IMF Executive Board Approves Resilience and Sustainability Facility Arrangement and Completes the Third Reviews Under the Extended Credit Facility and Extended Fund Facility Arrangements for Papua New Guinea
December 11, 2024
- The IMF Executive Board approved a new two-year arrangement under the Resilience and Sustainability Facility (RSF) for Papua New Guinea for an amount equivalent to about US$259 million, to help the authorities improve climate resilience and build policy buffers against climate shocks. Papua New Guinea is the first Pacific Island country to access the RSF.
- The Executive Board also completed the Third Reviews under the existing ECF/EFF arrangements, providing the country with immediate access to about US$125 million. The authorities continue to make progress in economic reforms, reducing the fiscal deficit and alleviating foreign exchange shortages.
- The ECF/EFF and RSF programs will continue to support Papua New Guinea’s reform agenda, focusing on strengthening debt sustainability, alleviating FX shortages, fostering good governance and building climate resilience, while protecting the vulnerable and promoting inclusive and sustainable growth.
On December 11, 2024, the Executive Board of the International Monetary Fund (IMF) approved a 24-month arrangement under the Resilience and Sustainability Facility (RSF) for Papua New Guinea in the amount of SDR 197.40 million (about US$259 million), with disbursements to start when the first review of the arrangement is completed. The RSF arrangement will help the authorities tackle pressing challenges posed by climate change and reinforce the country’s resilience by strengthening disaster risk management capacity, supporting the inclusion of climate considerations in public investment decisions, encouraging the development of green finance, and enhancing mitigation policies. Papua New Guinea is the first Pacific Island country and only the second country from the Asia-Pacific region to gain access to the RSF.
The Executive Board also completed the Third Reviews of Papua New Guinea’s existing Extended Credit Facility and Extended Fund Facility (ECF/EFF) arrangements, approved on March 22, 2023, supporting 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 321.12 million (about US$422 million). The Executive Board also approved a seven-month extension of the ECF/EFF arrangements to provide additional time to complete key reforms under the program.
Papua New Guinea’s economic outlook remains positive, with growth expected to increase to 4.5 percent in 2024 and 4.6 percent in 2025 from 2.9 percent in 2023, supported by the resumption of activities at the Porgera gold mine and improvements in access to foreign exchange. Headline inflation is projected to remain historically low at 1.3 percent in 2024, mostly due to a steep drop in betel nut prices, but core inflation is expected to increase to 3.9 percent in 2024 and 4.5 percent in 2025, mainly driven by food and transportation costs.
The medium-term outlook is positive but subject to large downside risks, as Papua New Guinea is vulnerable to both domestic and external shocks. These risks are exacerbated by capacity constraints that impact the government’s ability to design and implement policies aimed at economic stabilization, development, and climate adaptation. 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 begin operations.
Program performance has remained satisfactory, with the authorities displaying a sustained commitment to reforms. All end-June 2024 quantitative performance criteria and indicative targets were met, and most structural benchmarks due were fully or partially implemented.
At the conclusion of the Executive Board’s discussion, Mr. Bo Li, Deputy Managing Director, and Acting Chair, made the following statement:
“The Papua New Guinea authorities have continued implementing the reform agenda under their Fund-supported program, with the reforms starting to bear fruit. Staying the course on their homegrown reforms will help them achieve more resilient, inclusive, and greener economic growth.
“The authorities have been successfully reducing the fiscal deficit, with additional efforts expected in 2025. To durably reduce debt vulnerabilities while freeing up fiscal space for development, climate adaptation, and building buffers, further fiscal adjustment should rely on the implementation of the Medium-Term Revenue Strategy, including the modernization of key tax legislation, to improve domestic revenue mobilization; enhancements in the management of public expenditure and government cash to make spending more efficient; and seeking more concessional and longer-term borrowing. Securing fiscal space for social spending to protect the most vulnerable is also essential.
“Foreign exchange shortages—a longstanding impediment to private sector development—have eased in recent months, following central banking reforms aimed at greater exchange rate flexibility, a more competitive foreign exchange market, and more active liquidity management. Consistent with its sequenced roadmap of reforms, the central bank should continue working toward restoring kina convertibility and modernizing monetary policy operations, while keeping inflation in check through appropriate monetary tightening. Promptly appointing members at the newly created Monetary Policy Committee is essential to ensure continuity in policymaking.
“The operationalization of the Independent Commission Against Corruption (ICAC) should continue. Allocating appropriate budget resources, swiftly appointing its oversight committee, and setting up frameworks for interagency exchange of information are key to allow the ICAC to effectively carry out its missions. Other important governance reforms include strengthening the AML/CFT framework and enhancing transparency and accountability in state-owned enterprises and public entities.
“Given the country’s high vulnerability to climate change, managing its impact is critical to the success of the authorities’ poverty reduction and sustainable growth agenda. Reforms under the new RSF arrangement will help the authorities build resilience against climate-related risks and meet their international climate commitments.
“The ECF/EFF and RSF arrangements will continue to support the authorities’ homegrown reform agenda, helping 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 and other development partners will continue to accompany reform implementation.”
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Table 1. Papua New Guinea: Selected Economic and Financial Indicators, 2020-2026 |
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Nominal GDP (2021): |
US$26.3 billion 1/ |
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Population (2021): |
11.8 million |
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GDP per capita (2021): |
US$2,217 |
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Quota: |
SDR 263.2 million |
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2020 |
2021 |
2022 |
2023 |
2024 |
2025 |
2026 |
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Est. |
Est. |
Est. |
Proj. |
Proj. |
Proj. |
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(Percentage change) |
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Real sector |
|
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Real GDP growth |
-3.2 |
-0.5 |
5.7 |
3.0 |
4.5 |
4.6 |
3.5 |
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Resource 2/ |
-9.2 |
-11.6 |
5.1 |
-1.6 |
5.0 |
3.8 |
1.5 |
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Non-resource |
-0.4 |
4.2 |
5.9 |
4.7 |
4.4 |
4.8 |
4.2 |
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Mining and quarrying (percent of GDP) |
10.2 |
8.2 |
8.2 |
8.5 |
10.2 |
11.8 |
12.2 |
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Oil and gas extraction (percent of GDP) |
14.1 |
17.1 |
23.7 |
18.9 |
17.6 |
16.3 |
15.4 |
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CPI (annual average) |
4.9 |
4.5 |
5.3 |
2.3 |
1.3 |
5.1 |
4.3 |
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CPI (end-period) |
5.1 |
5.7 |
3.4 |
3.9 |
1.7 |
3.9 |
4.5 |
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(In percent of GDP) |
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Central government operations |
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Revenue and grants |
14.7 |
15.1 |
16.6 |
17.9 |
18.7 |
19.3 |
19.6 |
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Of which: Resource revenue |
0.9 |
1.1 |
3.9 |
3.9 |
3.3 |
3.7 |
3.9 |
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Expenditure and net lending |
23.5 |
22.0 |
21.9 |
22.3 |
22.6 |
21.9 |
21.0 |
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Net lending(+)/borrowing(-) |
-8.9 |
-6.8 |
-5.3 |
-4.3 |
-3.9 |
-2.6 |
-1.3 |
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Non-resource net lending(+)/borrowing(-) |
-9.8 |
-8.0 |
-9.1 |
-8.2 |
-7.2 |
-6.3 |
-5.2 |
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(Percentage change) |
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Money and credit |
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Domestic credit |
2.3 |
15.9 |
1.5 |
14.9 |
13.8 |
2.4 |
1.6 |
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Credit to the private sector |
4.2 |
2.5 |
6.9 |
14.9 |
12.5 |
14.2 |
12.6 |
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Broad money |
7.0 |
13.4 |
14.7 |
9.9 |
1.7 |
-1.0 |
4.9 |
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(In billions of U.S. dollars) |
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Balance of payments |
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Exports, f.o.b. |
9.1 |
10.8 |
14.6 |
12.9 |
13.5 |
15.1 |
15.8 |
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Imports, c.i.f. |
-3.6 |
-4.4 |
-5.9 |
-5.2 |
-5.0 |
-5.4 |
-5.6 |
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Current account (including grants) |
3.4 |
3.3 |
4.6 |
3.9 |
3.1 |
3.9 |
3.8 |
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(In percent of GDP) |
14.4 |
12.6 |
14.4 |
12.7 |
9.8 |
11.8 |
11.1 |
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Gross official international reserves |
2.7 |
3.2 |
4.0 |
3.9 |
3.0 |
3.0 |
3.4 |
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(In months of goods and services imports) |
5.0 |
4.5 |
6.3 |
6.6 |
4.8 |
4.7 |
5.2 |
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(In percent of GDP) |
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Government debt |
|
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Government gross debt |
48.7 |
52.6 |
48.2 |
53.7 |
53.9 |
52.6 |
50.9 |
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External debt-to-GDP ratio (in percent) 3/ |
21.8 |
25.0 |
23.5 |
26.8 |
30.6 |
31.4 |
32.5 |
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External debt-service ratio (percent of exports) |
5.4 |
4.3 |
2.2 |
2.7 |
3.4 |
4.5 |
5.4 |
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Exchange rates |
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US$/kina (end-period) |
0.2850 |
0.2850 |
0.2840 |
0.2683 |
… |
… |
… |
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NEER (2005=100, fourth quarter) |
90.7 |
91.2 |
100.3 |
101.1 |
… |
… |
… |
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REER (2005=100, fourth quarter) |
122.6 |
125.1 |
135.5 |
134.7 |
… |
… |
… |
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Terms of trade (2010=100, end-period) |
55.1 |
48.2 |
69.5 |
65.6 |
61.5 |
66.2 |
66.9 |
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Nominal GDP (in billions of kina) |
82.5 |
91.6 |
111.4 |
110.6 |
122.3 |
134.7 |
144.2 |
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Non-resource nominal GDP (in billions of kina) |
62.5 |
68.4 |
75.9 |
80.3 |
88.3 |
96.9 |
104.4 |
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Sources: Department of Treasury; Bank of Papua New Guinea; and IMF staff estimates and projections. |
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1/ Based on period average exchange rate. |
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2/ Resource sector includes production of mineral, petroleum, and gas and directly-related activities such as mining and quarrying, but excludes indirectly-related activities such as transportation and construction. |
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3/ Public external debt includes external debt of the central government, the central bank, and statutory authorities. |
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