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Papua New Guinea: Staff Report For The 2011 Article IV Consultation—Informational Annex

Author(s):
International Monetary Fund
Published Date:
May 2011
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ANNEX I. PAPUA NEW GUINEA: FUND RELATIONS

(As of March 31, 2011)

Membership Status

Joined: October 9, 1975; Article VIII

General Resources Account

SDR MillionPercent Quota
Quota131.60100.00
Fund holdings of currency131.1699.67
Reserve position in Fund0.440.33

SDR Department

SDR MillionPercent Allocation
Net cumulative allocation125.49100.00
Holdings9.967.93

Outstanding Purchases and Loans

SDR MillionPercent Quota
0.000.00

Latest Financial Arrangements

TypeApproval

Date
Expiration

Date
Amount

Approved

(SDR million)
Amount

Drawn

(SDR million)
Stand-by3/29/20009/28/200185.5485.54
Stand-by7/14/199512/15/199771.4835.34
Stand-by7/31/19919/30/199226.360.00
Projected Payments to Fund1(SDR million; based on existing use of resources and present holding of SDRs):
Forthcoming
20112012201320142015
Principal16.568.28
Charges/interest0.150.210.200.200.20
Total16.718.490.200.200.20

When a member has overdue financial obligations outstanding for more than three months, the amount of such arrears will be shown in this section.

When a member has overdue financial obligations outstanding for more than three months, the amount of such arrears will be shown in this section.

Safeguards Assessments

Under the Fund’s Safeguards Assessments policy, the Bank of Papua New Guinea (BPNG) was subject to a transitional assessment based on its Stand-By Arrangement with the Fund, which was approved in March 2000 and expired in September 2001. The transitional assessment was completed on May 4, 2001 and made recommendations to alleviate identified weaknesses. Currently, the BPNG is not subject to the Safeguards Assessments policy.

Exchange Rate Arrangement

Papua New Guinea has a floating exchange rate arrangement; the exchange rate of the kina is determined in the interbank market in which authorized banks participate. Papua New Guinea has accepted the obligations of Article VIII, Sections 2, 3, and 4, and maintains an exchange system free of restrictions on payments and transfers for current international transactions.

Article IV Consultations

The 2010 Article IV consultation discussions were held during February 12–23, 2011. It was concluded by the Executive Board on May 19, 2010 (IMF Country Report No. 10/164). Papua New Guinea is on the 12–month cycle.

Technical Assistance from Headquarters

FAD: A joint FAD/PFTAC mission in March 2000 assisted the authorities in preparing a Report on the Observance of Standards and Codes Fiscal Transparency Module, published in October 2000. A mission in December 2000 provided advice on the reconciliation of large and volatile differences in fiscal reporting based on information provided by the Treasury Department and information reported by the Bank of Papua New Guinea. A mission in February 2002 assessed progress in improving fiscal transparency.

LEG: A mission in November 1996 provided advice on the legal framework for the National Value-Added Tax. A mission in November 2005 provided advice on the drafting of a tax administration law. A mission in July 2006 provided a comprehensive program of assistance in the development of the AML/CFT regime, including legislative drafting and capacity building. A mission in August/September 2007 assisted the authorities in finalizing the terms of the Revenue Administration Bill.

MFD/MCM: During 2001–03 assistance was provided through missions in bank supervision, financial sector restructuring and improving the accounting framework and monetary operations of the central bank. A resident advisor was assigned to the BPNG research department for 15 months through August 2003. Technical assistance through peripatetic visits was delivered on bank regulation and supervision (2001–February/March 2007, July–August 2009, and February 2010), medium–term monetary policy formulation (October 2004 and September 2005), reserve management (June 2006-September 2007, March/July–August 2009, January–February 2010), internal audits (2004–August 2007), accounting (September/October 2006–February 2007, February–March/June–July/November 2009), liquidity management (January 2009), and monetary and forex operations (July–August 2009, February 2010).

STA: Four GDDS missions took place in 1995–96; one inspection visit was conducted in April 2001; one mission provided advice on the compilation of national accounts in February 2006; and one mission provided advice on balance of payments in May 2003. A mission reviewed monetary and financial statistics in April 2005 and a follow-up mission took place in May 2006. Subsequently, a multisector statistics mission visited in September 2006 followed by a high level STA visit in December 2007. Two follow-up missions in balance of payments took place in June 2008 and November 2009 and three follow-up missions in monetary and financial statistics took place in April 2008, November 2009 and May 2010.

Resident Representative

None.

ANNEX II. PAPUA NEW GUINEA RELATIONS WITH THE PACIFIC FINANCIAL TECHNICAL ASSISTANCE CENTRE1

(As of April 19, 2011)

Until the Resident Representative position was closed in May 2008, the resident representative helped coordinating TA assistance to Papua New Guinea (PNG), with the extensive assistance provided by the Australian Enhanced Cooperation Program (ECP). Since 2000, PFTAC has provided more than 25 missions to PNG, and the Government has sent over 50 officials to the Centre’s regional seminars, workshops, and training courses in this period.

A. Public Financial Management

PFTAC assisted in the preparation of a ROSC, which was published in October 2000. The PFTAC PFM Advisor has participated in occasional FAD technical assistance missions, and an attachment of one PNG official to PFTAC was completed in April 2007. PNG participated, with four officials, in the US Treasury study visit in September 2008.

B. Tax Administration and Policy

The IMF Legal Department drafted a Tax Administration Act in 2005, adopted by the Government in 2006, that: (i) the re-established the Internal Revenue Commission as an independent tax authority; and (ii) included customs administrative provisions. An IMF Legal Department mission in September 2007 prepared the Internal Revenue Commission Administration Bill 2007 to strengthen and consolidate all revenue administrative provisions into one statute.

PFTAC has delivered a project to: objectively assess the existing IT system of the Internal Revenue Commission and; develop and draft an information technology strategic plan (ITSP) and: based on the ITSP, draft a business plan for the redevelopment of the IT system. The project comprised of a number of missions between 2006 and 2009 that delivered:

  • An assessment of the current and future business drivers.
  • Development of the business system architecture for the ITSP.
  • Completion of the applications, information and IT technical architecture phases of the ITSP project.
  • Recommendations for the management and delivery of IT services within the IRC.
  • Completion and approval of the ITSP Transition Plan.
  • Drafting of the request for information (RFI) to test the market availability of suitable tax administration packaged software.
  • Development of a business case to fund redevelopment of the Internal Revenue Commission (IRC) technology system, that is suitable for presentation and decision making by the Government of PNG and other potential donor organisations.

C. Financial Sector Regulation and Supervision

There is no current PFTAC involvement in this area. In October 2005, the BPNG hosted the annual meeting of the Association of Financial Supervisors of Pacific Countries, for which PFTAC is the secretariat. In March 2007, PFTAC funded an attachment for two supervisors from BPNG to assist the Cook Islands’ supervisory authority to undertake an on-site examination of a domestic bank. In 2008, PFTAC funded an attachment of one supervisor to assist the Reserve Bank of Fiji under an on-site examination of a local branch of a PNG-based bank. Since 2005, the World Bank and the IMF have jointly prepared an annual Debt Sustainability Assessment. The Asian Development Bank has joined since 2009. The IMF and the World Bank also collaborate in the development and timely dissemination of reliable economic and financial statistics. The IMF focuses on improving balance of payments, national accounts, and price statistics, while the World Bank provides assistance on issues related to the production of high-quality household and enterprise surveys. Through PRSC10, the World Bank and development partners are supporting the SBV to formulate a regulation that would improve timeliness and availability of monetary and banking sector information.

D. Economic and Financial Statistics

In February 2006, the Advisor briefly assessed the BOP compilation with a view to improve its quality, and to assess progress against recommendations made by previous missions. A multi-sector statistics mission in September 2006 assessed the statistical systems (BOP, national accounts, prices statistics, government finance statistics and monetary statistics), with the PFTAC Advisor assessing the national accounts and providing overall coordination. The BOP expert provided some TA to progress improvements to the methodology and source data. In 2008 and 2009 the Advisor undertook balance of payment (BOP) statistics missions to review statistics prerequisites, progress in improving compilation methods and source data, as well as to assist Bank of PNG statistics staff in assessing the feasibility of electronic data collection.

E. Macroeconomic Analysis

Following a request by the Bank of Papua New Guinea for assistance in building up a financial programming capacity, the Advisor visited PNG in January 2011 to take stock of current capacity and develop a work plan for implementing the capacity-building project. The first follow-up visit is planned for May 2011. The advisor will also, in collaboration with APD, deliver a seminar on the macroeconomic implications of scaling-up expenditure due to increased resource revenues.

ANNEX III. PAPUA NEW GUINEA RELATIONS WITH THE WORLD BANK GROUP

(As of April 29, 2011)

1. The Fund PNG team led by Mr. Schule (mission chief) met with the World Bank PNG team led by Ms. Bailey (country manager) on February 11, 2011, to identify macrocritical structural reforms and to coordinate the two teams’ work for the period February 2011-March 2012.

2. The teams agreed that in the near term, the authorities’ priority is to maintain macroeconomic stability and fiscal sustainability, the pre-requisites for sustained growth. Given the developments of the LNG projects and increased business activity associated with these projects, it is an opportune time, with appropriate policies, to help notably lift living standards in PNG. However, to avoid the paradox of plenty there is a need to effectively manage the revenues from nonrenewable resources. In addition to spending these revenues gradually over time to address development needs such as infrastructure, education, health, and law and order, the authorities will need to be particularly mindful of the absorption capacity of the economy. On top of that, the authorities should not borrow against future LNG revenue to fund large infrastructure projects. Further, holding accumulated assets offshore will be essential to avoid currency appreciation that would undermine the competiveness of the non-resource tradable sector.

3. The Bank and Fund staffs continue to work closely together to support the agenda of enhancing economic growth by helping the country to remove the constraints in the following areas:

  • Macroeconomic policy framework: The Fund takes the lead on exchange rate issues, monetary policy, and macroeconomic aspects of fiscal policy while the Bank takes the lead on medium-term growth prospects, composition of public expenditure, as well as structural policies to support growth.
  • Public financial management reforms: The Bank supports Government initiatives on improved diagnostics including sectoral or overall PERs, while the Fund takes the lead on strengthening the implementation of the MTFS, improving coordination between monetary and fiscal policy, and other PFM issues through the PFTAC.
  • Financial sector reforms: The Bank takes the lead on programs to improve SME access to finance, including through collaborative work with the IFC and the Fund takes the lead on bank regulation and supervision, central bank accounting and internal audit.
  • Energy sector reforms: Bank takes the lead in reforms to build a financially viable and efficient energy sector while the Fund monitors implications of quasi-fiscal losses for debt sustainability and monetary management.
  • Sovereign wealth fund: The Fund takes the lead on guiding the establishment of a SWF aligned to the budget while the Bank takes the lead on discussions regarding mechanisms for linking the SWF(s) to budget processes, investment planning, and the next generation of Medium-Term Fiscal and Debt Strategies.
  • Statistical system reforms: The two institutions will collaborate on strengthening the statistical authorities.

4. The following table lists the teams’ separate and joint work programs during February 2011-March 2012.

TablePapua New Guinea: Bank and Fund planned activities in macrocritical structural reform areas, February 2011-March 2012
TitleProductsProvisional Timing of

Missions
Expected Delivery Date
1. Bank Work ProgramCountry Assistance StrategyPreparatory work starting in first half of fiscal year 2012Second half of fiscal year 2012
Statistics TA (household survey, development of revised CPI and national accounts consumption measure)OngoingHousehold survey results expected first quarter of fiscal year 2012; other components to follow
Supporting government develop a sovereign wealth fund frameworkPresentation of analytical work on managing revenue volatility in April 2010; support for developing framework expected May-August 2011Ongoing
Anti-Money Laundering/ Terrorist Finance Assessment MissionMission in November 2010Draft report presented to government in December 2010
Analytical work, technical assistance and possible lending operations in the area of social services (including education)OngoingImplementation throughout fiscal year 2011 and 2012
Debt Management Performance Assessment (DeMPA)November-December 2010Final report, incorporating government comments, presented to government in February 2011
SME Access to Finance IDA-IFC Risk-Sharing Facility with technical assistance - to support increased lending by commercial banks to national SMEs poised to benefit from large resource projectsOngoingScheduled for Board consideration in May 2011
2. Fund Work ProgramArticle IV consultations



TA provision by FAD on SWF and mineral taxation
February 2011



May 2011
May 2011 June



2011
TA provision by PFTAC on SWF modelMay and July 2011July 2011
Staff visitJuly 2011July 2011
Article IV consultationsFebruary 2012May 2012
3. Joint Work ProgramFinancial Sector Assessment ProgramJoint mission in May 2010FSSA report in May 2011

ANNEX IV. PAPUA NEW GUINEA RELATIONS WITH THE ASIAN DEVELOPMENT BANK2

(As of December 31, 2010)

Papua New Guinea (PNG) joined the Asian Development Bank (ADB) in 1971. The ADB has approved 70 loans to PNG totaling $1,317 million for 49 projects, of which 28 loans ($624 million) have been extended from ordinary capital resources and 42 loans ($693 million) from special funds resources. The special fund resources were also used for one grant amounting $15 million. In addition, $62.7 million has been provided for 154 technical assistance projects. There are currently 14 active loans involving 8 projects (and one special fund grant-financed project).

In August 2010, ADB and the Government of PNG agreed on a new country partnership strategy, 2011–2015. The strategy was developed in close consultation with the government and other stakeholders, and is well-aligned to the government’s Development Strategic Plan (DSP), 2010–2030 and the Medium-Term Development Plan, 2011–2015. It centers on infrastructure improvements and other measures to help PNG plan and implement a successful transition through the conversion of its natural resources wealth into inclusive economic growth.

In 2010, ADB approved the Town Electrification Investment Program of $150 million and two first tranche ADF and ordinary capital resources loans totaling $57.3 million, and also an expansion of ADB’s microfinance project support with a $13 million concessional loan. ADB’s ongoing lending activities support road, seaport and airport rehabilitation and improvement, community water transport, renewable power generation and transmission, regional cooperation and investment, rural health services delivery, access to microfinance, and expansion of telecommunication services. ADB provides technical assistance in all these areas to improve policy, capacity, and knowledge. ADB also finances experts and programs to improve the government’s public financial management, and to mitigate and adapt to climate change risks.

The ADB’s lending to PNG for 2012–2014 is expected to remain a blend from the Asian Development Fund (ADF) and ordinary capital resources (OCR). ADB’s ADF allocation for PNG for 2012–2014 totals approximately $160 million and OCR lending is expected to be approximately $190 million. Indicative non-lending assistance for 20012–2014 totals $12 million. ADB will leverage up to $50 million of co-financing.

Creating private sector-friendly conditions is also a strategic priority and, in PNG, ADB supports (i) the development and implementation of the National Public-Private Partnership Policy Act and corresponding institutions; (ii) the development of a national community service obligation framework for state-owned enterprises; (iii) increased access to finance through microfinance, branchless banking, and secured transactions frameworks; and (iv) public information and private sector advocacy activities. ADB also invests directly in the private sector in PNG. In 2009, ADB, in collaboration with commercial banks and the International Finance Corporation, provided $18 million in senior debt to increase Digicel PNG’s term loan facility. The funds are primarily being used to expand Digicel’s network capacity and coverage and upgrade its billing system.

TablePapua New Guinea: Public Sector Loan Approvals and Disbursements, 2004–2010(In millions of U.S. dollars)
2004200520062007200820092010
Loan approvals19.00.053.0100.0100.0120.070.3
Loan disbursements19.221.529.327.419.817.427.9

ANNEX V. PAPUA NEW GUINEA STATISTICAL ISSUES

(As of April 15, 2011)

A. Assessment of Data Adequacy for Surveillance

General: Data provision has some shortcomings, but is broadly adequate for surveillance. Most affected areas are: national accounts, fiscal accounts, and balance of payments.

National accounts: The National Statistical Office (NSO) lacks sufficient staff with computer training. The accuracy and reliability of the data are affected by inadequate source data. The Bank of Papua New Guinea (BPNG) and the Department of Treasury produce the most current data. In mid-2000, the NSO released a set of national accounts (NA) estimates: National Income, Expenditure and Product, 1993–98. These estimates were compiled using the 1968 System of National Accounts. However, the NSO has been working to implement the 1993 SNA. In March 2004, the NSO released a preliminary set of national income, expenditure, and production accounts estimates for 1994–2002, rebased to 1998 prices. As these figures are still in need of substantial improvements, the 2006 STA multisector mission recommended against publication of the new GDP data until the needed revisions are made. In an attempt to fill the vacuum, the Treasury—responsible for Government finance statistics (GFS)—has actually assumed the role of estimating the NA for 2002 to the present. Expenditure side data are available until 2006.

Prices statistics: The NSO currently compiles a new quarterly wholesale price index (which it does not publish) and a quarterly consumer price index that is based on weights that are thirty four years old. The NSO intends to use the results of the 2009/2010 Household Income Expenditure Survey (HIES) to rebase the CPI. The survey documents are currently being prepared for publication.

Government finance statistics: Annual GFS reported to STA suffer from insufficient coverage. While central government tax revenue statistics are generally accurate and timely, nontax revenue and public expenditure data are deficient. In particular, development budget expenditures and the utilization of grants and project loans are recorded with long lags, and few records on the use of trust accounts are available. While interest payment records are accurate, there are timing issues regarding the recording of interest on discount securities. These weaknesses contribute to discrepancies in domestic financing between estimates from monetary and debt data and those derived from fiscal records. The 2006 STA multisector mission encouraged the authorities to prepare a list of public sector units to permit a comprehensive delineation of the levels of government, which should help reconcile the GFS with other datasets.

Monetary statistics: Monetary data are now being produced and reported to STA on a regular basis. Previous monetary and financial statistics (MFS) missions helped to (i) finalize the review of the collection, compilation, and dissemination procedures of monetary statistics by the BPNG; (ii) develop a work program to facilitate the full implementation of the methodology recommended in the Monetary and Financial Statistics Manual (MFSM); (iii) introduce the standardized report forms (SRFs) for reporting monetary data of the central bank, other depository corporations, other financial corporations (OFCs) monetary aggregates; and (iv) finalize the integrated monetary database that meets the data needs of the BPNG, STA, and APD. A MFS mission is scheduled for FY 2012 to introduce the SRF for OFCs with complete institutional coverage.

Balance of payments statistics: Annual balance of payments data are derived from the International Transactions Reporting System (ITRS), which is not tightly monitored despite the BPNG reporting requirements. There are marked differences between the official data on exports and imports of goods and those reported by trading partners. The financial accounts data are of poor quality because of major deficiencies in data collection, especially in the areas of private external debt. Quarterly data are also published by the BPNG. The 2006 STA multisector mission identified as a priority to strengthen current account estimates, including through improved classification of investment earnings, trade credits, and grant receipts as well as enhancing source data for imports and exports. Progress is being made to implement the recommendations from the PFTAC’s BOP missions in June 2008 and November 2009. A follow-up PFTAC BOP mission is scheduled for FY 2012. Detailed BOP statistics are under review to be released in the near future.

B. Data Standards and Quality

Does not participate in the General Data Dissemination System.

No data ROSC is available.

C. Reporting to STA

Papua New Guinea last reported government finance statistics for publication in the Government Finance Statistics Yearbook and in International Financial Statistics for 1999–2002 and cover only budgetary central government.

Monetary data are reported to STA for publication in IFS on a regular monthly basis.

Balance of payments data for 2009 were reported to STA for publication in IFS and BOPSY.

National accounts data for 2004 were reported to STA for publication in IFS.

Papua New Guinea: Table of Common Indicators Required for SurveillanceAs of April 15, 2011
Date of

Latest

Observation
Date

Received
Frequency

of Data1
Frequency

of

Reporting1
Frequency

of

Publication1
Exchange Rates04/08/1104/15/11DWW
International Reserve Assets and Reserve Liabilities of the Monetary Authorities204/08/1104/15/11WWQ
Reserve/Base Money02/1103/29/11MMQ
Broad Money02/1104/06/11MMQ
Central Bank Balance Sheet02/1103/29/11MMQ
Consolidated Balance Sheet of the Banking System02/1104/06/11MMQ
Interest Rates312/1001/11WWQ
Consumer Price Index09/1012/10QQQ
Revenue, Expenditure, Balance and Composition of Financing4—General Government5N/AN/AN/AN/AN/A
Revenue, Expenditure, Balance and Composition of Financing4—Central Government12/1004/11AAA
Stocks of Central Government and Central Government-Guaranteed Debt609/1012/10QQQ
External Current Account Balance09/1012/10QQQ
Exports and Imports of Goods and Services09/1012/10QQQ
GDP/GNP200911/10AAA
Gross External Debt200902/11QAA
International Investment Position7N/AN/AN/AN/AN/A

Daily (D), Weekly (W), Monthly (M), Quarterly (Q), Annually (A), Irregular (I); and Not Available (N/A).

Includes reserve assets pledged or otherwise encumbered as well as net derivative positions.

Both market-based and officially-determined, including discount rates, money market rates, rates on treasury bills, notes, and bonds.

Foreign, domestic bank, and domestic nonbank financing.

The general government consists of the central government (budgetary funds, extra-budgetary funds, and social security funds) and state and local governments.

Including currency and maturity composition.

Includes external gross financial asset and liability positions vis-à-vis nonresidents.

Daily (D), Weekly (W), Monthly (M), Quarterly (Q), Annually (A), Irregular (I); and Not Available (N/A).

Includes reserve assets pledged or otherwise encumbered as well as net derivative positions.

Both market-based and officially-determined, including discount rates, money market rates, rates on treasury bills, notes, and bonds.

Foreign, domestic bank, and domestic nonbank financing.

The general government consists of the central government (budgetary funds, extra-budgetary funds, and social security funds) and state and local governments.

Including currency and maturity composition.

Includes external gross financial asset and liability positions vis-à-vis nonresidents.

1The Pacific Financial Technical Assistance Centre (PFTAC) in Suva, Fiji is a regional technical assistance institution operated by the IMF with financial support of the Asian Development Bank, Australia, Korea, Japan and New Zealand. The Center’s aim is to build skills and institutional capacity for effective economic and financial management that can be sustained at the national level. Member countries are: Cook Islands, Federated States of Micronesia, Fiji, Kiribati, Marshall Islands, Nauru, Niue, Palau, Papua New Guinea, Samoa, Solomon Islands, Tokelau, Tonga, Tuvalu, and Vanuatu.
2Prepared by ADB staff.

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