IMF Managing Director Approves a Staff Monitored Program for Papua New Guinea
The Managing Director of the IMF approved on February 20, 2020, a Staff-Monitored Program (SMP) for Papua New Guinea, covering the period of February 20, 2020 to June 30, 2021.
Papua New Guinea faces deep macroeconomic imbalances. The economy has been hit by a series of shocks, including lower commodity prices, a severe drought in 2015-16 and a major earthquake in 2018. These shocks have undermined growth and revealed vulnerabilities in public finances and macroeconomic management. Government revenues have stagnated, public deficits have widened and SOE losses have materialized, leading to a sharp increase in the ratio of public debt to GDP. At the same time, shortages of foreign exchange have inhibited investment and growth in the non-resource sector.
The government, that assumed office in 2019, is committed to addressing these imbalances, removing structural distortions currently undermining economic growth, clearing the backlog of foreign exchange orders and restoring the convertibility of the kina. The authorities have adopted a comprehensive reform program to address structural rigidities in the economy, while also taking steps to address macroeconomic imbalances. Their program includes measures to gradually reverse the recent build-up of public debt and to redirect public spending to more productive uses, including capital investment and the social safety net. Structural reforms include the implementation of a medium-term revenue strategy, comprehensive reform of state-owned enterprises (SOEs) and steps to address problems of governance and corruption.
The SMP is designed to support the authorities’ reform agenda. The SMP will be monitored on a bi-annual basis and is intended to assist the authorities in building a track record of implementation of a coherent set of economic and social policies that can facilitate a return to sustained growth with macroeconomic stability.
Economic policies under the SMP emphasize the restoration of macroeconomic and financial sector stability through: key reforms to bring expenditure under control while expanding government revenue; restoring the convertibility of the currency and clearing the backlog of foreign exchange in the economy; and, structural reforms to support stronger, more sustainable and inclusive growth. The SMP also includes important safeguards to protect the country’s most vulnerable people.
Risks to the SMP are significant, and stem mainly from external events, such as a dramatic weakening of the external environment, natural disasters, and from potential slippages in the implementation of reforms given capacity constraints.
To mitigate the potential risks from capacity constraints, the IMF will support the authorities’ efforts in all policy areas covered by the SMP through tailored technical assistance and policy advice.