Papua New Guinea
2007 Article IV Consultation: Staff Report; and Public Information Notice on the Executive Board Discussion for Papua New Guinea
Author:
International Monetary Fund
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Publication Date:
12 Mar 2008
eISBN:
9781451831757
Language:
English
Keywords:
ISCR; CR; fiscal policy; monetary policy; loan; sc; PNG authorities; debt prepayment; debt outlook; public debt burden; PNG authority; Monetary base
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Papua New Guinea’s economic performance has strengthened since the last Article IV Consultation. The country has significant underlying vulnerabilities. The economy is exposed to commodity price shocks, and mineral production is expected to decline over the medium to longer term. However, macroeconomic vulnerabilities have intensified, in particular, the potential for higher unproductive fiscal spending to raise demand pressures and spur inflation. Prudent fiscal policies are welcomed. Implementation of the multi-donor technical assistance plan is encouraged. The authorities are encouraged to accelerate the structural reforms and improve infrastructure.

Abstract

Papua New Guinea’s economic performance has strengthened since the last Article IV Consultation. The country has significant underlying vulnerabilities. The economy is exposed to commodity price shocks, and mineral production is expected to decline over the medium to longer term. However, macroeconomic vulnerabilities have intensified, in particular, the potential for higher unproductive fiscal spending to raise demand pressures and spur inflation. Prudent fiscal policies are welcomed. Implementation of the multi-donor technical assistance plan is encouraged. The authorities are encouraged to accelerate the structural reforms and improve infrastructure.

I. Introduction

A. Background

1. Papua New Guinea’s economic performance has strengthened since the last Article IV consultation. Supported by a combination of prudent fiscal and monetary policies and high global prices for key mineral export commodities, growth has accelerated over the past five years with increasing momentum from the nonmineral sector since the recession ended in 2003. Inflation has remained in the low single digits, and international reserves are at a record high.

2. Still, the country remains poor with significant underlying vulnerabilities. There has been little improvement in development indicators (Figure 1), and urban unemployment is estimated at around 40 percent. The economy is exposed to commodity price shocks, and mineral production is expected to decline over the medium to longer term (Box 1). An unattractive investment environment, including weak infrastructure and governance, constrains more rapid and sustained growth of the nonmineral sector (Box 2). Papua New Guinea’s recent growth performance is an improvement relative to the past; however, it is unlikely to be sustained and falls short of that needed to reduce poverty, raise development, and close the performance gap with respect to comparator countries over time.

Figure 1.
Figure 1.

Papua New Guinea: Progress Toward Selected Millennium Development Goals 1/

Citation: IMF Staff Country Reports 2008, 098; 10.5089/9781451831757.002.A001

Source: World Bank, World Development Indicators database, April 2007.1/ Progress is measured against a linear projection between the 1990 level and the MDG. Data points may not be available for each intervening year.
uA01fig01

PNG: GDP per Capita at PPP Exchange Rates, 1970–2012

(In percent of comparators)

Citation: IMF Staff Country Reports 2008, 098; 10.5089/9781451831757.002.A001

Sources: IMF, World Economic Outlook; and Fund staff estimates.

3. The political environment has stabilized. Prime Minister Somare has returned for an unprecedented second-consecutive term following the mid-2007 parliamentary elections. After several years of inactivity following differences of opinion with the authorities on forestry sector governance, the World Bank has recently re-engaged with new project lending.

B. The Current Economic Setting

4. The near-term macroeconomic prospects are positive (Figure 2 and Table 1).

  • Buoyant growth of over 6 percent is estimated for 2007, based on robust mineral and nonmineral growth. The pickup reflects the combination of several one-off factors, including a strong rebound in mineral and agriculture production following drought in 2006, and expansion in telecommunications and mining-related construction. Strong nonmineral activity should continue in 2008, with some easing.

  • Annual average CPI inflation is estimated at under 2 percent in 2007.

  • Positive debt dynamics and some repayment lowered the public debt-to-GDP ratio to about 35 percent at end-2007, down sharply from a peak of 77 percent in 2002 (Figure 3 and Table 2).

  • Large foreign exchange inflows related to buoyant mineral exports boosted official reserves to over $2 billion at end-2007, equivalent to about 5 months of goods and services imports, and kept the current account balance in surplus (Figure 4 and Table 3).

  • Monetary aggregates continue to grow rapidly, although at a decelerated pace (Figure 5 and Table 4). Low inflation and real interest rates, and improved financial intermediation have contributed to a decline in broad money velocity.

  • The kina continued to appreciate against the U.S. dollar, 7 percent over the year to November. On a nominal and real effective basis, it depreciated by about 4 and 5 percent, respectively, over the year through September.

  • The financial sector appears sound, based on backward-looking indicators. Reflecting the improved growth prospects and low interest rates, credit growth continues to be strong, though decelerating (Figure 5 and Table 4). Financial sector assets have grown to 71 percent of GDP at June 2007, from 45 percent at end-2003.

  • Reflecting the improved fiscal and external situation, Standard & Poor’s upgraded Papua New Guinea’s credit rating to ‘B+’ on its foreign currency long-term debt and ‘BB-’ on its local currency rating (Table 6).

Figure 2.
Figure 2.

Papua New Guinea: Real Sector Developments

Citation: IMF Staff Country Reports 2008, 098; 10.5089/9781451831757.002.A001

Sources: PNG authorities; IMF, World Economic Outlook; UN, Human Development Report 2007/08; and Fund staff estimates.
Table 1.

Papua New Guinea: Selected Economic Indicators, 2003–08

article image
Sources: Data provided by the Papua New Guinea authorities; and Fund staff estimates and projections.

September figures for interest rate and exchange rates.

Based on new official national account estimates (1998 prices).

Measured from above the line in the fiscal accounts.

Measured from below the line in the fiscal accounts.

Includes changes in check float.

Includes central government, central bank external debt, and statutory authorities.

Figure 3.
Figure 3.

Papua New Guinea: External Sector Developments

Citation: IMF Staff Country Reports 2008, 098; 10.5089/9781451831757.002.A001

Sources: PNG authorities; IMF World Economic Outlook and Information Notice System; and Fund staff estimates.
Table 2.

Papua New Guinea: Summary of Central Government Operations, 2004–08

(In percent of GDP)

article image
Sources: Data provided by the Papua New Guinea authorities; and Fund staff estimates.

Includes the November 2007 Supplementary budget.

Since 2005, this includes transfers to Bougainville.

The 2005–08 government budgets classify earmarked funds that are transferred to government trust funds as expenditure. Under the staff’s cash presentation, these funds are reclassified on a cash accounting basis (consistent with Government Finance Statistics), and expenditure is counted as occuring only when money is disbursed from the trust funds.

In 2006 and 2007, includes budget expenditure for all loan prepayments.

Figure 4.
Figure 4.

Papua New Guinea: Fiscal Sector Developments

Citation: IMF Staff Country Reports 2008, 098; 10.5089/9781451831757.002.A001

Sources: Papua New Guinea authority; IMF, World Economic Outlook; and Fund staff estimates.
Table 3.

Papua New Guinea: Balance of Payments, 2003–08

(In millions of U. S. dollars)

article image
Sources: Data provided by the Papua New Guinea authorities; and Fund staff estimates.

Public external debt includes central government, central bank external debt, and statutory authorities.

Figure 5-A.
Figure 5-A.

Papua New Guinea: Monetary Developments

Citation: IMF Staff Country Reports 2008, 098; 10.5089/9781451831757.002.A001

Sources: IMF, Monetary and Financial Statistics; Bloomberg; Country authorities; and Fund staff calculations.
Figure 5-B.
Figure 5-B.

Papua New Guinea: Monetary Developments

Citation: IMF Staff Country Reports 2008, 098; 10.5089/9781451831757.002.A001

Sources: IMF, International Financial Statistics and World Economic Outlook; Papua New Guinea authority; and Fund staff calculations.
Table 4.

Papua New Guinea: Summary Accounts of the Banking System, 2004–08

article image
Sources: Data provided by the Papua New Guinea authorities; and Fund staff estimates.
Table 5.

Papua New Guinea: Medium-Term Scenario, 2004–13

article image
Sources: Department of Treasury; Bank of Papua New Guinea; and Fund staff estimates and projections.

Central government operations only.

Measured from below-the-line in the fiscal accounts.

Includes changes in check float.

Includes central government, central bank external debt, and statutory authorities. Movements in gross debt stocks reflect an initial accumulation and then drawdown of government deposits.

WEO for projections.

Table 6.

Papua New Guinea: Indicators of External Vulnerability, 2002–07

(In percent of GDP, unless otherwise indicated)

article image
Sources: Department of Treasury; Bank of Papua New Guinea; and Fund staff estimates.

End of period.

Includes central government, central bank external debt, and statutory authorities.

Figures for 2007 are as of September.

Covers only banking system short-term external debt.

Initial rating of B1 (stable) in January 1999.

Initial rating of B+ (stable) in January 1999. The rating was upgraded to B+ in September 2007.

Papua New Guinea: Mining-Sector Role Waning Over Medium Term

uA01fig02
Sources: PNG authorities; and Fund staff estimates.

Is Papua New Guinea’s Nonmineral Sector Competitive?

uA01fig03
Sources: PNG authorities; IMF Information Notice System, Direction of Trade Statistics, and World Economic Outlook database; and Fund staff estimates.

Papua New Guinea maintains one of the least restrictive trade regimes in the region. However, domestic structural rigidities, including weak and costly basic utilities and poor transportation, communication, and electric power infrastructure, low skills and literacy, high crime, and weak governance continue to hamper competitiveness and growth, particularly of the core nonmineral sector.

article image
Sources: World Bank, World Development Indicators; and Kaufamm, Krayy and Mastruzzi (2005).

The World Bank Country Policy and Institutional Assessment rates eligible countries against 16 criteria grouped in four clusters: (a) economic management; (b) structural policies; (c) policies for social inclusion and equity; and (d) public sector management and institutions. Scores range from 1–6, with higher scores reflecting better performance. Other indicators range between ±2.5, with higher positive outcomes reflecting better outcomes. See www.worldbank.org.

Coverage varies depending on data availability.

Although Papua New Guinea’s ranking in the World Bank’s ease-of-doing business database compares relatively favorably with others in the region, enforcing contracts, dealing with licenses, and getting credit are relatively more cumbersome.

Doing Business: Papua New Guinea and Comparators 1/

article image
Source: World Bank, Doing Business Indicators, 2008.

Economies are ranked on their ease of doing business, from 1–178, with first place being the best.

Simple average of countries in the region.

uA01fig04

Real GDP Growth, 1997–2008

(In percent)

Citation: IMF Staff Country Reports 2008, 098; 10.5089/9781451831757.002.A001

Sources: PNG authority; and Fund staff estimates.
uA01fig05

Contribution to GDP Growth in Non-mineral Sector

(In percent, y/y)

Citation: IMF Staff Country Reports 2008, 098; 10.5089/9781451831757.002.A001

Sources: PNG authorities; and Fund staff estimates.

5. At the same time, policy challenges to improving and sustaining the recent strong performance have intensified.

  • Annual average inflation is expected to trend upward toward the middle single digits over 2008, with pass-through of rising petroleum prices, some kina depreciation on an NEER basis, and higher demand pressure from increased budget spending.

  • Overall fiscal surpluses will continue through 2007–08. High mineral revenue inflows, combined with restraint of recurrent costs and implementation capacity constraints, helped boost fiscal savings since 2002 relative to comparators. However, the nonmineral deficit, measured on a cash basis, is now likely to further worsen as mineral revenue eases and spending increases.

  • Progress on the structural reform agenda set out under the Medium-Term Development Strategy (MTDS) has stalled over the past year, particularly with respect to public sector reform. 1

  • Constraints to private activity remain formidable, including unreliable services from basic utilities, poor transportation infrastructure, high crime, low public sector capacity to provide services, unclear licensing and regulation policies, weak human capacity, delays in work-visas, and land tenure issues. For these reasons, foreign and domestic investment outside of the enclave mineral sector is low.

  • As a result, competitiveness of the nonmineral sector has not improved over the recent period, resulting in little or no increase in nonmineral export volumes (Box 2). Agricultural exports, the largest share of nonmineral exports, were additionally affected by bad weather in 2005–06.

uA01fig06

Resource Revenue Spending 2002–07 1

(In percent)

Citation: IMF Staff Country Reports 2008, 098; 10.5089/9781451831757.002.A001

Sources: IMF, World Economic Outlook; IMF country reports; and Fund staff estimates.1 Defined as the ratio of the increase in non-resource fiscal deficit (in 2002–2007) to the increase in resource revenues.
uA01fig07

Fiscal Balances and Public Debt

(In percent of GDP)

Citation: IMF Staff Country Reports 2008, 098; 10.5089/9781451831757.002.A001

Sources: PNG authorities and Fund staff estimates.

Papua New Guinea: Summary of Central Government Operations, 2006–08

(in percent of GDP)

article image
Sources: Data provided by the Papua New Guinea authorities; and Fund staff estimates.

Includes November 2007 Supplementary Budget.

The 2005–08 government budgets classify earmarked funds that are transferred to government trust funds as expenditure. Under the staff’s cash presentation, these funds are reclassified on a cash balances basis (consistent with Government Finance Statistics), and expenditure is counted as occuring only when money is disbursed from the trust funds.

Measured from above the line.

Authorities’ Response to Recent Fund Policy Advice

article image

C. Medium-Term Outlook: Prospects and Risks

6. In the absence of a change to current policy trends, the staff and authorities agreed that the outlook is for a return to moderate growth over the medium term, with increased downside risks (Table 5).

  • The baseline projection expects growth to average about 3.5 percent over the medium term, mainly reflecting the onset of production at new mines. Nonmineral growth is expected to decelerate from current peaks to trend growth rates in the absence of structural reform. Inflation should remain in the middle single digits.

  • This scenario assumes: (i) current fiscal policy continues to be implemented relatively well, with higher but not excessive fiscal spending in the near term and with the ability to ensure reasonable expenditure quality, (ii) monetary policy continues to contain inflation, and (iii) limited structural reforms are undertaken.

  • Regarding external prospects, the medium-term outlook assumes that (i) mineral exports and revenue inflows decline from their current peak, based on government production estimates, (ii) the exchange rate continues to be managed flexibly, and (iii) the external current account position deteriorates in line with the decline in mineral exports and with no improvement in nonmineral exports in the absence of reform to improve the investment climate.

  • However, significant macroeconomic and external vulnerabilities remain. In particular, there is potential for higher unproductive fiscal spending to raise demand pressures and spur inflation. Additional downside risks include a weaker global economy leading to lower commodity prices, and no action or a reversal of progress on the structural reform agenda, both of which would adversely affect growth and the external accounts. 2 Upside risks include global developments leading to sustained higher commodity prices, further crowding-in of private activity from the increase in public investment, and additional production from existing or new gas and mining projects. 3

  • The baseline nonmineral GDP growth rate needs to roughly double over a sustained period to meet the objectives of reduced poverty, significant job creation, and higher development. Given Papua New Guinea’s resources, these higher growth rates could be realized if a fiscal-monetary policy mix is pursued that maintains macroeconomic stability, mineral revenues are used productively, and structural reforms are undertaken to remove rigidities constraining private activity so that productivity and investment are raised and sustained.

7. The debt sustainability analysis (DSA) suggests that Papua New Guinea’s public debt burden faces a moderate risk of debt distress (Appendix I). 4 External debt sustainability is vulnerable to shocks that lower export growth below the baseline. The debt outlook is sensitive to a number of risk factors, including an escalation in public spending, declines in world mineral prices, and larger public sector borrowing—including by stateowned enterprises (SOEs). The authorities recognize these risks, and their debt strategy continues to bar new net debt.

II. Policy Issues

8. Against the background of temporarily high mineral revenue inflows and increased downside risks, the discussion focused on the agreed need for a fiscal and monetary policy mix that maintains macroeconomic stability. In particular, the authorities were keen to ensure that the current large fiscal surpluses were managed well to avoid inflationary pressures while still promoting growth. The monetary authorities emphasized their continued commitment to keeping inflation under control, notwithstanding expected additional price pressures. Given existing conditions, the staff and authorities agreed on the continued appropriateness of the current exchange rate level and regime. Against the background of the recent growth in the financial sector, the authorities further maintained their commitment to continue strengthening its supervisory and regulatory framework. The discussions also considered how structural reforms could capitalize on the current favorable domestic and external conditions to improve prospects for sustained higher nonmineral growth.

A. Fiscal Policy and Public Debt

9. Elements of the recent budgets are welcome; however, aspects of the underlying easing of the fiscal stance are a concern. The 2007 and 2008 budgets aimed to manage the temporarily large inflows of mineral revenue through a combination of higher development spending and debt repayment.

  • The one-off spending increases to meet priority infrastructure and social development needs aligned with the MTDS are appropriate. In addition, the staff welcomed the pre-payment of external debt and reduction in unfunded civil service pension liabilities. 5

  • However, staff cautioned about the potential scale of fiscal relaxation over the near term. A large amount of additional mineral revenue set aside in 2008 and earlier budgets is expected to be spent over 2008–12, which will result in the nonmineral deficit rising from 4.7 percent of GDP in 2005 to 8 percent by 2009. Given absorptive and implementation capacity constraints, the increased spending could add to domestic demand and price pressure, and lead to waste.

  • A large amount of spending has been allocated to projects outside the MTDS, of which the new spending directed to the provinces and districts raise particular concern, due to the lack of capacity to prioritize and deliver projects, weak financial controls, and near absence of reporting in local governments. 6

  • In addition, given the projected fall off in mineral revenue from 2008 onward, the new expenditure pattern raises the prospect of need for considerable and sustained fiscal consolidation over the medium term.

  • Consequently, the staff recommended containing the actual (cash) expenditure to more sustainable and stable levels, while ensuring that windfall mineral revenue is used for well-designed MTDS-prioritized development spending and debt reduction.

  • The authorities argued that high development needs and a legacy of under funding in the rural areas had driven the plans to increase spending for infrastructure in the provinces and districts. At the same time, they acknowledged the concerns raised and emphasized the intention to introduce new procedures that would improve oversight and strengthen subnational government capacity. As a result, the increase in spending to these areas would likely be phased over several years.

10. A new proposal to update the Medium-Term Fiscal Strategy (MTFS) appropriately emphasizes a stable and sustainable nonmineral fiscal balance (Box 3). The proposal builds on the existing strategy of overall budget balance and no new net debt accumulation by recommending using only “normal” mineral revenue for ongoing spending programs. Additional mineral revenue would be used for either public investment or debt reduction. The staff encouraged the authorities to formally approve this proposal to replace the current policy under the existing MTFS. It particularly welcomed the new emphasis on the nonmineral balance, as well as the need to ensure that actual (cash) spending is evenly spent over time, given absorptive and administrative capacity constraints. Staff noted, however, that implementation would require also investment prioritization and an improvement in financial management.

11. The staff welcomed the recent impressive improvement in public debt levels, but noted it could be quickly reversed. A large proportion of the debt reduction has occurred due to positive debt dynamics (real GDP growth, the impact of the rise in mineral prices on the GDP deflator, and kina appreciation) as opposed to discrete policy decisions.

  • Staff cautioned that proposals to increase public borrowing to fund large-scale investment projects were a concern without a prioritized, costed, and publicly-consulted assessment of investment needs aligned to the MTDS. In addition, staff noted that the assessment of a moderate risk of debt distress under the DSA is based on a continuation of the government’s “no new net debt” policy. Finally, the absence of reforms to address continued poor management in the SOEs cast doubt on the efficiency of additional investment in that sector.

  • The authorities agreed with the need to proceed cautiously with the contracting of additional debt, particularly given the progress made in reducing exposure to external debt and lengthening the maturity structure. They observed that the improvement to date reflects the government’s strategy to reduce debt as a form of saving, to create additional fiscal space, and to reduce fiscal risks. They also acknowledged the potential concentration of risks associated with further equity investment in the volatile mineral sector. Finally, the authorities highlighted their long-standing policy under the medium-term debt strategy of contracting external debt only on concessional terms.

A Proposed New Medium-Term Fiscal Strategy

The Treasury has proposed to the cabinet a new Medium Term Fiscal Strategy (MTFS) covering 2008–12, that would update the expiring version for 2002–07. This new strategy has not yet been considered or approved by the cabinet or parliament and is thus not current policy. The proposal seeks to address some of the issues that arise from the government’s reliance on volatile mineral revenues more directly than the current MTFS policy which focuses on a fiscal target of overall balance.

A new fiscal target: Using backward and forward-looking indicators, the proposal identifies a “normal component” of mining and petroleum revenue prudently expected over the long term of 4 percent of GDP. Ongoing spending, including development spending, would then be limited to the amount of total “normal revenue”—or the sum of nonmineral revenue and the 4 percent of GDP expected from the mineral sector. This effectively targets an underlying non-mineral budget deficit of 4 percent of GDP. The target would be reviewed at minimum biannually and spending cuts or temporary deficits incurred in case of a mineral revenue shortfall. Additional mineral revenue, i.e., that above 4 percent of GDP, would be spent as described below.

uA01fig08

Forecast Nonmineral Fiscal Deficits, 2008–12

(In percent of GDP, cash basis)

Citation: IMF Staff Country Reports 2008, 098; 10.5089/9781451831757.002.A001

Source: Fund staff estimates.

Expenditure smoothing: The proposed MTFS suggests that spending the additional mineral revenue should be: (i) used to benefit future generations either through investment or debt reduction; (ii) phased over a number of years to avoid disruptive fluctuations in domestic or import demand; and (iii) carefully designed and implemented to ensure positive net benefit and reflect limited implementation capacity.

Public investment and debt prepayment: The proposed MTFS additionally suggests that roughly 60 percent of additional mineral revenue be used for public investment and 40 percent for debt prepayment. Prepaying debt and other fiscal liabilities is viewed as prudent way of creating fiscal space to address upcoming challenges, notably from the winding down of major resource projects within the decade, the AIDS epidemic, and the costs from natural disasters and climate change. Debt prepayment would be reduced, rather than investment, should expected additional revenue not materialize.

12. The resumption of public sector reform plans is urgently needed to help improve implementation capacity, and strengthen monitoring, accountability, and transparency. Plans to strengthen financial management and streamline public sector employment (under the “right-sizing” initiative) appear stalled. The increased use of trust funds is also a concern, given past experience with abuse. 7 The authorities were in full agreement with the need for reform. They pointed to government-wide plans to strengthen financial management, including tightening expenditure controls and removing dormant trust funds, while increasing accountability on remaining trust funds considered necessary to smooth spending from the mineral revenue over the medium term. In addition, discussions had begun to map the way forward for the multi-donor financial management reform program.

13. The staff welcomed new measures to control tax concessions. The use of special arrangements for individual projects had resulted in a growing list of ad hoc tax concessions that could undermine the tax base. As a result, a high level committee was recently created to review requests with respect to their economic benefits and ensure consistency with tax laws. In addition, the government agreed to consider a review of the tax system that would, among other things, ensure fair treatment across sectors and a fair share of mineral sector profits for the government.

B. Monetary and Exchange Rate Policy

14. The staff views the monetary stance as appropriate for now, given the Bank of Papua New Guinea (BPNG)’s ability to contain inflation to date. To limit the expansionary consequences of the large but temporary foreign exchange inflows, the BPNG has sterilized inflows through open market operations to maintain reserve money growth within its target. It additionally relaxed restrictions on outward capital flows. Net costs of the sterilized intervention have been negative.

uA01fig09

Changes in Net Foreign and Net Domestic Assets of Central Bank

(12-month changes scaled by lagged reserve money level)

Citation: IMF Staff Country Reports 2008, 098; 10.5089/9781451831757.002.A001

Sources: IMF, International Financial Statistics; and Fund staff estimates.

15. However, the BPNG should stand ready to tighten given the expectation of a looser fiscal stance.

  • Although CPI data indicate inflation remains low, the additional fiscal stimulus, some recent NEER depreciation, and pass through of higher oil prices, are contributing to rising underlying inflationary pressure. 8 In addition, monetary and credit aggregate growth rates are still rapid, though no longer accelerating, and liquidity in the banking system remains high. As a result, the expectation of a need for tightening has increased in recent months.

  • The central bank agreed with this analysis, and reconfirmed its commitment to tighten the monetary stance if necessary. They noted that experience and recent studies indicate that tightening through open market operations and upward changes in the policy rate would have a rapid impact on restraining inflation. 9 Given weaknesses in the CPI data, the BPNG was also developing alternative information sources, including a survey of business inflation expectations to complement its own retail price index and improve responsiveness to potential changes in macroeconomic conditions.

16. The staff continues to support the current exchange rate policy. The kina trades in a thin market characterized by volatile mineral-related foreign exchange flows. Under its managed float exchange rate regime, the BPNG has been leaning against the wind to prevent too rapid exchange rate appreciation against the U.S. dollar.

  • The rate of appreciation against the U.S. dollar has increased over the past year reflecting rising upward pressure. Associated intervention during this period eased relative to past years.

  • At the same time, the BPNG has been balancing concerns regarding the potential inflationary impact of nominal depreciation on a trade-weighted basis that occurred early in 2007, most of which has been since unwound. The staff welcomed this shift of attention toward the nominal effective exchange rate.

  • While the authorities have also used this opportunity to build reserves, with mineral revenue inflows currently expected to peak in 2007, foreign exchange reserves should level off at about 5 months of imports of goods and services—which is still low relative to peer resource-rich countries (although a record level for Papua New Guinea).

  • Staff analysis suggests that the current level of the exchange rate is broadly in line with macroeconomic fundamentals (Box 4)—notwithstanding the improved terms of trade—and the expectation of no improvement in nonmineral sector competitiveness over the medium term in the absence of progress on structural reform (Box 2). 10

  • In the staff’s view, this broad approach on exchange rate policy is appropriate as the temporary nature of current mineral revenue inflows suggests that permanent real exchange rate appreciation is not needed. However, the exchange rate should be allowed to move flexibly as needed should upward pressure be sustained or downward pressure unexpectedly materialize.

C. Financial Sector

17. The financial sector appears sound, a key positive factor given the importance of financial intermediation for future growth (Figure 5).

  • Backward-looking financial sector indicators remain strong relative to other countries that have experienced rapid credit growth. Stress tests show that the banking system is resilient to moderate shocks to the credit portfolio that may arise from falling commodity prices and weak economic policy. 11

  • Nevertheless, continued rapid credit growth raises concern about a potential deterioration in banks’ loan portfolios, which may only manifest itself with a lag. For that reason, the staff welcomed efforts underway to strengthen bank regulation and supervision and to form a credit registry.

  • Notwithstanding the rapid credit growth over the past two years, financial intermediation still remains low relative to peers, pointing to the need to overcome the underlying structural rigidities that are constraining development, including weak enforcement of contracts and creditor rights.

  • The authorities agreed with these concerns, reaffirmed their commitment to continue enhancing sector regulation and supervision, and expressed interest in a Financial Sector Assessment Program (FSAP) to evaluate recent growth in the financial sector and provide recommendations for deepening and strengthening the sector further.

uA01fig10

Financial Sector Assets, 2001–06

(In percent of GDP)

Citation: IMF Staff Country Reports 2008, 098; 10.5089/9781451831757.002.A001

Sources: PNG authorities and Fund staff estimates.
uA01fig11

Credit to Private Sector, 2006

(In percent of GDP)

Citation: IMF Staff Country Reports 2008, 098; 10.5089/9781451831757.002.A001

Source: IMF, International Financial System.

An Assessment of the Exchange Rate Level

Analyses of the real exchange rate indicate that the current level of the kina exchange rate is broadly in line with fundamentals:

  • The behavioral equilibrium exchange rate (BEER) approach shows the kina has been slightly undervalued compared to its long-run equilibrium REER since the move to a floating exchange rate regime in 1994. The deviation for 2Q–2007 remains small (about 2 percent using both Hodrick-Prescott and Christiano-Fitzerald filtering methods to derive the EREER, Figure 1).

  • The macroeconomic balance (MB) approach suggests that only a marginal REER appreciation (by about 0.4 percent) is needed to close the gap between the current account norm (1.8 percent of nominal GDP), and the underlying current account balance—the projection for 2012 (-3.3 percent of nominal GDP). The norm is the equilibrium current account consistent with fundamentals, including the saving rate, net foreign assets, fiscal balances, income and real interest rates relative to the major trading partner, and mineral exports.

  • The purchasing power parity (PPP) indicates that the real exchange rate of the kina is 9.7 percent lower than its “long-run level.” However, the deviation is relatively small compared to other countries (Figure 2).

uA01fig12

REER Deviation from Estimated Equilibrium, 1994–2007

(In percent)

Citation: IMF Staff Country Reports 2008, 098; 10.5089/9781451831757.002.A001

Source: Fund staff estimates.
uA01fig13
Source: Fund staff estimates.

18. The staff raised concerns regarding the recently revived development bank, while welcoming the intention to operate it without political interference.

  • Given the domestic and global experience, and the development bank’s continued reliance on budget transfers for its capital base, concerns remain about the potential for funds being directed to political interests, a weakening of credit culture, and renewed fiscal liabilities, which would introduce risks for the financial sector.

  • The staff further urged that the bank not engage in expensive borrowing and that expansion into microfinance comply with due diligence and commercial criteria.

D. Structural Reform

19. Structural reforms faltered over the past year. The staff and the authorities agreed that broader reforms are necessary to lift medium-term growth by boosting productivity, and to strengthen international competitiveness and resilience to external shocks. The authorities noted their intention to create the necessary environment conducive for private business, as set out in the MTDS.

  • Immediate steps are needed to address the long-standing barriers to private activity and investment in the nonmineral sector—the source of long-term growth and job creation. The constraints include poor and costly transportation and public communications and power infrastructure, weak governance, high crime and weak prosecution, weak land tenure system, and poor education resulting in high illiteracy and low skills.

  • The government’s willingness to consider private equity participation in SOEs would be a welcome first step toward improving management, oversight, and provision of basic services. The staff also encouraged completion of the needed regulatory environment, and opening of the public enterprise sectors to competition. It noted the demonstrated benefits of recent private participation in the telecommunications, air, and financial sectors.

  • Publication of the completed 2004–06 audited central government accounts would be a strong signal of the commitment to public sector transparency and accountability. Additional resources are needed to extend the coverage of external audits to subnational governments. The staff also urges swift implementation of the planned internal management audit committees for government ministries.

20. Both staff and the authorities agreed that intensive efforts to improve macroeconomic statistics are needed to address shortcomings in the quality, coverage and timeliness of macroeconomic data. Analysis of recent economic developments is increasingly constrained by data weaknesses and utmost priority should be given to mobilizing the needed expertise to improve statistics. The staff encourages rapid implementation of steps needed to trigger implementation of the multi-donor technical assistance plan as set out in the Aide Memoire of December 2007 STA mission.

III. Staff Appraisal

21. Papua New Guinea’s economic performance remains positive, reflecting a combination of prudent policies and favorable external factors in recent years. The current economic conditions and political stability provide an ideal opportunity to push ahead with the reforms set out in the MTDS to lift Papua New Guinea’s long-term economic growth. Given Papua New Guinea’s resources, higher growth rates—which have been achieved by its peers—could be realized if the appropriate fiscal-monetary policy mix maintains macroeconomic stability, mineral revenues are used productively, and structural reforms are undertaken to remove rigidities constraining private activity.

22. Although macroeconomic fundamentals have improved, significant underlying vulnerabilities remain. Growth has accelerated, inflation is low, and for the near-term, external and fiscal vulnerabilities have declined. However, development indicators have shown little improvement, and the economy remains highly sensitive to commodity price shocks and dependent on mineral sector developments. An unattractive investment environment discourages activity in the nonmineral sector, which must lead economic and employment growth in the future.

23. The potential fiscal stimulus resulting from increased spending under recent budgets is a concern. Given absorptive and capacity constraints, it could add to domestic demand and price pressures. In addition, higher expenditure should be aligned with the MTDS, and with the capacity to implement and closely monitor spending—especially the spending allocated to local governments.

24. Other elements of recent budgets are appropriate. These include the one-off spending increases to meet priority infrastructure and social development needs aligned with the MTDS, and the prepayment of public debt.

25. Proposals for a new medium-term fiscal strategy that focuses on a stable and sustainable underlying nonmineral deficit are welcomed. The new strategy’s approval is encouraged as it would represent an effective extension of the recent prudent fiscal policies followed by the government, particularly if supported by prioritization and financial management improvements. Preserving the integrity of the nonmineral tax base, including limiting exemptions, is also key to ensuring long-term fiscal sustainability and reducing exposure to volatile mineral resources.

26. Continuation of the government’s strategy to reduce debt as a form of saving is urged, as a means to create additional fiscal space and reduce risks. Complementary measures include avoiding the contracting of new external debt on commercial terms, and recognizing the concentration of risks associated with further equity investment in the volatile mineral sector. Recent improvements in public debt levels could be quickly reversed with rapid new borrowing—including by the SOEs—and a change in debt dynamics.

27. The resumption of public sector reform is urgently needed to help improve implementation capacity, and strengthen financial management and transparency. Steps should be taken to resume the right-sizing initiative, follow through with the public expenditure reform plans supported by a multi-donor effort, expand public sector audits, and publish central government audited accounts on a timely basis.

28. The monetary stance is appropriate. The central bank has successfully managed to keep inflation within the low single digits. However, with pressures on prices building, including with the additional fiscal stimulus, the authorities should stand ready to tighten as needed.

29. The level of the exchange rate is broadly in line with macroeconomic fundamentals. Analyses of the exchange rate indicates that the kina is now close to its equilibrium level. The managed float exchange rate policy, which allows some reserve build up while protecting competitiveness, remains generally appropriate given the expected near-term decline in mineral revenue inflows. However, should sustained pressures emerge, additional flexibility should be shown.

30. Reforms to improve and deepen financial intermediation are rightfully high on the authorities’ agenda, given its importance for growth. Weaknesses in the underlying institutional environment need to be addressed, including weak enforcement of creditor rights and contracts.

31. Broader structural reforms are necessary to raise growth and to strengthen export competitiveness and resilience to external shocks. The recent experience of private competition with state monopolies has had an important impact on growth and shows the benefits of such approaches.

32. Although data provision is generally adequate for surveillance purposes, significant weaknesses in the quality and timeliness of statistics hamper monitoring of macroeconomic developments. The authorities should accelerate their efforts to strengthen the statistical framework, in line with STA mission recommendations.

33. The staff recommends that the next Article IV consultation be held on the standard 12-month cycle.

Figure 6-A.
Figure 6-A.

Papua New Guinea: Regional and Global Comparators, 2005–07

Citation: IMF Staff Country Reports 2008, 098; 10.5089/9781451831757.002.A001

Sources: IMF, World Economic Outlook; Papua New Guinea authorities; and Fund staff calculations.
Figure 6-B.
Figure 6-B.

Papua New Guinea: Regional and Global Comparators

Citation: IMF Staff Country Reports 2008, 098; 10.5089/9781451831757.002.A001

Sources: Country authorities; and Oil & Gas Journal.
Table 7.

Papua New Guinea: Millennium Development Goals Progress, 1990–2005

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Source: World Development Indicators database, April 2007. Figures in italics refer to periods other than those specified.

Appendix I. Papua New Guinea: Public and External Debt Sustainability12

This supplement summarizes the debt sustainability analysis (DSA) for Papua New Guinea using the framework for low-income countries. The baseline macroeconomic scenario underlying this DSA is the medium-term outlook discussed in the staff report. This supplement also assesses the impact of various exogenous shocks on the sustainability of public sector debt and external debt under the baseline scenario.

A. Main Assumptions

  • Real GDP growth is projected to grow at about 4 percent in 2008–2012 with moderate growth in the nonmineral sectors, including the agricultural sector, and several mining projects coming on stream. The latter will offset a steady decline in petroleum production.

  • Monetary policy continues to be geared toward achieving low inflation and smoothing exchange rate volatility.

  • Fiscal policy, as measured by actual spending and the nonmineral balance, is expected to improve gradually after 2009. Overall fiscal surpluses are expected to decline due to falling mineral revenues and spending of preceding years’ mineral windfall revenues (having been temporarily saved in trust funds).

  • Consistent with the medium-term debt strategy, debt levels continue to be lowered, to a sustainable level, and financial risks reduced, e.g., by reducing the exposure to foreign debt and lengthening the maturity of domestic bonds.

  • Prices of key commodities are in line with assumptions.

  • Structural reforms outlined under the authorities’ Medium-Term Development Strategy, particularly those on public sector reform, are delayed or implemented at a slow pace.

  • Real GDP growth is expected to average 2.6 percent in the long-term. This outcome envisages a return to the long-run average growth rate. It is predicated on the gradual implementation of structural reforms to enhance private sector activity, the maintenance of a stable macroeconomic environment and ongoing slow improvements in public infrastructure and services that should raise help productivity. There is also upside potential from the development of new mineral and gas projects.

B. Total Public Sector Debt Sustainability

The public sector debt ratio declined from 62 percent of GDP at end-2004 to an estimated 34.5 percent of GDP at end-2007 (Table 1). This improvement reflects prudent fiscal policy, favorable mineral sector developments (in particular, strong export prices in recent years), kina appreciation, lower interest rates, and a sustained recovery since mid-2002. Of total public debt, approximately 52 percent is external debt, of which 41 percent of loans are in U.S. dollars. The maturity structure of public domestic debt has increased significantly since 2003, when most debt was short-term; by end-2007 around 70 percent of the debt stock was issued with maturities of 2–10 years. Multilateral debt (AsDB and World Bank) accounts for about three-quarters of external debt. Japan is the main bilateral creditor. Under the authorities’ Medium-Term Debt Strategy, foreign-currency loans are considered only if they are concessional (with a grant element of at least 35 percent), and new loans from the World Bank and AsDB will meet this criteria.

Table 1.

Papua New Guinea: Public Sector Debt Sustainability Framework, Baseline Scenario, 2004–2027

(In percent of GDP, unless otherwise indicated)

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Sources: Papua New Guinea authorities; and Fund staff estimates and projections.

Includes central government, central bank external debt, and statutory authorities.

Gross financing need is defined as the primary deficit plus debt service plus the stock of short-term debt at the end of the last period.

Revenues excluding grants.

Debt service is defined as the sum of interest and amortization of medium and long-term debt.

Historical averages and standard deviations are generally derived over the past 10 years, subject to data availability.

Under the baseline, the public sector debt ratio is projected to decline to 26.9 percent of GDP by 2012 and 10.9 percent by 2027. The projected improvement stems mainly from the expectation of a continued prudent fiscal policy, as set out in the MTFS (see Box 3), and favorable debt dynamics. The NPV of public debt would decline from 39.2 percent of GDP in 2006 to 34.6 percent of GDP in 2007, and continue to decline to 26.6 percent of GDP by 2012 and to 10.3 percent of GDP by 2027. The public debt service-to-revenue ratio fell significantly between 2004–06, to a trough of 10.8 percent in 2006, due to increasing mineral revenues. It is expected to rise somewhat during 2007–08, as the government uses some of its ‘mineral windfall’ to pre-pay external debt, and to fall gradually over the medium term.

The paths for the public debt ratios are particularly sensitive to changes in real GDP growth (Table 2 and Figure 1). Compared to 2007, a sustained reduction in real GDP growth, by one standard deviation below the baseline spread over the projection period, would raise the NPV of public debt to GDP ratio by around 11 percentage points by 2017. A shock to real GDP growth during 2008–09, of the historical average growth rate minus one standard deviation, would result in a sustained increase in the NPV of public debt to GDP ratio, rising to around 90 percent by 2027. A one-time 30 percent real exchange rate depreciation in 2007 would raise the NPV of debt to GDP ratio by about 8 percentage points over the medium term.

Table 2.

Papua New Guinea: Sensitivity Analysis for Key Indicators of Public Debt, 2007–2027

(In percent)

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Sources: Papua New Guinea authorities; and Fund staff estimates and projections.

Assumes that real GDP growth is at baseline minus one standard deviation divided by the square root of 20 (i.e., the length of the projection period).

Revenues are defined inclusive of grants.

Figure 1.
Figure 1.

Papua New Guinea: Indicators of Public Debt Under Alternative Scenarios, 2007–2027 1/

(In percent)

Citation: IMF Staff Country Reports 2008, 098; 10.5089/9781451831757.002.A001

Source: Staff projections and simulations.1/ Most extreme stress test is test that yields highest ratio in 2017.2/ Revenue including grants

Fiscal sustainability is sensitive to developments in pension fund liabilities and borrowing to fund large-scale investment projects, by the central government and stateowned enterprises (SOEs). Unfunded civil service pension liabilities are equivalent to about 11 percent of GDP. While the government will make partial repayments in 2007–08 and from 2009 it should be fully funding its share of new pension contributions the balance, will remain sizeable. Borrowing by SOEs is also reportedly significant and growing, although information is limited. Among a number of proposed investments, the government is considering borrowing to finance equity in the potentially large gas sector, which would further concentrate risks associated with the volatile mineral sector. Better disclosure of such information would greatly enhance the assessment of debt sustainability.

C. External Debt Sustainability

Papua New Guinea’s total external debt has declined from 55 percent of GDP in 2004 to 32.4 percent in 2007 (Table 3). External debt as a percent of exports is also estimated to have declined significantly, from a peak of 127 percent in 2002 to 37 percent in 2007. Based on available data, private external debt was estimated at 14.7 percent of GDP at end-2007. Private external debt is expected to decline over the long term, as large mineral projects that accounted for a high proportion of debt reach completion.

Table 3.

Papua New Guinea: External Debt Sustainability Framework, Baseline Scenario, 2004–2027 1/

(In percent of GDP, unless otherwise indicated)

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Source: Staff simulations.

Includes both public and private sector external debt.

Derived as [r - g - r(1+g)]/(1+g+r+gr) times previous period debt ratio, with r = nominal interest rate; g = real GDP growth rate, and r = growth rate of GDP deflator in U.S. dollar terms.

Includes exceptional financing (i.e., changes in arrears and debt relief); changes in gross foreign assets; and valuation adjustments. For projections also includes contribution from price and exchange rate changes.

Assumes that NPV of private sector debt is equivalent to its face value.

Current-year interest payments divided by previous period debt stock.

Historical averages and standard deviations are generally derived over the past 10 years, subject to data availability.

Defined as grants, concessional loans, and debt relief.

Grant-equivalent financing includes grants provided directly to the government and through new borrowing (difference between the face value and the NPV of new debt).

External public debt dynamics are sustainable under the baseline scenario. By 2006 all five debt indicators—the NPV of public external debt in percent of GDP, exports, and revenue, and the ratio of debt service to exports and revenue—were below the policy dependent thresholds. 13 All the indicators continue to improve over the medium and long term period, with the exception of the ratio of the NPV of public external debt to government revenue, which temporarily increases over the medium term as mineral revenues decline (though it remains well below the threshold).

External debt sustainability is most vulnerable to shocks from lower export growth (Table 4). A decline in export value growth in 2008–09, by one standard deviation below its historical average, would raise the NPV of public external debt-to-GDP by over 20 percentage points over the medium term, and only fall below the 30 percent threshold in 2021. Similarly, the export shock would raise the NPV of external debt-to-exports and external debt-to-revenue closer to (though still under) their thresholds for the first ten years, before falling over the long term. While a combination of shocks would also push the external debt-to-GDP ratio to just above the threshold over the medium term, neither of the ratios for debt service approach their thresholds.

Table 4(part 1).

Papua New Guinea: Sensitivity Analyses for Key Indicators of Public and Publicly Guaranteed External Debt, 2007–27

(In percent)

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Source: Staff projections and simulations.

Variables include real GDP growth, growth of GDP deflator (in U.S. dollar terms), non-interest current account in percent of GDP, and non-debt creating flows.

Assumes that the interest rate on new borrowing is by 2 percentage points higher than in the baseline., while grace and maturity periods are the same as in the baseline.

Exports values are assumed to remain permanently at the lower level, but the current account as a share of GDP is assumed to return to its baseline level after the shock (implicitly assuming an offsetting adjustment in import levels).

Includes official and private transfers and FDI.

Depreciation is defined as percentage decline in dollar/local currency rate, such that it never exceeds 100 percent.

Applies to all stress scenarios except for A2 (less favorable financing) in which the terms on all new financing are as specified in footnote 2.

Papua New Guinea faces a moderate risk of debt distress under the IMF-WB DSA framework for LICs. While the baseline scenario does not indicate a breach of any of the thresholds, the NPV of external public debt to GDP ratio exceeds the threshold under the stress test for lower export value growth (and approaches the threshold for two other indicators).

D. Conclusions

While Papua New Guinea has made significant progress in reducing its public debt burden, continued prudent management of debt over the medium-to-long term will be required to mitigate the risks to public debt sustainability. While most indicators show that the economy’s debt is manageable, Papua New Guinea still faces a moderate risk of debt distress. The outlook is particularly sensitive to changes in real GDP and export growth, highlighting the vulnerability of the debt dynamics to potential shocks and the need to avoid policy slippages. Papua New Guinea could also further guard against these vulnerabilities by ensuring that any external borrowing is obtained on concessional terms and by carefully managing other fiscal liabilities, e.g., from pensions, state-owned enterprises or the development bank. These recommendations are consistent with the current medium-term debt strategy and the proposed MTFS (see Box 3).

Figure 2.
Figure 2.

Papua New Guinea: Indicators of Public and Publicly Guaranteed External Debt Under Alternative Scenarios, 2007–2027

(In Percent)

Citation: IMF Staff Country Reports 2008, 098; 10.5089/9781451831757.002.A001

Source: Staff projections and simulations.

Appendix II. Papua New Guinea: Summary of Annexes

Fund Relations

Papua New Guinea joined the Fund in October 1975, and has no outstanding purchases or loans. The last stand-by arrangement expired in September 2001. Papua New Guinea has a managed floating exchange rate arrangement; the exchange rate of the kina is determined in the interbank market in which authorized banks participate. The 2006 Article IV consultation was concluded by the Executive Board on March 7, 2007 (IMF Country Report, No. 07/111).

Relations with the World Bank Group

Papua New Guinea has received 36 IBRD loans and 14 IDA credits amounting to $787 million and $152 million, respectively. At present, there are two active loans, totaling $63 million, of which a $25 million project is scheduled to close at end-2007, and one active grant project. The new Country Assistance Strategy (approved in December 2007) envisions up to three IDA credits per fiscal year totaling $45 million in FY2008 and $30–32 million per fiscal year thereafter. 14 The Bank is involved in public expenditure management, infrastructure, health and education, and HIV/AIDS. The IFC has currently committed $1.2 million and has entered into negotiations with Digicel PNG Ltd on a $40 million line of credit.

Relations with PFTAC

Assistance to Papua New Guinea in recent years has been limited due to the presence of extensive assistance under the Australian Enhanced Cooperation Program (ECP). In all, there have been 24 missions, and Papua New Guinea has sent over 50 officials to the PFTAC’s regional seminars, workshops, and training courses since 2000. PFTAC technical assistance includes public financial management, tax administration and policy, financial sector regulation and supervision, and economic and financial statistics.

Relations with the Asian Development Bank

Papua New Guinea has been approved 60 loans totaling $1,027 million for 47 projects and $51.6 million for 133 technical assistance projects. Currently, there are 12 active loans involving 9 projects (and one special fund grant-financed project). The AsDB strategy for Papua New Guinea (approved in July 2006) and country operations business plan for 2008–2010 (approved in August 2007) are in line with the government’s Medium-Term Development Strategy, focusing on public finance management, private sector development, transport sector, health and HIV/AIDS, and public enterprise reform. Total lending of $262 million is expected for 2008–2010. The AsDB’s non-lending assistance program envisages annual grant-financed technical assistance of about $2 million per year for 2008–2010.

Statistical Issues

Although data provision to the Fund is generally adequate for surveillance purposes, inadequate coverage and timeliness of key macroeconomic data continue to hinder the conduct of macroeconomic policy. The September 2006 STA multisector statistics mission assessed the institutional arrangements, methodological foundations, and accuracy and reliability of data and found serious shortcomings. A follow-up high level STA mission in December 2007, joined by senior officials of the Australian Bureau of Statistics, discussed a strategy to improve macroeconomic statistics.
1

The MTDS sets out the government’s development priorities through 2010. For details, see IMF Country Report 07/111.

2

Mineral revenue is highly sensitive to changes in global prices: a 10 percent reduction in export prices reduces mineral revenue by 0.5 percent of GDP annually.

3

A US$10 billion LNG project, with production expected in 2013, has completed pre-feasibility studies.

4

The DSA used the low-income country framework. The results were discussed with the World Bank.

5

Prepayments of external debt and pension liabilities totaled a cumulative 4 percent of GDP in the FY07–08 budgets.

6

The FY07–08 budgets set aside a cumulative total of about 4.5 percent of GDP for districts and provinces.

7

Government trust fund balances are estimated at 10.5 percent of GDP for end-2007, including 2.7 percent of GDP for participation in a gas project.

8

See Selected Issues chapter “Sources of Inflation in Papua New Guinea.”

9

See Selected Issues chapter “The Monetary Transmission Mechanism in Papua New Guinea.”

10

See Selected Issues chapter “Export Performance and Competitiveness in Papua New Guinea.”

11

See Selected Issues chapter on “Financial Sector Developments in Papua New Guinea.”

12

As Papua New Guinea is an IBRD/IDA blend country, this DSA was prepared by Fund staff only under the IMF-WB DSA framework for Low-Income Countries. See Staff Guidance Note on the Application of the Joint Fund-Bank Sustainability Framework for Low-Income Countries (http://www.imf.org/external/np/pp/2007/eng/041607.pdf).

13

Papua New Guinea is rated a weak performer for its policies and institutions for the purposes of the IMF-WB LIC DSA framework. Consequently, applicable thresholds for external public debt are: (i) 100 percent for NPV of external debt-to-exports, (ii) 30 percent for NPV of external debt-to-GDP, and (iii) 200 percent for NPV of external debt-to-fiscal revenue; and for debt service: (i) 15 percent of exports and (ii) 25 percent of revenues.

14

PNG is formally a blend IBRD-IDA country. No immediate IBRD lending to PNG is envisioned.

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Cover IMF Staff Country Reports
Papua New Guinea: 2007 Article IV Consultation: Staff Report; and Public Information Notice on the Executive Board Discussion for Papua New Guinea
Author:
International Monetary Fund
Volume/Issue:
Volume 2008: Issue 098
Publisher:
International Monetary Fund
ISBN:
9781451831757
ISSN:
1934-7685
Pages:
73
DOI:
https://doi.org/10.5089/9781451831757.002
Figure 1.

Papua New Guinea: Progress Toward Selected Millennium Development Goals 1/

PNG: GDP per Capita at PPP Exchange Rates, 1970–2012

(In percent of comparators)
Figure 2.

Papua New Guinea: Real Sector Developments
Figure 3.

Papua New Guinea: External Sector Developments
Figure 4.

Papua New Guinea: Fiscal Sector Developments
Figure 5-A.

Papua New Guinea: Monetary Developments
Figure 5-B.

Papua New Guinea: Monetary Developments

Real GDP Growth, 1997–2008

(In percent)

Contribution to GDP Growth in Non-mineral Sector

(In percent, y/y)

Resource Revenue Spending 2002–07 1

(In percent)

Fiscal Balances and Public Debt

(In percent of GDP)

Forecast Nonmineral Fiscal Deficits, 2008–12

(In percent of GDP, cash basis)

Changes in Net Foreign and Net Domestic Assets of Central Bank

(12-month changes scaled by lagged reserve money level)

Financial Sector Assets, 2001–06

(In percent of GDP)

Credit to Private Sector, 2006

(In percent of GDP)

REER Deviation from Estimated Equilibrium, 1994–2007

(In percent)
Figure 6-A.

Papua New Guinea: Regional and Global Comparators, 2005–07
Figure 6-B.

Papua New Guinea: Regional and Global Comparators
Figure 1.

Papua New Guinea: Indicators of Public Debt Under Alternative Scenarios, 2007–2027 1/

(In percent)
Figure 2.

Papua New Guinea: Indicators of Public and Publicly Guaranteed External Debt Under Alternative Scenarios, 2007–2027

(In Percent)