Press Release No. 24/142

IMF Reaches Staff-Level Agreement with Papua New Guinea on the Second Reviews of the Extended Credit Facility and the Extended Fund Facility

May 8, 2024

• IMF staff and the Papua New Guinea authorities reached a staff-level agreement on the completion of the second reviews of the Extended Credit Facility (ECF) and Extended Fund Facility (EFF).
• Papua New Guinea’s outlook remains positive, with economic growth increasing to 4.6 percent in 2024. The authorities continue to advance their homegrown economic reforms. All performance criteria for the second reviews have been met and the structural reform agenda is advancing.
• Completion of the reviews is pending the IMF Executive Board approval, which would allow the disbursement of SDR 94.75 million (or about US$ 127 million).

Port Moresby, Papua New Guinea: A staff team from the International Monetary Fund (IMF) led by Mr. Tahsin Saadi Sedik, visited Port Moresby during April 25-May 8, 2024, to review progress under the authorities’ homegrown economic reforms supported by the IMF Extended Credit Facility (ECF) and Extended Fund Facility (EFF) arrangements of SDR 684.3 million (about US$ 918 million).

At the conclusion of the mission, Mr. Saadi Sedik issued the following statement:

“I am pleased to announce that IMF staff and the Papua New Guinea authorities have reached a staff level agreement on the policies needed to complete the second reviews of the ECF and EFF arrangements. Subject to approval by the Executive Board of the IMF, the completion of these reviews will allow for the disbursement of SDR 94.75 million (approximately US$ 127 million) in financing, bringing the total IMF financial support disbursed thus far under the arrangements to SDR 226 million (about US$ 303 million).

“Papua New Guinea’s economic outlook remains positive. Growth is expected to increase in 2024 to 4.6 percent from 2.9 percent in 2023, supported by the resumption of activities at the Porgera gold mine and by favorable commodity prices. High-frequency economic indicators point to a limited macroeconomic impact of the January 2024 social unrest. Inflation is expected to normalize towards its historical average of around 5 percent. Gross international reserves stood comfortably at US$ 3.9 bn at end-2023, or 6.5 months of total imports, providing space to continue implementing central banking reforms.

“Performance under the Fund-supported programs has been satisfactory. The government of Papua New Guinea is making strides in implementing its structural reform agenda, focused on advancing budget repair, modernizing central banking, and improving governance. All quantitative performance criteria and indicative targets set for end-December 2023 were met. Most structural benchmarks due by end-March 2024 were implemented. The authorities’ commitment to reform is starting to bear fruit, with notable positive outcomes, including lower fiscal deficit, which will strengthen public debt sustainability.

“The government is pursuing an ambitious fiscal consolidation strategy to strengthen debt sustainability, having achieved a 0.9 percentage point of GDP deficit reduction in 2023, while creating space for more social spending. The authorities are on track to deliver an additional 0.5 percentage point of GDP reduction in 2024.

“To help alleviate foreign exchange shortages, the Bank of Papua New Guinea (BPNG) has increased the flexibility of its exchange rate through the shift to a crawl-like exchange rate arrangement, supported by a prudent yet active foreign exchange intervention strategy. The BPNG has taken significant steps towards reducing the structural misalignment of the kina, which will help enhance the competitiveness of PNG’s exports, including in the agricultural sector, and thus increase rural incomes and improve living standards. Consistent with the exchange rate arrangement, the BPNG has appropriately announced a tightening of its monetary policy stance to preserve price stability. The BPNG has also modernized its monetary policy operations, in line with its roadmap for central banking reforms. The governance and autonomy of the BPNG has been strengthened with the appointment of a permanent Governor, a permanent Deputy Governor, and members for vacant Board positions.

“To strengthen the governance and anti-corruption framework, the Independent Commission Against Corruption (ICAC) continues to set up its operations, thanks to a significant increase in funding and to the adoption of key rules and regulations. In addition, the authorities have published information on all major contracts procured under emergency procedures during the COVID-19 pandemic, an important step in enhancing transparency.

“Two structural benchmarks regarding legal amendments to the Income Tax Act and to the Central Banking Act, which were both due by end-December 2023, have faced delays. We encourage the authorities to sustain their ongoing efforts towards finalizing the drafting of these legal amendments, which are critical to enhance tax administration and to strengthen the mandate and autonomy of the BPNG.

“The IMF will continue to work closely with the Papua New Guinea authorities and stand ready to help them, not only through financing and policy advice, but also through technical assistance, including in the lead-up to the forthcoming negotiation of access to the Resilience and Sustainability Facility (RSF).

“The IMF team held meetings with Deputy Prime Minister John Rosso, Minister Assisting the Prime Minister Ian Ling-Stuckey, Governor of BPNG Elizabeth Genia, Secretary of Treasury Andrew Oaeke, Deputy Governor of BPNG Jeffrey Yabom, and other senior government officials. The team also had constructive meetings with representatives from the private sector and development partners.

“The IMF staff team would like to sincerely thank the authorities for their hospitality and for their productive collaboration and constructive and candid policy dialogue.”