IMF Executive Board Approves a US$363.6 Million Disbursement to Papua New Guinea to Address the COVID-19 Pandemic
New Delhi: The Executive Board of the International Monetary Fund (IMF) approved a disbursement to Papua New Guinea (PNG) under the Rapid Credit Facility (RCF) equivalent to SDR 263.2 million (about US$363.6 million, 100 percent of quota) to help cover urgent balance of payments needs stemming from the global COVID-19 pandemic.
The COVID-19 pandemic is hitting the PNG economy hard, through export losses and the impact of measures to mitigate transmission of the virus. The crisis erupted as the government was beginning to implement wide-ranging reforms under a Staff-Monitored Program (SMP). The authorities have acted forcefully to prevent a significant outbreak of the COVID-19 virus. While these efforts have been successful to date, the economic impact of mitigation measures and export losses is likely to lead to negative growth in 2020 and has generated significant fiscal and balance of payments financing needs. Lower resource export earnings have led to a large balance of payments shortfall of around 4 percent of GDP, while measures to contain the spread of the virus are dampening economic activity and government revenues, leading to a substantial widening of the budget deficit to over 6 percent of GDP.
With limited scope for increasing borrowing domestically or abroad, the authorities’ economic policy response has focused on reallocating spending within the budget envelope towards health care2, as well as facilitating access of unemployed workers to superannuation savings, and encouraging banks to support individuals and businesses adversely affected by the economic downturn. Despite the COVID-19 crisis, the authorities have re-affirmed their commitment to reform, and PNG’s longer-term outlook remains positive, based on the SMP reform agenda and the likelihood that major resource projects will come to fruition in coming years.
Following the Executive Board discussion, Mr. Tao Zhang, Deputy Managing Director and Acting Chair, made the following statement:
“Papua New Guinea is facing headwinds at a time when its economy is already fragile and has limited fiscal space. The COVID-19 pandemic is expected to have a significant negative impact on domestic economic activity and growth. The fall in global prices for some of its major exports is posing additional challenges. These developments have led to a sharp fall in export revenues and an urgent balance of payments financing need. IMF support, through the Rapid Credit Facility, would help meet immediate financing needs and should catalyze financial support from development partners.
“The authorities have taken quick action and implemented measures to prevent transmission and spread of the COVID virus. They have also taken a series of policy measures, including fiscal and financial measures, to support activity and incomes, despite a substantial fall in government revenues. With very limited fiscal space, measures have focused mainly on redirecting spending toward key services, including healthcare, easing access to private savings, and avoiding a credit crunch.
“Assistance from development partners is needed to close the balance of payments gap and to help address the fiscal shortfall. To strengthen confidence in their commitment to the appropriate use of financial support, the authorities have taken strong steps to increase transparency and accountability for COVID-related spending. They have also taken action to implement key structural benchmark measures in the Staff-Monitored Program to underscore their ongoing commitment to the reforms embodied in that program.”