Last updated: February 2024
Papua New Guinea’s (PNG) per capita income lags most of its Pacific Island peers, while indicators of the business climate and growth are slightly stronger than in other Pacific Islands. Creditworthiness is on par with other Pacific Island countries. PNG’s natural resources wealth and continued support from bilateral and multilateral development partners remain important for economic prospects, business conditions and creditworthiness.
This chart is a cobweb diagram showing how a country measures up on four important dimensions of economic performance—per capita income, annual GDP growth, business climate and creditworthiness. Per capita income is in current US dollars. Annual GDP growth is the five-year average forecast between 2024 and 2028. Business climate is measured by the World Bank’s 2019 Ease of Doing Business ranking of 190 countries. Creditworthiness attempts to measure a country's ability to honour its external debt obligations and is measured by its OECD country credit risk rating. The chart shows not only how a country performs on the four dimensions, but how it measures up against other regional countries.
Economic growth moderated to 3% in 2023 from 4.3% in 2022 due to normalisation of LNG production and prices (the resources sector accounts for about one-third of GDP). Lower imports of consumer goods and capital implied slowing household demand and reduced private investment. Foreign exchange shortages continued to remain a constraint on business activity. Fuel shortages also occurred in 2023, prompting a national emergency. Other reasons for the slowdown included recurring power and water supply disruptions, frequent flight cancellations and glitches in banking system operations. On the upside, some services benefited from resumed international travel and easing global supply chain disruptions.
The IMF approved a US$918 million (3.5% of GDP) 38-month financing package in March 2023 to support reforms addressing long-standing structural impediments to growth. To increase PNG’s resilience, the IMF program prioritises three reforms. First, addressing a high risk of debt distress via sustained fiscal consolidation. Second, operationalising anti-corruption frameworks. Third, gradually alleviating foreign exchange shortages by transitioning to a market clearing exchange rate. These reforms are critical to strengthen the business climate and diversify the economy. Authorities have demonstrated a commitment to reform implementation; all end-June 2023 quantitative performance criteria and structural benchmarks were met. Following completion of the first program review in November 2023, the IMF provided an additional US$88 million in budget support.
The IMF forecasts growth to recover to 5% in 2024, supported by production from the Porgera gold mine and investment related to the Papua LNG project (a final investment decision could occur later in 2024). But recent civil unrest and disruption to business operations, supply chains and services adds to economic challenges and is likely to result in significant economic and fiscal costs. The Port Moresby Chamber of Commerce report business losses of about PGK1.3 billion (US$330 million, or 1.1% of GDP). The government has pledged a relief package for businesses, which should support economic recovery. Violence in the highlands remains a risk to production and exports from existing resources projects. Although the economy is returning to normal, growth forecasts are subject to downside risk.
Other downside risks remain prominent. The country is vulnerable to both domestic and external shocks, including lower commodity prices, natural disasters (flooding, landslides and earthquakes), climate change and lower investor confidence. An escalation in violence in the highlands would damage supply chains and hurt economic activity more widely. A buildup of public debt, ongoing FX shortages and capacity constraints all present downside risks to the outlook.
The medium-term outlook is bolstered by investment in large resource projects, such as Papua LNG and P’nyang gas, which, if they materialise, would help support investment and employment. Development of these projects adds upside potential to the IMF’s average GDP growth forecast of 3.1% per annum from 2025 to 2028. Longer term, the Vision 2050 statement sets out the governments long-term strategy to improve human capital and institutions and reduce poverty to foster sustained economic growth. The program aims to boost investment in public infrastructure and renewable energy, implement legislative frameworks for good governance and expand education and health facilities.
In 2023, government support targeted at providing relief from the cost-of-living crisis helped alleviate pressure for low-income earners. A relief package following recent civil unrest should support business activity and employment. Still, almost 40% of the population lives in poverty. The IMF estimates GDP per capita of $2,600 in 2023 and they expect incomes to remain around this level through 2028. Income is also unevenly spread through the population, remaining a source of social risk.
Country risk in PNG is high. PNG has an OECD country credit grade of 6 and sub-investment grade sovereign debt ratings from the major ratings agencies. These ratings underline PNG’s vulnerability to economic and financial shocks.
PNG scores lowly on Worldwide governance indicators, including significant constraints in respect of the rule of law, government effectiveness, control of corruption and regulatory quality. Such constraints can hurt business confidence, impede economic development, undermine policy formation and implementation and hinder social cohesion. Policy implementation and effectiveness continues to be bolstered by technical assistance from development partners and multilateral lenders providing support to the government’s administration.
Risk of expropriation in PNG is moderate. This aligns with the weak rule of law score in governance indicators. This makes it harder for investors to settle investment disputes. The government’s increasing resource-nationalist policy agenda could also weigh on the attractiveness of foreign investment in PNG.
Political risk is moderate to high. Political risk reflects the potential for leadership challenges to inhibit progress of resource developments that leads to weaker outcomes for GDP growth, government finances and foreign exchange earnings. Recent civil unrest and violence underscores high political stability and social risks.
PNG is Australia’s 25th largest trading partner. Total goods and services trade with PNG totalled roughly $5.3 billion in 2022, up 11.8% from 2021 but down $840 million from the 10-year average. More than 4,000 Australian companies export to PNG. Major Australian exports to PNG are meat, wheat, civil engineering equipment and parts, and special transactions and commodities. Imports from PNG largely consist of gold, silver and platinum and coffee.
PNG accounts for a small share of Australia’s total service exports. PNG tourism to Australia has recovered strongly since the reopening of international borders. The kina has remained relatively steady against the AUD, supporting travel to Australia. Still, tourist arrivals remain below pre-pandemic levels.
Meanwhile, PNG’s student enrolments in Australia remains small, but have recovered in the past couple of years toward pre-pandemic levels (of 1,400 enrolments per year). A competitive Australian dollar and another year of recovery in international travel should support further demand for Australian education and tourism, and broader services exports, in 2024.
PNG is a small investor in Australia (around $1 billion in 2021). On the other side, PNG is Australia’s 19th largest investment destination. Australian investment in PNG totalled $26.2 billion in 2022, mostly in PNG’s resources sector, particularly gold mining and oil and gas; for instance, ExxonMobil Australia is the main operator of the PNG LNG project. Australian investment has also been directed towards PNG’s efforts to strengthen its health systems, economic recovery, infrastructure, education, gender equality and disaster reduction and response.
Department of Foreign Affairs and Trade
Papua New Guinea Country Brief
Austrade
Papua New Guinea Market Profile
