IMF Concludes First Reviews of Papua New Guinea's Credit Facilities

• The IMF Executive Board completed the First Reviews under the 38-month ECF/EFF arrangements for Papua New Guinea, providing the country with immediate access to about US$88 million.
• Program performance has been strong, with all end-June 2023 performance criteria met and all structural benchmarks implemented.
• The program will continue to support Papua New Guinea's reform agenda, help protect the vulnerable and foster inclusive growth, with a focus maintained on strengthening debt sustainability, alleviating FX shortages, and enhancing governance and operationalizing the anti-corruption framework.

Washington, DC: On November 22, 2023, the Executive Board of the International Monetary Fund (IMF) completed the First Reviews of Papua New Guinea's Fund-supported program. The 38-month ECF/EFF arrangements, approved on March 22, 2023, support the authorities' reforms to address long-standing structural impediments to inclusive growth. This review completion allows for the immediate disbursement of SDR 65.81 million (about US$88 million) toward budget support, bringing total disbursements under the program so far to SDR 131.62 million (about US$176 million).

Papua New Guinea's economic outlook remains favorable. Growth is expected to soften to 3.0 percent this year, due to the normalization of LNG production, but is projected to rebound to 5.0 percent in 2024, spurred by the expected reopening of Porgera gold mine and by sustained growth in the agriculture and service sectors. Inflation—after significantly declining in the past year due to fiscal measures and lower imported inflation, is projected to rise, reaching 3.5 percent by end-2023 and 5.0 percent by end-2024.

The medium-term outlook is positive but subject to both large upside and downside risks. PNG is vulnerable to both domestic and external shocks, which is exacerbated by the buildup in public debt, ongoing FX shortages and capacity constraints that impact the government's ability to formulate and implement economic stabilization and development policies. On the upside however, the start of the construction of major resource projects, which are not yet in the baseline scenario, could yield additional economic growth in the short to medium run, as well as gains in exports and fiscal revenues once they enter into operation.

Program performance has been strong, with the authorities displaying a continued commitment to reforms. All end-June 2023 quantitative performance criteria were met, and all structural benchmarks were implemented.

At the conclusion of the Executive Board's discussion, Mr. Bo Li, Deputy Managing Director, and Acting Chair, made the following statement:

"The strong program performance recorded in the first six months of the ECF/EFF arrangements attests to the authorities' sustained commitment to reforms, successfully overcoming technical and institutional capacity constraints. The government's fiscal consolidation strategy, which aims at a balanced budget by 2027, is on track, and the deficit is expected to return to pre-pandemic levels this year. To address foreign exchange shortages, the central bank has sharply reduced excess liquidity by modernizing its monetary policy operations, and the exchange rate has undergone a gradual depreciation, bringing it closer to a market-clearing rate. The governance and anti-corruption frameworks have been enhanced, including the appointment of Commissioner and Deputy Commissioners of the Independent Commission Against Corruption.

"The authorities are well placed to build on these achievements and continue their reform efforts to achieve resilient, inclusive and sustainable growth. Debt vulnerabilities will be addressed by sustaining fiscal consolidation while creating space to tackle development needs, adapt to climate change and preserve social spending. Consolidation will need to rely both on domestic revenue mobilization, guided by the new Medium-term Revenue Strategy and supported by critical amendments to the legal framework, and on expenditure rationalization and efficiency gains, enabled by improvements in public financial management and payroll management. The central bank should continue implementing its sequenced roadmap of reforms, devised with IMF support, to facilitate a gradual and orderly return to greater exchange rate flexibility, alleviate foreign exchange shortages and further strengthen liquidity management. The authorities are encouraged to provide sufficient resources for the Independent Commission Against Corruption to become fully operational and should keep on fostering greater transparency and accountability.

"The ECF/EFF arrangements will continue to support this homegrown reform agenda, helping to address balance of payment needs and rebuild buffers while avoiding disruptive adjustment, and catalyzing support from other international partners. Timely technical assistance and advice from the IMF will accompany reform implementation."