Press Release No. 24/272

IMF Executive Board Completes the Second Reviews Under the Extended Credit Facility and Extended Fund Facility Arrangements for Papua New Guinea

July 12, 2024

• The IMF Executive Board completed the Second Reviews under the 38-month ECF/EFF arrangements for Papua New Guinea, providing the country with immediate access to about US$125 million.
• The program performance recorded over the second review period continues to attest to the authorities’ strong commitment to reforms. They have successfully advanced the implementation of their reform agenda, while overcoming technical and institutional capacity constraints.
• The program will continue to support Papua New Guinea’s reform agenda, help protect the vulnerable and foster inclusive growth, with a focus maintained on strengthening debt sustainability, alleviating FX shortages, and enhancing governance and anti-corruption frameworks.

Washington, DC: The Executive Board of the International Monetary Fund (IMF) completed today the Second Reviews of Papua New Guinea’s Fund-supported program. The 38-month Extended Credit Facility and Extended Fund Facility (ECF/EFF) arrangements, approved on March 22, 2023, support the authorities’ reforms to address long-standing structural impediments to inclusive growth. This review completion allows for the immediate disbursement of SDR 94.75 million (about US$125 million) toward budget support, bringing total disbursements under the program so far to SDR 226 million (about US$299 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. 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 6.6 months of total imports, providing space to continue implementing central banking reforms. In completing the review, the Executive Board also approved a waiver of applicability for three end-June 2024 performance criteria, for which data are not yet available.

The medium-term outlook is positive but subject to risks. On the upside the start of the construction of major resource projects, which are not yet in the baseline scenario, could yield additional economic growth in the medium run, as well as gains in exports and fiscal revenues once they are operational. On the downside, Papua New Guinea is vulnerable to both domestic and external shocks, exacerbated by public debt, FX shortages, and capacity constraints that impact the government’s ability to formulate and implement economic stabilization and development policies. Papua New Guinea is also vulnerable to the consequences of climate change and particularly exposed to severe climate-related disasters.

Program performance has been satisfactory, with the authorities displaying a continued commitment to reforms. All end-December 2023 quantitative performance criteria and indicative targets were met, and most structural benchmarks have been implemented.

At the conclusion of the Executive Board’s discussion, Mr. Bo Li, Deputy Managing Director, and Acting Chair, made the following statement:

“The satisfactory program performance recorded over the second review period of the ECF/EFF arrangements continues to attest to the authorities’ strong commitment to reforms. They have successfully advanced the implementation of their reform agenda, while overcoming technical and institutional capacity constraints. The government is staying the course on its fiscal consolidation strategy, as the deficit was more than halved over the past three years. The central bank has successfully shifted to a crawl-like exchange rate arrangement, starting a gradual return to greater exchange rate flexibility and Kina convertibility; and its governance has been strengthened through the appointment of a permanent Governor and of a full Board. The operationalization of the Independent Commission Against Corruption is underway.

“The authorities should now build on these achievements and sustain their reform efforts towards more resilient, inclusive and sustainable growth. To address debt vulnerabilities, fiscal consolidation should continue, while creating fiscal space to meet development and climate adaptation needs and devising contingency plans to anticipate the possible materialization of fiscal risks, including from natural disasters. Accelerating the implementation of the Medium-Term Revenue Strategy will help to durably mobilize domestic revenue, while enhancements in public expenditure management will contribute to more efficient spending.

“The central bank is encouraged to persist in bringing the Kina closer to its market-clearing rate, while keeping inflation in check through appropriate monetary tightening, and to continue modernizing its monetary policy operations, in line with its sequenced roadmap of reforms. Providing appropriate resources and ensuring effective access to information will be critical for the Independent Commission Against Corruption to become fully operational.

“Given PNG’s high vulnerability to climate change, adaptation and disaster management policies are critical to the success of the authorities’ development strategy.

“The ECF/EFF arrangements will continue to support this homegrown reform agenda, helping to address balance of payment needs and rebuild buffers while avoiding disruptive adjustment, and catalyzing support from other international partners. Timely technical assistance and advice from the IMF will continue to accompany reform implementation.”