Papua New Guinea: Economic Outline

Economic Indicators

Since achieving independence in 1975, the economy has expanded more than threefold. However, real GDP per capita has only experienced an annual increase of 0.9%, a sluggish rate compared to similar resource-exporting nations in the lower middle-income category. The growth trajectory has been characterized by significant fluctuations, largely influenced by shifts in international commodity prices. The economic downturn triggered by the COVID-19 crisis resulted in a contraction during 2020-21, followed by a recovery of 5.2% in 2022. Growth slowed to 2.7% in 2023, primarily due to diminished global demand and domestic supply constraints resulting from scheduled maintenance in extractive facilities. The outlook for growth is more positive in 2024, largely attributed to the reopening of the Porgera gold mine. Operations at the mine resumed in the first quarter of 2024 and are expected to return to normal production levels by the middle of the year (data World Bank).

Papua New Guinea is richly endowed with natural resources, but exploitation has been hampered by rugged terrain, land tenure issues, and the high cost of developing infrastructure. The country’s economy remains dominated by agriculture, forestry, and fishing (16.9% of the GDP in 2022) - which engage most of the labor force - and the mineral and energy extraction sector (including copper, gold, and oil) which accounts for most export earnings and GDP (World Bank, 2022). The government intervenes in many aspects of the economy through state ownership and regulation. The IMF has stressed the need for more cautious macroeconomic policies to ensure debt sustainability and preserve external balances. Other areas of need include better public finance management and efficiency in public spending. The pandemic worsened existing fiscal vulnerabilities, prompting the government to initiate a gradual fiscal consolidation aimed at ensuring debt sustainability. As the economy rebounded to pre-pandemic levels, the government managed to decrease the fiscal deficit from 8.8% of GDP in 2020 to an estimated 4.4% of GDP in 2023. Headline inflation declined from 6.3% in 2022Q3 to 1.4% in 2023Q2, year-on-year, before rising slightly to 2.2% in 2023Q3. Core inflation followed a similar downward trajectory, reaching 1.3% in 2023Q3. Since September 2023, the Bank of PNG has lowered the policy rate three times, totaling 150 basis points, to 2%. With support from an IMF-funded program, BPNG implemented measures to introduce greater exchange rate flexibility, allowing for a gradual and moderate depreciation of the kina against the USD since May 2023 (data World Bank).

Papua New Guinea, one of the most diverse countries in the world, is a society undergoing economic and social transformation. The unemployment rate is low at 2.7% in 2023 (World Bank), but social tensions are fueled by inequality and poverty (almost 40% of the population). Papua New Guinea is classified as a lower middle-income country by the World Bank. 80% of the population is estimated to live in rural communities and are faced with significant challenges in health, education, and economic opportunity. The population is young and growing, and there are limited formal job opportunities for it.

Monetary Indicators	2016	2017	2018	2019	2020
New Guinean Kina (PGK) - Average Annual Exchange Rate For 1 GBP	4.23	4.10	4.37	4.25	4.44

Source: World Bank - Latest available data.

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Latest Update: May 2024