Summary:KEY ISSUES
Context. After a decade of strong growth, Papua New Guinea (PNG) now faces a sharp
slowdown in the nonmineral sector as construction winds down on a large liquefied
natural gas (LNG) project. LNG revenue increases are expected to be modest and oneoff
over the near to medium term, posing challenges to meet the country’s huge
development needs while trying to maintain debt sustainability. PNG needs to create
an enabling environment for sustained, inclusive growth in the post-boom era.
Outlook and risks. Overall growth prospects remain generally positive, but the
slowdown of the nonmineral sector has increased headwinds for job-creating growth.
Inflation is expected to stabilize at lower levels than in the recent past. Risks to
economic growth in 2013-15 are broadly balanced, but they are increasingly tilted
toward the downside over the longer term, reflecting uncertainty over mineral prices
and investment and global shale gas development.
Policy assessment. Policy discussions focused on resource revenue management,
macroeconomic and financial stability, and structural reforms to engender sustained,
inclusive growth. Key recommendations include:
? Target a moderate fiscal deficit in 2014 in line with absorptive capacity and focus
on improvement in spending quality. Over the medium term, constrain and smooth
spending to stay below the government’s debt ceiling of 30 percent of GDP.
? Strengthen the interest rate channel of monetary policy transmission by reducing
excess liquidity. Closely monitor financial sector risks arising from possible price
corrections in certain segments of the property market.
? Improve transparency in the management of resource revenue; safeguard
resources for the sovereign wealth fund; continue to reform public enterprises;
improve the business environment; and strengthen the agricultural sector.
? Take early action to address long-standing issues on economic statistics and antimoney
laundering and combating the financing of terrorism.
