The Managing Director of the IMF approved on February 20, 2020, a
Staff-Monitored Program (SMP) for Papua New Guinea, covering the period of
February 20, 2020 to June 30, 2021.
Papua New Guinea faces deep macroeconomic imbalances. The economy has been
hit by a series of shocks, including lower commodity prices, a severe
drought in 2015-16 and a major earthquake in 2018. These shocks have
undermined growth and revealed vulnerabilities in public finances and
macroeconomic management. Government revenues have stagnated, public
deficits have widened and SOE losses have materialized, leading to a sharp
increase in the ratio of public debt to GDP. At the same time, shortages of
foreign exchange have inhibited investment and growth in the non-resource
sector.
The government, that assumed office in 2019, is
committed to addressing these imbalances, removing structural distortions
currently undermining economic growth, clearing the backlog of foreign
exchange orders and restoring the convertibility of the kina. The
authorities have adopted a comprehensive reform program to address
structural rigidities in the economy, while also taking steps to address
macroeconomic imbalances. Their program includes measures to gradually
reverse the recent build-up of public debt and to redirect public spending
to more productive uses, including capital investment and the social safety
net. Structural reforms include the implementation of a medium-term revenue
strategy, comprehensive reform of state-owned enterprises (SOEs) and steps
to address problems of governance and corruption.
The SMP is designed to support the authorities’ reform agenda. The SMP will
be monitored on a bi-annual basis and is intended to assist the authorities
in building a track record of implementation of a coherent set of economic
and social policies that can facilitate a return to sustained growth with
macroeconomic stability.
Economic policies under the SMP emphasize the restoration of macroeconomic
and financial sector stability through: key reforms to bring expenditure
under control while expanding government revenue; restoring the
convertibility of the currency and clearing the backlog of foreign exchange
in the economy; and, structural reforms to support stronger, more
sustainable and inclusive growth. The SMP also includes important
safeguards to protect the country’s most vulnerable people.
Risks to the SMP are significant, and stem mainly from external events,
such as a dramatic weakening of the external environment, natural
disasters, and from potential slippages in the implementation of reforms
given capacity constraints.
To mitigate the potential risks from capacity constraints, the IMF will
support the authorities’ efforts in all policy areas covered by the SMP
through tailored technical assistance and policy advice.