. In particular, the mission endorses the decision to
substantially scale back the regional and district grant programs, which
were ramped up on the expectation of much higher natural gas revenues than
have eventuated. Equally welcome is the intention to strengthen PNG’s
economic base, focusing on the non-resource sector.
“In the mission’s estimation, the measures envisaged in the 100-Day Plan
will cut the 2017 fiscal deficit significantly, to a little over 3 percent.
To stabilize and start bringing the public debt-to-GDP ratio down below the
statutory ceiling of 30 percent, however, the government should target a
budget that is close to balance by 2020. Action will be needed to raise tax
revenues and cut expenditures. On the revenue side, measures to improve tax
compliance should be pursued vigorously. On the expenditure side, rapid
action is needed to reverse the ballooning of public sector wage costs in
recent years. Care needs to be taken to ensure delivery of basic health,
education, and public security services, but it is also evident that there
is substantial room to reduce inefficiency and leakage.
“The mission recommends increasing PNG’s exchange rate flexibility. Foreign
exchange shortages are delaying economic recovery. Moreover, losses in
PNG’s external competitiveness over the past few years, threaten the
government’s longer-term objective of strengthening the non-resource
sector. At the same time, recognizing that exchange rate adjustment can
adversely affect inflation, the mission recommends a gradual approach,
aiming to restore a competitive level of the exchange rate, and complete
elimination of foreign exchange shortages by 2020. Steps should also be
taken to reduce excess liquidity and strengthen BPNG’s operating framework.
“The mission also 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. This will take some time but, with adequate
resourcing and external technical support, including from the IMF, it can
be achieved over the medium term.
“The mission team wishes to thank the authorities for their excellent
cooperation and hospitality during its visit. The IMF Executive Board is
expected to discuss the 2017 Article IV Consultation in December 2017.”
