EXECUTIVE SUMMARYEconomic activity remained weak in early 2014. Activity was impacted by an outbreak ofthe Ebola virus since late 2013, but lagging structural reforms, energy shortages, and political uncertainty may also be at play. Economic growth is estimated to have been 2.3 percent in 2013, and is projected at 3.5 percent in 2014, supported by higher public investment and assuming a gradual start-up of new mining sector investment. Inflation fell to below10 percent year-on-year in May 2014, international reserves covered 3.6 months of imports by end-2013, and the exchange rate has remained stable.Performance under the ECF-supported program remains broadly satisfactory, although progress with structural reform has been slow. All performance criteria for end-2013 were met as were all but one (the floor on priority sector spending) of the program’s indicative targets for March 2014. However, the structural benchmarks for the second half of 2013 and early-2014 could not be completed as planned.The policy discussions focused on (i) the growth outlook for 2014; (ii) a supplementary budget for 2014 in light of a shortfall in revenues and new spending needs; (iii) progress in implementing structural reforms; and (iv) debt management.Risks to the program largely stem from domestic factors. New cases of Ebola have surged and spread more widely in recent months, which could affect growth in the second half of the year. The recent approval of the investment framework for the large Simandou iron ore project augurs well for a gradual pick-up in mining activity. However, renewed political tensions and uncertainty in the run-up to presidential elections, due in the second half of 2015, could risk delaying new investment.Staff supports completing the fourth review under the ECF arrangement and the financing assurances review. Completion of the review will result in a disbursement of anamount equivalent to SDR 18.36 million under the ECF arrangement.
Papua New Guinea (PNG) was only mildly impacted on the financial front during the global crisis. Although the financial sector in PNG has been a source of strength in 2000, vulnerabilities exist and need to be carefully managed. There are important steps needed to strengthen the regulation and supervision of the banking and insurance sectors. The development of local government securities markets is important for system stability. Five years after the enactment of the Proceeds of Crime Act (POCA), there is still no legislation on terrorist financing.
Dorothy Engmann, Mr. Ousmane Dore, and Benoít Anne
This paper evaluates the impact of the sociopolitical crisis in Côte d'Ivoire on the economies of its neighbors. Using a nonsubjective weighted index of regional instability in cross-country time-series regressions, it shows that the increase in regional instability caused by domestic instability in Côte d'Ivoire had a negative effect on the growth performance of its most direct neighbors, but no significant effect on the subregion as a whole including the West African Economic and Monetary Union (WAEMU). The paper also examines the channels through which such spillover effects took place.
This paper argues that sub-Saharan Africa’s growth performance needs to be improved substantially in order to raise standards of living to an acceptable level and achieve a visible reduction in poverty. The paper provides a broad overview of the explanations for sub-Saharan Africa’s unsatisfactory growth performance in the past, paying particular attention to the empirical literature. It argues that growth has been hampered by economic distortions and institutional deficiencies that have increased the risk of investing in Africa, and lowered the rates of return on capital and labor as well as the growth of total factor productivity.
This paper describes the need to broaden the agenda for poverty reduction. The broadening of the agenda follows from a growing understanding that poverty is more than low income, a lack of education, and poor health. The poor are frequently powerless to influence the social and economic factors that determine their well being. The paper highlights that a broader definition of poverty requires a broader set of actions to fight it and increases the challenge of measuring poverty and comparing achievement across countries and over time.
This Background Material paper describes developments in the mineral sector of Papua New Guinea during the 1990s. It examines causes and implications of the buildup in fiscal arrears. The paper highlights that one of the notable developments in 1994 was the emergence of large fiscal arrears, which had important effects on monetary and external developments during the second half of 1994 and early 1995. The paper also provides background information on the causes of these arrears and the actions taken by the authorities to settle them.