PNG faces economic challenges: IMF official

PAPUA New Guinea faces significant economic challenges in the short term, but also has the opportunity to put in place policies that will benefit the country over the long term, according to an International Monetary Fund mission which visited for two weeks.
Scott Roger, who led the mission, said they welcomed the new government’s 100-Day Economic Stimulus Plan to begin addressing both the short-term macroeconomic challenges and the longer-term promotion of sustainable and inclusive growth.
“In particular, the mission endorses the decision to substantially scale back the regional and district grant programmes, which were ramped up on the expectation of much higher natural gas revenues than have eventuated,” he said in a statement.
“Equally welcome is the intention to strengthen PNG’s economic base, focusing on the non-resource sector.”
The mission believes that that the measures envisaged in the
100-Day Plan will cut the 2017 fiscal deficit significantly, to a little over 3 per cent.
“To stabilise and start bringing the public debt-to-GDP ratio down below the statutory ceiling of 30 per cent, however, the Government should target a budget that is close to balance by 2020,” Roger said.
He said action must be taken to raise tax revenues, especially in ensuring compliance.
Expenditures must also be cut, in particular the public sector wage costs which have been ballooning in recent years.
“Care needs to be taken to ensure delivery of basic health, education, and public security services, but it is also evident that there is substantial room to reduce inefficiency and leakage,” Roger said.
The team noted that in 2015–16, the country’s economy slowed sharply in response to falls in major export commodity prices, the end of a huge LNG pipeline investment project, and a severe drought.
In 2017-18, the team anticipates a continuation of sluggish growth, averaging around 2.4 per cent, reflecting weak commodity prices, fiscal restraint, and the adverse impact on activity foreign exchange shortages.
Inflation is projected to ease towards the core rate of around 2–3 per cent. A large current account surplus will continue, together with a correspondingly large outflow on the financial account.
He said the foreign exchange shortages were delaying economic recovery and that the Government should increase the exchange rate flexibility.
He said, however, that since exchange rate adjustments could adversely affect inflation, PNG should take a gradual approach aimed at restoring a competitive level of
the exchange rate, and complete elimination of foreign exchange shortages by 2020.
Steps should also be taken to reduce excess liquidity and strengthen the central bank’s operating framework, he said.
The mission supports the Government’s intention to strengthen its revenue base over the medium term and believes that in order to achieve its Sustainable Development Goals, PNG will need to harness significantly higher revenue from the resource and non-resource sectors in an efficient and equitable manner.
“This will take some time but, with adequate resourcing and external technical support, including from the IMF, it can be achieved over the medium term,” Roger said.
The mission will submit its preliminary findings to the IMF’s executive board for discussion in December.