## IMF Staff Completes 2017 Article IV Mission to Papua New Guinea

_IMF News, September 18, 2017_

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## Bibliographic details
- Published: September 18, 2017

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### Mission context and visit
- 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.

### Economic outlook and recent history
- 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.

### Fiscal assessment and trajectory
- 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.

### Exchange rate, monetary policy, and liquidity
- 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.

### Structural and medium-term revenue objectives
- 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.

### Conclusions and acknowledgements
- 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.*

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## References

- [Papua New Guinea and the IMF](http://www.imf.org/external/country/PNG/index.htm)
- [IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance)
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- [PRESS CENTER](http://presscenter.imf.org/)
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_Source: https://www.imf.org/en/news/articles/2017/09/18/pr17357-imf-staff-completes-2017-article-iv-mission-to-papua-new-guinea_