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1、Papua New Guinea Economic UpdateMacroeconomic Stability and Growth:Unlocking the Potential of AgricultureJune 2025Public Disclosure AuthorizedPublic Disclosure AuthorizedPublic Disclosure AuthorizedPublic Disclosure Authorized 2025 The World Bank 1818 H Street NW,Washington DC 20433 Telephone:202-47

2、3-1000;Internet:www.worldbank.org Some rights reserved.This work is a product of The World Bank.The findings,interpretations,and conclusions expressed in this work do not necessarily reflect the views of the Executive Directors of The World Bank or the governments they represent.The World Bank does

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6、The material in this work is subject to copyright.Because The World Bank encourages dissemination of its knowledge,this work may be reproduced,in whole or in part,for noncommercial purposes as long as full attribution to this work is given.AttributionPlease cite the work as follows:“World Bank.2025.

7、Papua New Guinea Economic Update:Macroeconomic Stability and Growth:Unlocking the Potential of Agriculture World Bank.”Any queries on rights and licenses,including subsidiary rights,should be addressed to World Bank Publications,The World Bank,1818 H Street NW,Washington,DC 20433,USA;fax:202-522-262

8、5;e-mail:pubrightsworldbank.org.Cover photo:Gedi Malum Cover design:The Greenhouse Studio.3Preface and AcknowledgmentsThis publication is the tenth in the ongoing series of Papua New Guinea Economic Updates(PNG EU).It serves two main purposes.First,it analyzes recent developments in Papua New Guinea

9、,placing them in a broader historical and global context.Based on these trends and recent policy changes,the report updates the countrys economic outlook and assesses implications for citizens welfare.Second,the PNG EU provides an in-depth analysis of a selected development issue,evaluating how rece

10、nt trends and policy reforms align with the governments stated development objectives.The PNG EU is intended for a wide audience,including policy makers,business leaders,and the community of analysts engaged in PNGs evolving economy.Since 2023,the publication has been released annually.The PNG EU wa

11、s prepared by the Economic Policy Global Department,under the guidance of Stephen N.Ndegwa(Country Director),Khwima Nthara(Country Manager),Lars Christian Moller(Practice Manager),Paavo Eliste(Practice Manager),Benu Bidani(Practice Manager),and Ilias Skamnelos(Practice Manager).The core economic tea

12、m comprises Reshika Singh and Christopher Wong,with contributions from Alexander Haider,Darian Naidoo,Debasish Das,Gerlin Catangui,Kimberly Chandra,and Maria Andersen.The special focus section was prepared by Anuja Kar,Allan Oliver,and Sharad Alan Tandon with help from Son Tanh Vo,Carlo Bravi(Food a

13、nd Agriculture Organization),Agnes Deshormes,Katrina Brandon and Maurice Taondyande.Bridgette Hogan,Claudia Palic,and Rachel Leka provided administrative support.The report was edited by Angela Takats,with support from Peter Howe,and designed by Greenhouse Studio.Dissemination was organized by Hamis

14、h Wyatt and Ruth Moiam.The team is grateful to the Department of Treasury,Department of Agriculture and Livestock(DAL),other government departments,commodity boards,the International Monetary Fund(IMF)and other development partners for their collaboration in the development of this report.The team w

15、ould like to express appreciation for feedback from Ralph Van Doorn,Sonya Woo,Lydia Mesfin,Alison Ofotalau,Gitanjali Kumar,Irina Schuman,Mansur Ahmed,and Ruslan Piontkivsky.To be included on an email distribution list for this Economic Update series and related publications,please contact Ruth Moiam

16、:rmoiamworldbank.org.For questions and comments relating to this publication,please contact Reshika Singh:rsingh39worldbank.org.For information about the World Bank and its activities in Papua New Guinea,please visit www.worldbank.org/png.4Preface and acknowledgments.3Abbreviations and Acronyms.5Lis

17、t of Figures.6List of Tables.8List of Boxes.8Executive Summary.9Part 1.Economic Overview:Papua New Guineas Resilience Amid Global Uncertainty .131.1 Global and Regional Context.141.2 Recent Economic Developments in PNG.191.3 PNG Economic Outlook.411.4 Policy Considerations.46Part 2.Pathways to Job C

18、reation:Accelerating Agricultural Growth and Prosperity in Papua New Guinea.472.1 Job Creation to Address Development Challenges.482.2 Barriers to Agriculture Sector Growth.522.3 Increasing the Productivity of Subsistence Farmers.542.4 The Importance of Value Chain Investments.562.5 Strategic Pathwa

19、ys to Unlock Agricultures Potential.60Annexes.64Annex 1.Papua New Guinea Macroeconomic Implications of Trade Uncertainty.65Annex 2.Measures of Inflation in Papua New Guinea.69Annex 3.Integrated framework for fiscal stability and sustainable development in PNG.70Annex 4.Unlocking PNGs Agricultural Po

20、tential:Strategic Pathways,Challenges,Actions.72Annex 5.The Informal Economy in Papua New Guinea:Levels,Trends,and Policy Recommendations.73Annex 6.What Does it Mean to Create Jobs in Agriculture?.78References.79Contents5Abbreviations and AcronymsAE advanced economies AFF agriculture,forestry and fi

21、shingBPNG Bank of Papua New GuineaCPI Consumer Price IndexCRR Cash Reserve RequirementEAP East Asia and the PacificEMDEs emerging markets and developing economiesFTE Full Time Equivalent GDP Gross Domestic ProductGoPNG Government of Papua New GuineaHFPS High Frequency Phone SurveysHIES Household Inc

22、ome and Expenditure Survey IMF International Monetary Fund KFR Kina Facility RateLMICs lower-middle-income countriesLNG liquefied natural gasMPC Monetary Policy CommitteeMPO Macro Poverty OutlookMTDP Medium-Term Development PlanMTDS Medium-Term Debt StrategyMTRS Medium-Term Revenue StrategyNASP Nati

23、onal Agriculture Sector PlanNPLs Non-Performing LoansNSO National Statistical OfficeNSS national statistical system PNG Papua New GuineaPPP public-private partnership(s)US United StatesUSD United States DollarVAR Vector Autoregression6List of Figures Figure 1.1 GDP growth,World,AEs,EMDEs,PNGFigure 1

24、.2 Global trade policy and economic policy uncertaintyFigure 1.3 Global commodity pricesFigure 1.4 Consumer price inflationFigure 1.5 Policy rates across major economies and PNGFigure 1.6 PNG real GDP growth and sectoral contributionFigure 1.7 PNG real GDP growth compared to peersFigure 1.8 Exports

25、of minerals by volumeFigure 1.9 Exports of minerals by valueFigure 1.10 Exports of agricultural commodities by volumeFigure 1.11 Exports of agricultural commodities by value Figure 1.12 Total employment in the formal sectorFigure 1.13 Formal employment in services sectorsFigure 1.14 PNG inflationFig

26、ure 1.15 Contributions to PNG inflationFigure 1.16 Import partner headline inflationFigure 1.17 Peer headline inflation compared to PNGFigure B.1.1 Change in rice prices paid by households,relative to April 2023 Figure B.1.2 Percentage of households that completely agree“prices have gone up too fast

27、 in the past 30 days”Figure 1.18 KFR rate over time and peersFigure 1.19 Broad money supply and its determinantsFigure 1.20 Excess reserves of depository corporationsFigure 1.21 Domestic credit in PNGFigure 1.22 Growth in commercial bank loans by sector in 2024,compared to 2023Figure 1.23 Regulatory

28、 capitalFigure 1.24 Non-Performing Loans(NPLs)Figure 1.25 Government revenue and expenditureFigure 1.26 Fiscal balance and public debtFigure 1.27 Fiscal balancesFigure 1.28 Composition of government revenue Figure 1.29 Public debt and fiscal balance compared7Figure 1.30 Fiscal impulse and output gap

29、Figure 1.31 Overall fiscal procyclicalityFigure 1.32 Breakdown of tax revenue over timeFigure 1.33 Breakdown of non-tax revenue over timeFigure 1.34 Government expendituresFigure 1.35 Expenditure in 2024 against structural peersFigure 1.36 Public debtFigure 1.37 Public debt against peersFigure 1.38

30、Current account balance and compositionFigure 1.39 Financial account balance and compositionFigure 1.40 Export composition and growth rateFigure 1.41 Sectoral contributions to export growthFigure 1.42 Export price growthFigure 1.43 Export volume growthFigure 1.44 Import compositionFigure 1.45 Contri

31、butions to import growthFigure 1.46 Kina performance against major currenciesFigure 1.47 Changes in the kina-US$exchange rateFigure B.1.3 Relationship between commodity prices and the kina exchange rateFigure B.1.4 Exchange rate response to commodity price shocks Figure 2.1 Relationship between empl

32、oyment by sector and per capita incomes across the worldFigure 2.2 Growth in agriculture jobs:Addressing key development challengesFigure 2.3 Monetary poverty for the average agricultural producer between 2009 and 2018Figure 2.4 Poverty reduction under different growth scenarios in smallholder agric

33、ultureFigure 2.5 Relationship between value chains and income/poverty levelsFigure 2.6 Number of full time equivalent(FTE)jobs created Figure A.1 Papua New Guinea:Trade balance,2018-2024Figure A.2 Papua New Guinea:Projected trends of exports vs.imports 2018 to 2027Figure A.3 Papua New Guinea share o

34、f total exports by major sector,2022-2024Figure A.4 Papua New Guinea major commodity exports trends,2018-2024Figure A.5 Persistence of informality in PNGFigure A.6 Heterogeneity in type and size of surveyed firms,sector composition,and ownership8List of TablesList of BoxesTable 1.1 Selected monetary

35、 and price indicatorsTable 1.2 Selected fiscal indicatorsTable 1.3 Selected external sector indicatorsTable 1.4 Selected economic indicatorsTable 2.1 Value chain expansion to unlock jobs,value added,and incomeTable A.1 Price projections of PNGs key commodity exports(2024-2026)Box 1.1 Economic sentim

36、ents of Papua New GuineansBox 1.2 Commodity price shocks and the exchange rate in Papua New GuineaBox 1.3 Underlying baseline assumption 9EXECUTIVE SUMMARY10The World Banks Papua New Guinea(PNG)Economic Update offers a comprehensive evaluation of the countrys economy,highlighting the challenges and

37、opportunities for sustainable growth,macro-fiscal stability,and development in the face of global trade and policy uncertainties(Part One).In its special focus(Part Two),the report delves into the agriculture sector in PNG,exploring its potential to enhance livelihoods and serve as a way of diversif

38、ying growth beyond the resource sector.This shift could foster job creation,boost exports,and reduce macroeconomic volatility,thereby promoting more inclusive growth.PNG experienced robust economic growth in 2024,surpassing the historical average,largely driven by the non-resource sector.Overall GDP

39、 growth reached 3.8 percent,mirroring 2023 but slightly below the structural peer average.The non-resource sectors growth was fueled by increased agricultural production and higher commodity prices,particularly cocoa,coffee,and copra oil.Despite the reopening of the Porgera gold mine,its operation a

40、t lower-than-expected capacity has resulted in sluggish growth within the resource sector.Headline inflation experienced a notable decline to 0.6 percent,largely influenced by non-tradeable goods.However,core inflation,measured by the BPNG trimmed mean,increased to 3.3 percent,reflecting higher tran

41、sport costs and the diminishing impact of education subsidies.The Government of PNG(GoPNG)continued its fiscal consolidation,leading to a steady narrowing of the fiscal deficit and downward trend in public debt.In FY24,PNGs fiscal deficit narrowed to 3.2 percent of GDP in FY24,aided by reductions in

42、 both current and capital spending.Additionally,public debt declined to 49.4 percent of GDP,bolstered by an increase in nominal GDP.Nonetheless,public debt remains at high risk of debt distress as assessed by the June 2025 joint IMF-World Bank Debt Sustainability Analysis.External debt risks are ele

43、vated due to liquidity risks associated with the bullet payment on the existing Eurobond in 2028 and higher official bilateral and multilateral debt service payments.In 2024,the current account surplus increased to US$4.8 billion,or 15.1 percent of GDP,up from US$2.8 billion in 2023.This growth was

44、mostly driven by a rise in goods exports and a decline in goods imports due to foreign exchange shortages and monetary tightening,leading to a sharp increase in the trade surplus.The Bank of Papua New Guineas(BPNG)foreign exchange interventions decreased its foreign exchange reserves in 2024 with re

45、serves coverage declining from 6.7 months to 5.6 months of imports of goods and services.Despite this decline,reserves remained above the BPNGs target of at least US$2.0 billion.In January 2024,the BPNG implemented a crawl-like exchange rate regime to enhance the convertibility of the kina and tackl

46、e ongoing foreign exchange shortages.This adjustment has allowed the kina to become more flexible,contributing to a reduction in its real overvaluation.The gradual depreciation of the kina is bolstering PNGs external competitiveness.To ensure consistency with the new regime and keep inflation expect

47、ations in check,monetary policy generally remained tight throughout 2024 and in the first half of 2025.The depreciation of the kina,stronger foreign currency inflows from both the resources and agricultural sectors,along with various measures taken by the BPNG,have helped ease foreign exchange short

48、ages.However,the combination of increasing interest rates,reduced liquidity,and delays in launching significant resource projects led to a notable decrease in private sector credit growth.While global growth is projected to fall and remain modest in 2025,growth in PNGs main trading partners is proje

49、cted to remain strong.Global growth is projected to fall to 2.3 percent in 2025 amid an unpredictable global policy environment.Since January 2025,there have been significant shifts in trade policies and,as a result,economic and trade policy uncertainty surged dramatically in recent months.However,r

50、ecent progress in trade talks has helped reduce these uncertainties.Nonetheless,uncertainty around these projections remains high,and growth outcomes will depend on global developments and national policy choices.Risks to the global outlook are tilted to the downside as continued policy uncertainty

51、poses a threat to global trade,investment,and economic activitypotentially clouding the outlook for PNG.Executive Summary11Although PNGs reliance on the resource sector means commodity price fluctuations can significantly affect the country,current projections indicate the impact will be more balanc

52、ed.Commodity prices are expected to decrease in 2025 and 2026,dropping to their lowest levels since 2020.However,the anticipated declines are expected to have a more balanced impact on PNG.This is because soaring gold prices and increased production at the Porgera gold mine,driven by enhanced capaci

53、ty,are likely to counterbalance the effects of declining liquified natural gas(LNG)prices.Furthermore,Japan,the primary export destination for PNGs LNG,is projected to grow faster than in 2024,leading to sustained demand for PNGs LNG.Despite a challenging global landscape marked by uncertainties,PNG

54、s economy is poised to demonstrate resilience,thanks to the increasing demand for gold and higher production capacity at the Porgera gold mine.While global growth is projected to slow in 2025,PNGs main trading partnersChina,Japan,and Australiaare anticipated to experience accelerated growth.Although

55、 Chinas growth is expected to slow compared to 2024,it remains stronger than what was anticipated in April 2025.Amid this background,growth is expected to accelerate to 4.7 percent in 2025.However,from 2026,growth is expected to slow as production at Porgera mine reaches capacity,resulting in slowin

56、g resource sector growth.The non-resource sector is expected to be the key driver of growth during this period.Over the medium term,growth is expected to slow to around 3 percent.To boost growth,expanding the non-resource sector will be vital for diversifying the economy and decreasing dependence on

57、 extractive industries,which are vulnerable to global market fluctuations.PNGs economic outlook is clouded by several downside risks,including both external and domestic factors.Slower global growth,particularly in major trading partners like Japan and China,could reduce demand for PNGs commodity ex

58、ports.Commodity price volatility has reached unprecedented levels,presenting a significant risk to PNGs export revenues and exchange rate,especially with fluctuations in LNG and gold prices.This heightened volatility could further exacerbate PNGs economic growth fluctuations,which are already more p

59、ronounced than those of its peers.Continued uncertainty stemming from recent trade measures could indirectly affect PNG through reduced global demand.Domestically,the economy is vulnerable to political and social instability,as past episodes of unrest have shown.Moreover,the rising frequency and int

60、ensity of extreme weather events could negatively impact infrastructure as well as agricultural production,which is one of the key drivers of growth and supporting livelihoods.On the upside,global growth could exceed projections if the policy uncertainty has less of an impact,and with a significant

61、boost from technology-driven investment.In addition,the outlook does not account for potential new resource projects,like the proposed Papua LNG,Pnyang LNG and Wafi-Golpu.The final investment decision,construction start,and higher commodity prices present an upside risk to the outlook.The GoPNG rema

62、ins committed to its fiscal repair strategy,focusing on a sustained reduction in the fiscal deficit and aiming for a balanced budget by 2027.This will help bring down public debt to approximately 43 percent of GDP by 2027.To achieve this,substantial efforts are required to mobilize non-tax revenues,

63、including resource revenues,to adequately fund capital expenditures and address broader development needs.PNGs public debt is assessed as sustainable.However,this hinges upon the implementation of the GoPNGs planned fiscal consolidation and conservative financing strategies.This fiscal consolidation

64、,alongside structural reforms fostering private sector growth,and climate-related adaptation and mitigation measures,would lower the risk of public debt distress and support sustainability.Amid the turbulence of an unpredictable global environment and increased vulnerability to external shocks,the G

65、oPNG must urgently focus on strategies that bolster macroeconomic stability,stimulate private investment,and catalyze job creation.To alleviate fiscal and debt sustainability concerns,the authorities should focus on increasing domestic revenue mobilization,reducing inefficient spending,and reducing

66、borrowing costs.Furthermore,it would be critical to strengthen debt management,particularly in preparation for the bullet payment due in 2028,without causing undue strain on the economy or undermine the achievements of the fiscal repair strategy.To improve countercyclicality of macroeconomic policie

67、s,the GoPNG and BPNG should develop high-frequency macro statistics and ensure timely data releases,reintroduce kina convertibility and allow greater exchange rate flexibility,and plan a phase-in of new resource projects asynchronously.In terms of job creation and private sector investment,policy re

68、forms should reduce regulatory burdens,enhance access to finance,and 12ensure reliable infrastructure,especially in energy and transport.Building human capital through investments in education,health,and skills development,particularly for women and youth,will improve labor force participation and p

69、roductivity.Finally,supporting non-resource sectors,like agriculture,will promote broader-based and more inclusive growth.Part 2:Pathways to Job Creation:Accelerating Agricultural Growth and Prosperity in Papua New GuineaAgriculture has the potential to significantly support economic growth by gener

70、ating better employment opportunities for smallholder farmers to transition into commercial and semi-commercial agriculture.Job creation within this sector can tackle numerous developmental challenges faced by the country,such as reducing poverty,improving household food security,increasing the affo

71、rdability of essential services,and addressing key factors contributing to fragility and crime.Furthermore,it will aid in decreasing dependence on the resource sector,thereby mitigating associated macroeconomic volatility.The GoPNG has set ambitious goals for agriculture and food system development

72、in the National Agriculture Sector Plan(NASP)2024-2033.However,progress towards achieving these goals over the past decade has been slower than expected,with subsistence agriculture still being the most significant source of employment.Additionally,there is little evidence of widespread and substant

73、ial income gains for semi-commercial and commercial farmers.Several factors contribute to these challenges:Structural barriers limiting private sector development,including capital controls and foreign exchange shortages,limited connectivity,and poor human capital development.Inefficiencies in the a

74、griculture sector,including large post-harvest losses,weak value chain integration,and a lack of regulatory compliance.Climate shocks,including cyclones,floods,landslides,and earthquakes.The formidable challenges and limited progress in achieving agricultural job creation goals underscore the necess

75、ity for immediate policy action.Evidence suggests that unlocking PNGs agricultural potential requires a multi-pronged approach that includes the following pathways:Boosting productivity and commercialization through cost-effective investments to support smallholders,increase on-farm jobs,and income:

76、Investments aimed at intensifying specific crops have demonstrated significant productivity gains.For instance,increasing investments in high-yielding,pest-tolerant varieties,along with enhanced farm management practices and mechanization,can lead to more on-farm jobs and higher incomes for benefici

77、aries.Scaling up investments in value chains of targeted crops:Expanding investments throughout the value chain of specific crops has shown substantial benefits in enhancing post-production processes.This includes improved traceability,access to technology,improved logistics,as well as skills traini

78、ng for sorting,grading,branding and packaging.These efforts create additional off-farm and non-farm job opportunities.Strengthening systemic enablers to unlock private investment and long-term growth:GoPNG has a significant opportunity to lead in implementing foundational reforms that address privat

79、e sector concerns.By repurposing public expenditures towards public goods,establishing robust data systems,and strengthening regulatory frameworks,particularly in land tenure,GoPNG can unlock private investment and foster long-term growth.Strategic investments through public-private partnerships(PPP

80、s)are essential to mobilize capital and expertise,focusing on growth corridors and enhancing access to digital and financial services.PNG is currently undergoing a structural transformation.Implementing these pathways through targeted focus areas and through a sequenced approachsuch as investing in

81、public goods and innovation;expanding public-private partnerships;fostering efficiency and market integration;and building climate and economic resiliencewill speed up the transformation process by creating sustainable jobs,improving livelihoods,and reducing poverty for both rural and urban communit

82、ies.13Economic Overview:Papua New Guineas Resilience Amid Global UncertaintyPART 114The global economic landscape in 2024 was marked by stabilization following significant shocks,with growth holding steady at 2.8 percent.While advanced economies maintained stable growth,driven by improvements in the

83、 euro area,the East Asia and Pacific region experienced a slowdown,primarily due to Chinas deceleration.Looking ahead to 2025,global growth is projected to decline amid policy uncertainties,yet PNGs key trading partners are expected to sustain robust growth.The anticipated decline in global commodit

84、y prices poses challenges for PNGs economy,heavily reliant on exports,with the shock of falling LNG prices adding to the complexity.However,soaring gold prices provide a lifeline,mitigating potential negative impacts on PNGs economic outlook.Inflation dynamics and tight financial conditions further

85、complicate the scenario but an easing of trade uncertainty and technological advancements offer potential for positive economic outcomes,underscoring the intricate balance of risks and opportunities shaping PNGs future.1.Although global growth was underwhelming in 2024,it stabilized following unprec

86、edented shocks to the global economy.Growth stabilized at 2.8 percent,which was unchanged from 2023(Figure 1.1).Growth in advanced economies(AEs)remained stable at 1.7 percent in 2024,supported by acceleration in the euro area.Global trade picked up pace supported by easing inflation,improved supply

87、 chains,and the lagged effect of monetary policy tightening.However,growth in the East Asia and the Pacific(EAP)region slowed to an estimated 5.0 percent in 2024,down 0.2 percentage points from 2023,primarily due to a deceleration in China,one of PNGs key export destinations.Softening domestic activ

88、ity and subdued consumer confidence,which weakened consumption,was a drag on growth in China.Japan,another main export destination for PNG,experienced a significant slowdown in economic growth,registering a mere 0.2 percent increase.This downturn was largely attributed to the depreciation of the yen

89、,escalating commodity prices,and uncertainties surrounding global trade dynamics.1.1.Global and Regional Context 15Figure 1.1 GDP growth,World,AEs,EMDEs,PNG(Percent)-12-9-6-3036912201920202021202220232024e2025f2026f2027fWorldPIC-11PNGChinaJapanAustraliaSources:International Monetary Fund,World Bank

90、2025c.2.While global growth is projected to fall and remain modest in 2025,growth in PNGs main trading partners is projected to remain strong.Global growth is projected to fall to 2.3 percent in 2025 amid an unpredictable global policy environment.Since January 2025,there have been significant shift

91、s in trade policies and,as a result,economic and trade policy uncertainty surged dramatically in recent months.However,recent progress in trade talks has helped reduce these uncertainties(Figure 1.2).Growth in the EAP region is projected to decelerate to a still robust 4.5 percent,a minor 0.1 percen

92、tage point lower than projections in January 2025.Chinas growth is also projected to remain strong at 4.5 percent,unchanged from January projections,following a temporary trade deal between China and the US,effective May 14.The growth outlook is also supported by the surprisingly strong performance

93、of the Chinese economy in April,which demonstrated strong resilience in foreign trade despite global economic uncertainty.Exports noted an impressive annual growth rate of 9.3 percent.Growth momentum was also bolstered by strong industrial output and increased consumption in the services sector.Grow

94、th is projected to accelerate in Japan,supported by consumption recovery and the reopening of automobile plants after longer-than-expected shutdowns in 2024.Nonetheless,uncertainty around these projections remains high,and growth outcomes will depend on global developments and national policy choice

95、s.16Figure 1.2 Global trade policy and economic policy uncertainty(Index)01002003004005006000200400600800100012001400May-15Oct-15Mar-16Aug-16Jan-17Jun-17Nov-17Apr-18Sep-18Feb-19Jul-19Dec-19May-20Oct-20Mar-21Aug-21Jan-22Jun-22Nov-22Apr-23Sep-23Feb-24Jul-24Dec-24May-25Trade policy uncertaintyEconomic

96、policy uncertainty(RHS)Sources:Caldara et al.(2020);Davis,S.J.(2016);World Bank staff calculations.Note:Economic policy uncertainty index is to March 2025.3.Global commodity prices are projected to decline in 2025 and converge to pre-COVID levels over the medium-term.Commodity prices plummeted in Ap

97、ril 2025 reflecting deteriorating growth prospects.Oil prices noted a particularly significant decline,driven by an increase in oil production by OPEC+countries,alongside a weakening outlook for demand.Overall commodity prices are projected to decline by 12 percent in 2025,with a further decline in

98、2026(Figure 1.3).The easing of global commodity prices,including significant declines in energy and food prices,poses challenges for PNGs economy,which heavily relies on commodity exports for growth,fiscal revenue and foreign exchange reserves.While the decline in prices may help reduce import costs

99、,it could also lead to reduced export revenues,impacting GDP growth and the trade balance.These dynamics are explored in detail in the Outlook section.4.While inflation has been easing,it generally remains elevated in comparison to central bank targets and pre-pandemic averages,and the outlook is un

100、certain due to a combination of shocks(Figure 1.4).This is especially pertinent to PNG because a significant portion of the goods included in its consumer basket,which is used to measure inflation,are imported.In advanced economies,inflation has risen since late last year.Implementation of trade res

101、trictions primarily explain the recent dynamics of consumer inflation expectations.On a GDP-weighted basis,global inflation is not projected to reach levels consistent with average inflation targets until 2027,when it is anticipated to ease to 2.7 percent.Nonetheless,there is considerable variation

102、across countries.In emerging markets and developing economies(EMDEs),inflation projections for 2025 have been adjusted slightly downward because of softening demand for traded goods.Conversely,in AEs,and particularly in the US,inflation projections have been revised significantly upwards(World Bank

103、2025c).17Figure 1.3 Global commodity prices(Index:2015-19 average=100)Figure 1.4 Consumer price inflation(Percent)5010015020025020182019202020212022202320242025f2026fCommoditiesEnergyMetals and mineralsAgriculture012345678WorldAEEMDEEAPPre-COVIDPost-COVID2025-26fSource:World Bank 2025b.Source:IMF.5.

104、Global financial conditions remain tight.Depending on the policy adjustments,if inflation remains high or escalates,it could lead to the persistence of elevated central bank interest rates or necessitate further hikes(Figure 1.5).Tight global financial conditions could lead to cross-country interest

105、 rate differentials,triggering capital outflows and further tightening financial conditions,especially in emerging markets(IMF 2025).A sharp deterioration might cause the US dollar to appreciate and,given PNGs crawling peg to the USD,this may lead to higher import costs and pressure on the kina,pote

106、ntially affecting inflation and trade balances.Additionally,USD-denominated debt servicing costs could rise,impacting fiscal stability,while commodity exporters like PNG face downside risks from declining commodity prices.Figure 1.5 Policy rates across major economies and PNG(Percent)Sources:Bank fo

107、r International Settlements,Bank of PNG.186.Risks to the global outlook are tilted to the downside as continued policy uncertainty poses a threat to global trade,investment,and economic activitypotentially clouding the outlook for PNG.Policy uncertainty and trade barriers could further erode consume

108、r and business confidence,diminishing demand.Other risks to global growth include persistent inflation in the services sector,which could exacerbate price pressures beyond the effects of trade barriers or fiscal spending.Some major economies might face a combination of these risks,leading to a weake

109、r growth outlook and substantial negative global impacts.Additionally,increased geopolitical tensions and more frequent and intense natural disasters could further hinder growth.On a positive note,global growth could exceed projections if the policy uncertainty has less of an impact,and with a signi

110、ficant boost from technology-driven investment.19PNG has been benefiting from favorable commodity prices,which have contributed to an increased share of the extractive sector in the countrys overall economic output.However,this reliance on natural resources also introduces greater volatility,posing

111、potential concern.1 Like other economies dependent on natural resources,PNG is vulnerable to external shocks,particularly those stemming from fluctuations in global commodity markets.Growth remained robust and above the historical average in 2024,primarily supported by the non-resource sector.Resour

112、ce sector growth was modest,despite favorable prices and the reopening of the Porgera gold mine,as it operated below anticipated capacity.Headline inflation slowed,mainly due to a drop in betel nut prices,but core inflation rose to 3.3 percent as the impact of education subsidies dissipated,and tran

113、sportation costs rose.1.2.1 Growth 7.PNGs economy grew at a similar pace in 2024 compared to 2023.After GDP surpassed its pre-pandemic level in 2023,GDP growth increased to 3.8 percent in 2024,similar to the 2023 growth rate and slightly below the structural peer average of 4.2 percent(Figures 1.6 a

114、nd 1.7).The resource sector,supported by the reopening of the Porgera gold mine,is expected to have grown by 1.7 percent.Non-resource sector growth is estimated at 4.5 percent,supported by improved access to foreign exchange during the year.Social unrest in Port Moresby in early January reduced GDP

115、growth slightly,but this was offset by improving resource sector performance and high global commodity prices in key exports.1.2 Recent Economic Developments in PNG1PNG experienced the largest economic growth volatility in the world since the 1980s,except for a few structural peers,characterized by

116、heavy dependence on natural resources.The extractive sector has been the most volatile,followed by construction,which is heavily linked to the infrastructure development for resource projects(see Papua New Guinea Country Economic Memorandum 2023 for more details).Figure 1.6 PNG real GDP growth and s

117、ectoral contribution(Percent and percentage point contributions)Figure 1.7 PNG real GDP growth compared to peers(Percent)Sources:National Statistics Office(NSO),International Monetary Fund(IMF),and World Bank staff calculations.Sources:NSO,IMF,and World Bank staff calculations.Note:2015-2019 and 202

118、0-2022 are averages.All peers refer to structural peers of PNG.208.While Porgera gold mines reopening boosted growth in the resource sector,it operated below expected capacity in 2024,leading to a downgrade in resource sector growth.Lower production levels at Porgera and the Lihir gold mines led to

119、softer-than-expected growth in the resource sector,with the Porgera mine estimated to have operated at only 45 percent capacity in 2024 due to operational disruptions.Estimates in the Treasurys Mid-Year Economic and Fiscal Outlook had assumed the mine would operate at 53 percent of its pre-shutdown

120、annual production capacity.Despite lower-than-expected production levels,improved gold export volumes and soaring gold prices led to strong gold exports(Figures 1.8 and 1.9).2 Resource sector performance was also supported by slightly higher crude oil exports,as well as strong copper export performa

121、nce(Figures 1.8 and 1.9).Meanwhile,the value of condensates and LNG exports fell.The ramping up of production at the Porgera gold mine is expected to continue into 2025 and result in higher gold production.9.Growth in the non-resource sector in 2024 was bolstered by a combination of factors,includin

122、g increased agricultural production and higher agricultural commodity prices.Strong growth in the agriculture,forestry and fishing(AFF)sector was supported by high commodity prices,particularly for cocoa,coffee,palm oil,and copra oil(Figure 1.42 in the External Sector section).However,there were dow

123、ngrades to palm oil and cocoa production which were affected by poor weather,though cocoa exports benefitted from soaring cocoa prices(Figure 1.11).Non-resource sector growth was resilient to headwinds during the year(such as the January 2024 social unrest),persistent business impediments(such as fu

124、el shortages),and the pass-through of tighter monetary policy.Throughout the year,despite improvements,ongoing foreign exchange shortages continued to create uncertainty and hinder private sector investment.-30-20-100102030Oil(000 barrels)Nickel(tonnes)Cobalt(tonnes)LNG(TBtu)Condensate(MB)Gold(tonne

125、s)Copper(tonnes)-40-30-20-100102030405060GoldCopperNickelCobaltCrude OilLNGCondensatesFigure 1.8 Exports of minerals by volume(Percent change,2023-2024)Figure 1.9 Exports of minerals by value(Percent change,2023-2024)Source:Bank of PNG.Note:MB=millions of barrels;TBtu=trillions of Btu.Source:Bank of

126、 PNG.22024 GDP data by sub-sector is not available,and exports data is used as a proxy to assess sector performance.2110.Employment grew by an average of 1.4 percent in 2024,with the final three quarters of 2024 experiencing increases in formal employment(Figure 1.12).Despite disruptions early in 20

127、24 due to social unrest,formal employment in 2024 benefitted from growth in the resource sector and in the manufacturing,transport,and retail trade(Figure 1.12).Employment in the retail trade sector declined between the first and second quarters due to social unrest but recovered in the latter half

128、of the year(Figure 1.13).The resource sector recorded strong employment growth,increasing 10.9 percent on average,largely due to recruitment by the Porgera gold mine as it recommenced production.Conversely,average employment in the AFF sector declined in 2024 by 3.2 percent,partly attributable to se

129、asonal workers being laid off in palm oil,coffee,and cocoa industries.In the first quarter of 2025,most trends from 2024 continued,with the notable exception of the construction sector,which experienced a strong rebound in employment,reversing a persistent downward trend that began in 2022.-14-2039-

130、28-1322160-223-50050100150200LogsPalm OilCopraCoffeeTeaCopra OilMarine productsRubberCocoa607080901001101201302020 Q12020 Q32021 Q12021 Q32022 Q12022 Q32023 Q12023 Q32024 Q12024 Q32025 Q1AgricultureManufacturingTransportationMining and petroleumTotal188-1872142088-50050100150200CocoaCoffeeCopra and

131、copra oilPalm oilTotalMarine products607080901001101201302020 Q12020 Q32021 Q12021 Q32022 Q12022 Q32023 Q12023 Q32024 Q12024 Q32025 Q1ConstructionWholesale tradeRetail tradeFinance,business,other servicesFigure 1.10 Exports of agricultural commodities by volume(Percent change,2023-2024)Figure 1.12 T

132、otal employment in the formal sector(Index,Q4 2019=100)Figure 1.11 Exports of agricultural commodities by value(Percent change,2023-2024)Figure 1.13 Formal employment in services sectors(Index,Q4 2019=100)Source:Bank of PNG.Source:Bank of PNG.Source:Bank of PNG.Source:Bank of PNG.221.2.2 Inflation11

133、.Core and headline inflation displayed diverging trends in 2024,with core measures of inflation remaining elevated while headline inflation decelerated sharply(Figure 1.14).Core measures of inflation(Annex 2)the National Statistical Office(NSO)exclusion-based measure and the BPNG trimmed mean stood

134、at 6.4 and 3.3 percent,respectively.The NSO exclusion-based measure increased from 2.1 percent in 2023 as the depreciating kina led to price increases across imported tradeable goods.Meanwhile,headline inflation was subdued at 0.6 percent as betel nut prices fell sharply early in the year due to ove

135、rsupply in Port Moresby.This outweighed the increases in the price of food and non-alcoholic beverages,clothing and footwear,and transport(Figure 1.15).Large swings in the betel nut price over 2024 and early 2025 drove much of the variation in headline inflation.3 Accelerating headline inflation in

136、the first quarter of 2025 reflects the rebound in the betel nut price,as well as increases in food prices,while core inflation moderated as monetary tightening put downward pressure on prices.-2.0-1.00.01.02.03.04.05.06.07.08.02022 Q12022 Q32023 Q12023 Q32024 Q12024 Q32025 Q1HeadlineNSO Exclusion-ba

137、sedBPNG trimmed mean-4.0-2.00.02.04.06.08.02022 Q32022 Q42023 Q12023 Q22023 Q32023 Q42024 Q12024 Q22024 Q32024 Q42025 Q1FoodTobacco&betelnutClothingHousingTransportCommunicationEducationOthersFigure 1.14 PNG inflation(Percent,year-on-year)Figure 1.15 Contributions to PNG inflation(Contribution to he

138、adline inflation,percent,year-on-year)Source:National Statistical Office.Note:NSO Exclusion-based refers to the CPI measure as calculated by the NSO that excludes seasonal,excise,and price control items.Source:National Statistical Office.3Betel nut prices do not form part of the food and beverages c

139、ategory in inflation statistics.Rather,they are counted separately as part of the Alcoholic beverages,tobacco and betel nut category.12.PNGs downward inflation trajectory broadly aligns with import source countries and its peers(Figures 1.16 and 1.17).Among major import partners,inflation continued

140、to moderate in 2024,supported by a decline in global commodity prices.While inflation rates in Australia and the US dropped,both remained above central bank targets.Inflation among Asian partner economies was subdued,particularly in China where inflation fell to 0.2 percent in 2024.Inflation trends

141、in PNG diverged from trading partners in late 2023 and 2024 due to domestic consumer basket changes and the depreciating kina.The rise in inflation in early 2025 was mainly driven by the increasing price of betel nut,a domestic factor.23-2.00.02.04.06.08.010.02021 Q42022 Q22022 Q42023 Q22023 Q42024

142、Q22024 Q4AustraliaSingaporeUSAChinaMalaysia-2.00.02.04.06.08.010.012.014.016.018.02021 Q42022 Q12022 Q22022 Q32022 Q42023 Q12023 Q22023 Q32023 Q42024 Q12024 Q22024 Q32024 Q42025 Q1AustraliaSolomon IslandsMalaysiaPapua New GuineaMongoliaTimor-LesteFigure 1.16 Import partner headline inflation(Year-on

143、-year,percent)Figure 1.17 Peer headline inflation compared to PNG(Year-on-year,percent)Source:IMF.Source:IMF,National Statistical Office24Box 1.1 Economic sentiments of Papua New GuineansThe World Banks High Frequency Phone Surveys(HFPS)data is used to analyze trends in economic sentiment,which may

144、reflect household welfare trends more broadly than the current CPI.While the official CPI data collection would be a more precise representation of price changes for urban centers than the HFPS,the HFPS data can be a useful complement due to its broader geographic coverage,with approximately three q

145、uarters of the sample being rural.In addition,the CPI data is based on data from around fifteen years ago(2009/10 HIES),which does not capture the current expenditure patterns and basket of urban consumers.CPI data shows that food inflation is still significant,which is consistent with most househol

146、ds reporting in the phone surveys,that prices are rising too quickly.An examination of price data from the HFPS for 2023 and 2024 reveals that households have experienced price increases for essential items,such as rice.This corresponds to the CPI data,which indicates a 10 percent national rise in r

147、ice prices from the December 2023 quarter to December 2024 quarter.Additionally,the HFPS data includes household responses regarding whether prices for their purchases“grew too fast over the past 30 days”,with a 50-70 percent“completely agreeing”with that statement across 2024.This reflects a mismat

148、ch between moderating inflation and consumer sentiment,which may be more closely associated with food price inflation.0%2%4%6%8%10%12%14%16%18%20%May-23Jun-23Jul-23Aug-23Sep-23Oct-23Nov-23Dec-23Jan-24Feb-24Mar-24Apr-24May-24Jun-24Jul-24Aug-24Sep-24Oct-24Nov-24Dec-24Jan-25Feb-25Mar-25Change in rice p

149、rices paid by households,relative to April 202340%45%50%55%60%65%70%75%80%Dec-23Jan-24Feb-24Mar-24Apr-24May-24Jun-24Jul-24Aug-24Sep-24Oct-24Nov-24Dec-24Jan-25Feb-25Mar-25Figure B.1.1 Change in rice prices paid by households,relative to April 2023(Percent)Figure B.1.2 Percentage of households that co

150、mpletely agree“prices have gone up too fast in the past 30 days”(Percent)Source:World Bank staff calculations using Pacific Observatory HFPS data.Source:World Bank staff calculations using Pacific Observatory HFPS data.The World Banks Pacific Observatory collects innovative socio-economic data in PN

151、G and other Pacific Island countries,to address data gaps and promote evidence-based policy making.This includes the HFPS,which,starting from April 2023,have been collected in PNG for approximately 550 to 1,000 households a month,with a panel established in October 2023 and continuing to June 2025.T

152、opics covered include food security,food prices,economic perceptions,and jobs.Note:Data sets and an interactive dashboard are available at https:/www.worldbank.org/en/country/pacificislands/brief/the-pacific-observatory25Figure 1.18 KFR rate over time and peers(Percentage points)Source:Central banks

153、 of respective countries.4Secondary objectives include ensuring financial stability;promoting sustainable medium term economic growth,especially in the non-mineral and non-petroleum sector;and promoting the development of Papua New Guineas financial system.012345678920212022202320242025AustraliaIndo

154、nesiaMalaysiaPeruPNG1.2.3 Monetary Policy and the Financial Sector 14.There were several institutional and operational reforms at the BPNG during 2024.The MPC was created by amendments to the Central Banking Act,which was passed in September 2024,and is supported by an IMF program.The amendments to

155、the Central Banking Act and creation of the MPC strengthened the independence of the BPNG and clarified its objectives,placing price stability as the primary objective.4 The MPC is solely tasked with conducting monetary policy,with the Board of the BPNG retaining its oversight function.The amendment

156、s also limited the provision of monetary advances to the government.Other reforms included the introduction of an interest rate corridor to better manage liquidity,and reserve averaging for commercial banks to strengthen monetary policy transmission.The BPNG shifted to a crawl-like exchange rate arr

157、angement in early 2024(details in the External Sector section).1.2.3 Monetary Policy and the Financial Sector 13.Monetary policy has been responding to the economic conditions,with the Kina Facility Rate(KFR)ending 2024 at 4.0 percent,where it has remained as of June 2025(Figure 1.18).The BPNG lower

158、ed the KFR from 2.5 percent in November 2023 to 2.0 percent in February 2024 to stimulate economic activity following the civil unrest earlier in the year.However,in its March 2024 monetary policy statement,the BPNG pivoted to a tightening stance in anticipation of inflationary pressures stemming fr

159、om expected exchange rate depreciation.From May to September,the KFR was raised by 200 basis points,from 2.0 percent to 4.0 percent,ending the year at that level.In the second meeting of the newly established Monetary Policy Committee(MPC)in June 2025,the BPNG held the policy rate steady,noting that

160、 inflationary pressures had moderated,although potential inflationary risks from external sources and exchange rate depreciation persisted.At the same time,it lowered the cash reserve requirement(CRR)by 100 basis points to 10 percent to more-evenly redistribute liquidity in the financial system,part

161、icularly to liquidity-constrained banks.26-12-8-4048121620242021 Q42022 Q22022 Q42023 Q22023 Q42024 Q22024 Q4NFANet claims on governmentClaims on private sectorOther domestic claimsOtherBroad money05001,0001,5002,0002,5003,00020202021202220232024Figure 1.19 Broad money supply and its determinants(Bi

162、llions of kina,percent)Figure 1.20 Excess reserves of depository corporations(Millions of kina)Source:Bank of PNG.Note:NFA=net foreign assetsSource:IMF(2025).15.Broad money sharply decreased in 2024 by 6.4 percent,reflecting the tightening monetary policy(Figure 1.19).The fall reflects BPNG interven

163、tions in money markets by tightening liquidity conditions,foreign exchange interventions to meet the backlog of orders and support the exchange crawl,and the monetary tightening which began in Mayall of which accelerated the decline in broad money in the second half of the year.The primary component

164、s driving the fall in broad money were a decline in net claims on government,resulting from the narrowing fiscal deficit and repayment of domestic debt;and net foreign assets,owing to the drawdowns associated with the central banks foreign exchange interventions.16.The central bank started to achiev

165、e success in its efforts to reduce excess liquidity in the financial sector(Figure 1.20).Both excess reserves of depository corporations at the central bank and commercial bank holdings of liquid assets of kina declined in 2024.The decrease in liquidity was driven by BPNGs implementation of the fixe

166、d-rate full-allotment auction for 7-day central bank bills,increasing the CRR from 10 percent to 12 percent in June 2024,introducing a mid-rate corridor on the KFR,partial reserve averaging,and extending the lagged maintenance period to provide more flexibility for commercial banks to manage their r

167、eserves.The increase in the KFR from May 2024,along with the continued crawl-like arrangement for the kina,also reduced liquidity in the financial sector.In 2025,between March and June,the MPC lowered the CRR from 12 percent to 10 percent to address liquidity imbalances among banks and strengthen th

168、e monetary policy framework by encouraging a more balanced distribution of liquidity throughout the banking system.2702468101214161820051015202530352018201920202021202220232024Net claims on central governmentNet claims on private sectorOther claimsPrivate sector growth(RHS)-10%-5%0%5%10%15%AFFManufa

169、cturingTransportFinanceCommerceConstructionExtractiveReal estateOtherGovernmentPersonsFigure 1.21 Domestic credit in PNG(Billions of kina,percent)Figure 1.22 Growth in commercial bank loans by sector in 2024,compared to 2023(Percent)Source:Bank of PNG.Note:Credit is from depository corporations.Sour

170、ce:Bank of PNG.Note:AFF=Agriculture,forestry and fishing.17.Net private sector credit growth slowed to 3.2 percent in 2024 compared to 17.3 percent growth in 2023(Figure 1.21).Growth significantly slowed in the latter half of 2024,as increasing interest rates and liquidity restrictions in the market

171、 led to commercial banks pulling back on lending.Over 2024,the sectors that received the highest growth in commercial credit were manufacturing,real estate,and the extractive sector(Figure 1.22).On the other hand,commercial bank credit to the government fell by 8.6 percent in 2024,reflecting the tig

172、hter liquidity conditions.1015202530354045502020 Q42021 Q42022 Q42023 Q42024 Q4Regulatory capital to RWAT1 capital to RWA3.54.04.55.05.56.06.52020 Q22020 Q42021 Q22021 Q42022 Q22022 Q42023 Q22023 Q42024 Q22024 Q4Figure 1.23 Regulatory capital (percent)Figure 1.24 Non-Performing Loans(NPLs)(Percent)S

173、ource:Bank of PNG.Note:RWA=risk-weighted assets;T1=Tier 1.Source:Bank of PNG.280.05.010.015.020.025.030.020082009201020112012201320142015201620172018201920202021202220232024RevenueExpenditureLinear(Revenue)Linear(Expenditure)-10-8-6-4-20240102030405060201020112012201320142015201620172018201920202021

174、202220232024Public debtFiscal balance(RHS)Figure 1.25 Government revenue and expenditure(Percent of GDP)Figure 1.26 Fiscal balance and public debt (percent of GDP)18.The financial sector remains sound,with robust liquidity,capital,and profitability metrics recorded in 2024.Regulatory capital to risk

175、-weighted assets and the Tier 1 capital to total asset ratio increased in 2024 compared to 2023(Figure 1.23).These improvements are attributable to increased levels of retained earnings at commercial banks,as well as conservative dividend policies preserving capital.Liquidity levels also remain comf

176、ortable.NPLs declined,reflecting improved conditions in key economic sectors such as agriculture and mining,and better provisioning(Figure 1.24).Table 1.1:Selected monetary and price indicators(Percent of GDP)2018201920202021202220232024Broad money growth-3.94.47.011.814.811.5-6.4Net claims on the p

177、rivate sector7.14.04.30.46.917.33.2Inflation,period-average4.43.94.94.55.32.30.6Inflation,end-of-period4.82.75.15.73.43.90.7Kina Facility Rate,period average6.35.93.53.03.13.32.9Interest rate on 28-day CBB,period average1.41.41.41.31.42.32.8Interest rate on 182-day T-bills,period average4.74.74.64.0

178、2.02.03.8Deposit rate,weighted average,period averagea0.70.90.90.50.30.30.3Lending rate,weighted average,period averageb9.18.77.87.68.08.48.3Source:Bank of PNG.Note:a=weighted average of deposits at commercial banks;b=weighted average of loan advances at commercial banks.1.2.4 Fiscal and Debt Dynami

179、cs 19.The COVID-19 pandemic intensified existing fiscal challenges in PNG.PNGs fiscal situation is characterized by significant challenges on the revenue,expenditure,and financing fronts,compounded by a high risk of debt distress.Fiscal revenues declined by approximately 5 percent of GDP in the deca

180、de before COVID-19(2010-2019),while expenditure remained broadly unchanged(Figure 1.25).As a result,the fiscal deficit has been deteriorating and debt increasing(Figure 1.26).Despite a strong post-COVID rebound,and efforts by the Government of Papua New Guinea(GoPNG)towards fiscal consolidation,reve

181、nues have stayed about 4 percent of GDP lower than in 2010,while expenditures increased by 2 percent of GDP,leading to a persistent fiscal deficit.PNGs public debt and fiscal deficit are higher than more than half of its structural and regional peers.Sources:Country authorities,IMF and World Bank st

182、aff calculations.2920.More recently,the fiscal deficit has continued to narrow(Figures 1.27 and 1.28).Expenditure rationalization is anticipated to have been the main contributor to the narrowing of the fiscal deficit to 3.2 percent of GDP in 2024,down 1.1 percentage points from 2023.The governments

183、 fiscal consolidation plan has successfully reduced the fiscal balance since the pandemic,bringing it down to just over one third of the fiscal deficit recorded in 2020.Total expenditure declined to 20.4 percent of GDP in 2024,driven by decreases in spending on goods and services,compensation of emp

184、loyees,and capital expenditure.Total revenue is estimated to have decreased slightly to 17.1 percent of GDP.This was mostly driven by lower tax revenue,due to a decline in goods and services tax due to base effects in 2023 and lower mining and petroleum taxes.The fiscal deficit in 2024 was funded pr

185、imarily through external financing,due to reduced demand domestically for government debt resulting from monetary tightening from the BPNG.Figure 1.27 Fiscal balances(Percent of GDP)Figure 1.28 Composition of government revenue(Percent of GDP)Sources:Treasury Department of PNG,IMF and World Bank sta

186、ff calculations.21.PNG has struggled to implement countercyclical policies in recent years and has less fiscal space than many of its peers(Figure 1.29).In 2020,during the onset of the COVID-19 pandemic,when the output gap turned negative,the government adopted a countercyclical fiscal stance,implem

187、enting necessary spending to mitigate the downturn.The gradual narrowing of the fiscal deficit since 2021 reflects a tightening fiscal stance,with fiscal consolidation post-pandemic being largely procyclical when the authorities implemented countercyclical fiscal tightening(Figure 1.30).The tighteni

188、ng occurred in the context of a negative output gap,meaning the budget exacerbated economic fluctuations rather than playing a stabilizing role during these years.Fortunately,in 2024,the fiscal stance switched to countercyclical fiscal tightening,similar to the consolidation episode,between 2014-201

189、8,which occurred against a positive output gap,implying a broadly countercyclical fiscal stance(Figure 1.31).-10-9-8-7-6-5-4-3-2-102018202020202021202220232024eOverall balancePrimary balanceNon-resource primary balance04812162020202021202220232024eTaxGrantsResource dividendsOther30High debtLow fisca

190、l stressHigh debtHigh fiscal stressLow fiscal stressLow debtHigh fiscal stress-15-10-50510152025050100150200250Fiscal balance,percent of GDPPublic debt,percent of GDPOtherAspirationalStructuralRegionalPapua New GuineaNote:The lines represent the first and third quartiles.Source:WEOLow debt-6-4-20246

191、820142015201620172018201920202021202220232024Contraction of revenuesExpansion of expenditureOutput gap,%of potential GDPFiscal impulseFigure 1.30 Fiscal impulse and output gap(Percent of GDP)Figure 1.29 Public debt and fiscal balance (Percent of GDP)Figure 1.31 Overall fiscal procyclicality(percent)

192、Source:World Bank staff calculations.Source:World Bank staff calculations.Source:IMF and World Bank staff calculationsNote:The lines represent the first and third quartiles.20142015201620172018201920202021202220232024-6-4-202468-4-3-2-10123Output gap,percent of potential GDPChange in cyclically adju

193、sted primary balance,percent of GDPProcyclical fiscallooseningCountercyclicalfiscal looseningCountercyclicalfiscal tighteningProcyclical fiscaltightening3122.Revenue decreased slightly in 2024 on the back of lower tax revenue.The decrease in tax revenue stemmed from lower income and corporate tax re

194、turns,as well as decreases in GST receipts(Figure 1.32).Income and profit tax returns fell by 0.4 percentage points of GDP,reflecting lower collections from mining and petroleum companies,while GST receipts fell by 0.8 percentage points.Non-tax revenues were also lower than expected due to the phase

195、d compliance approach of the Non-Tax Revenue Administration Act(Figure 1.33).Despite the dip in 2024,since 2020 revenue has benefitted from a rebound in taxes on income,profit,and capital gains,which increased from 6.9 percent of GDP in 2020 to 10.2 percent of GDP in 2024.Meanwhile,resource revenue

196、since the pandemic has been boosted by higher tax receipts,supported by high commodity prices from mining and petroleum,and has increased from 0.2 percent of GDP in 2020 to 3.5 percent of GDP in 2024.Nonetheless,government revenue collections were sluggish in 2024final government revenues came in at

197、 89.0 percent of budgeted total revenue for 2024.Dividends from the resource sector also fell short of expectations,achieving only a 62 percent execution rate.Similarly,statutory transfers did not meet expectations,attributable to the grace period of implementing the Non-tax Revenue Administration A

198、ct.23.Government expenditures declined in 2024,continuing a trend since the pandemic(Figure 1.34).PNGs expenditure as a percentage of GDP has kept below the median of structural peers(Figure 1.35),and fiscal consolidation through streamlining spending on public wages and goods and services has led t

199、o expenditures falling by 3.1 percentage points of GDP from 2020.The government,as part of its medium-term fiscal repair strategy,has implemented measures to contain current expenditure,including through improving expenditure efficiency and containing spending on payroll.This has yielded benefits,wi

200、th the spending on public wages and goods falling by 0.4 percentage points of GDP from 2023 to 2024,and spending on goods and services falling by 0.8 percentage points.Capital expenditure execution remains a challenge,with an execution rate of 66 percent in 2024less than the 10-year average executio

201、n rate.Debt servicing costs remain high,accounting for 14.5 percent of GDP in 2024 due to the high level of public debt,with interest expenses estimated at 2.4 percent of GDP.At the end of 2024,the government spending execution rate was 90.4 percent of the 2024 budget estimate.Amid revenue shortfall

202、s and GoPNGs commitments to fiscal consolidation,the government had to reprioritize spending during the year,resulting in significant reductions in capital expenditure compared to the budget.0123420202021202220232024eGrantsOther revenueMining,petroleum and gas dividendsFigure 1.32 Breakdown of tax r

203、evenue over time(Percent of GDP)Figure 1.33 Breakdown of non-tax revenue over time(Percent of GDP)Sources:Treasury Department of PNG,IMF and World Bank staff calculations.036912151820202021202220232024eIncome,profit and cap.gainsGoods and servicesInt.trade/transactions3224.Public debt decreased in 2

204、024,falling 4.5 percentage points to 49.4 percent of GDP(Figure 1.36).Of this,51.6 percent was domestically held.PNGs public debt is below the average of EMDEs and has only decreased slightly since it spiked during the pandemic,due to countercyclical fiscal loosening.PNGs public debt does,however,re

205、main higher than its structural peers(Figure 1.37).As part of the GoPNGs ongoing fiscal consolidation efforts,the 2024 budget introduced changes to the Fiscal Responsibility Act to lower the maximum debt-to-GDP ceiling to 57.5 percent,from 60.0 percent previously.25.PNGs overall and external public

206、debt continues to be at high risk of distress as assessed by the joint IMF-World Bank Debt Sustainability Analysis(June 2025).External debt risk is elevated due to liquidity risks associated with the upcoming bullet payment on the existing US$500 million Eurobond due in 2028.Paying the entire princi

207、pal at once poses significant rollover risks for the PNG economy.S&P Global concurred that although PNGs fiscal situation is stable,as the economy continues its consolidation efforts,any fiscal,external,or institutional risks could negatively impact the countrys debt serviceability and thus its cred

208、it rating.5 The GoPNG is aiming to address these vulnerabilities through changes in debt structure,such as through retiring domestic debt,lengthening debt maturities and attempting to secure more concessional financing.These form part of the GoPNGs new Medium-Term Debt Strategy(MTDS)which is focused

209、 on reducing debt vulnerabilities,lowering borrowing costs,and improving debt sustainability(Annex 3).Contingent upon the successful implementation of the GoPNGs planned fiscal consolidation and conservative financing strategies,public debt is assessed as sustainable.5S&P Global Ratings for PNG(2025

210、).https:/ and salariesInterestGoods and servicesOthersCapital expenditure010203040506020202021202220232024e2025fDomesticExternalTotal debtFigure 1.34 Government expenditures(Percent of GDP)Figure 1.36 Public debt (Percent of GDP)Figure 1.35 Expenditure in 2024 against structural peers (Percent of GD

211、P)Figure 1.37 Public debt against peers(Percent of GDP)020406080100PNGRepublic of CongoLao P.D.R.MauritaniaMongoliaSolomon IslandsUzbekistanZambiaTimor-LesteMedian3040506070802018201920202021202220232024e2025fPapua New GuineaPacific IslandsSE AsiaEMDEsStructural peers*Sources:Treasury Department of

212、PNG,IMF and World Bank staff calculations.Sources:IMF,Treasury Department of PNG and World Bank staff calculations.Sources:IMF,World Bank staff calculations,Treasury Department of PNG.Note:*Structural peers include Lao PDR,Republic of Congo,Mauritania,Mongolia,Solomon Islands,Timor-Leste,Uzbekistan,

213、and Zambia.33Table 1.2:Selected fiscal indicators(Percent of GDP)20202021202220232024Total government revenue14.715.116.617.917.1 o/w Tax revenue11.912.114.815.915.2 Resource tax revenue0.20.73.63.53.5 Non-resource tax revenue11.711.411.212.411.7 o/w Grants1.72.31.31.01.0Government expenditure23.522

214、.021.922.320.4 Expense19.318.017.919.017.5 o/w Wages and salaries7.16.75.86.35.9 o/w Interest2.62.52.32.52.4 Net acquisition of non-financial assets4.34.04.03.32.8Primary balance-6.2-4.4-2.9-1.8-0.8Overall balance-8.9-6.8-5.3-4.3-3.2Gross government debt48.752.648.253.949.4Sources:IMF,Treasury Depar

215、tment of PNG,and WB staff calculations.1.2.5 External Sector 26.The current account remained in surplus in 2024,widening from US$2.8 billion in 2023 to US$4.8 billion in 2024(Figure 1.38).This represents approximately 15.1 percent of GDP in 2024,an increase from 9.1 percent of GDP in 2023.The increa

216、se in the surplus was driven by a 4.3 percent increase in goods exports and a 13.5 percent decline in goods imports due to foreign exchange shortages and monetary tightening.Combined,these led to a 27.8 percent increase in the trade surplus to US$6.4 billion.A fall in services imports of 15.6 percen

217、t,and a decrease in primary income going abroad of 17.1 percent,reflecting the depreciating kina and lower exchange rate inflows linked to foreign exchange shortages,also helped improve the current account.The expansion of the financial account was driven by an increase in direct net investments,whi

218、ch increased to US$1.0 billion,and other net investment in the form of private capital flows,which increased to US$3.7 billion(Figure 1.39).Factors driving these movements include the outflow of funds from offshore foreign currency accounts for investments and debt service payments on external loans

219、 from mineral companies and the government.-6,000-5,000-4,000-3,000-2,000-1,00001,0002015201620172018201920202021202220232024Direct investmentPortfolio investmentOther investmentFABFigure 1.38 Current account balance and composition(US$million)Figure 1.39 Financial account balance and composition (U

220、S$million)Source:Bank of PNG.Note:CAB=current account balance.Source:Bank of PNG.Note:FAB=financial account balance-6,000-4,000-2,00002,0004,0006,0008,00010,0002015201620172018201920202021202220232024GoodsServicesPrimary incomeSecondary incomeCAB3428.Commodity prices rose strongly in both PNGs miner

221、al and non-mineral sectors in 2024(Figure 1.42),while export volumes increased among mineral categories and fell among non-minerals(Figure 1.43).The average export price index was almost 30 percent higher in 2024 compared to 2023,with prices in both non-minerals and minerals generally increasing ove

222、r the year.Over 2024,the average prices of several commodities exhibited strong growth,particularly cocoa,palm oil,gold,and copper.The performance of these specific commodity indices stands at odds to the subdued global growth in commodity prices in 2024.The average global commodity price index decl

223、ined 2.7 percent in 2024,with notable falls in crude oil and LNG prices.By volume,average non-extractive export volumes fell in 2024,down 1.7 percent compared to 2023 as a result of lower coffee and palm oil export volumes(Figure 1.43).Meanwhile,extractive export volumes rose 22.9 percent,driven by

224、the reopening of the Porgera mine.The first quarter of 2025 saw strong export price growth across both non-extractive and extractive commodities,while volumes among both non-extractive and extractive categories fell.27.Exports grew strongly in 2024,driven by both mineral and agricultural exports(Fig

225、ure 1.40),supported by the depreciating kina and generally high commodity prices.Total goods exports in 2024 were 4.3 percent higher than in 2023,totaling US$13.4 billion,or 42.5 percent of GDP.The growth in exports was driven by agricultural and other exports,including gold and copper(Figure 1.41).

226、There was a surge in gold exports because of the Porgera mine reopening,increasing 39.8 percent in 2024,compared to 2023.On the other hand,the value of LNG exports fell in 2024 due to falling prices,while nickel exports plummeted as a result of decreased production at major mines and large declines

227、in the global nickel price.Overall,the value of mineral exports increased by a modest 2.3 percent.The growth in agricultural exports was largely price-driven and attributable to a substantial increase in cocoa exports,which more than doubled.This reflects a surge in cocoa prices in 2024,with the ave

228、rage price in 2024 over two-and-a-half times higher than the average price across 2023.Agricultural exports were further bolstered by palm oil,also owing to higher prices,and higher volumes of marine products.The first quarter of 2025 saw a slight dip in total goods exports,driven by falling copper,

229、crude oil and agricultural exports.Figure 1.40 Export composition and growth rate(US$million and y-o-y growth rate)Figure 1.41 Sectoral contributions to export growth (Percent)Source:Bank of PNG.Source:Bank of PNG.-30%-20%-10%0%10%20%30%40%201920202021202220232024Palm oilCoffeeLogsGoldCopperNickelLN

230、GCrude oilOthers-20%-10%0%10%20%30%40%02,0004,0006,0008,00010,00012,00014,00016,000201920202021202220232024Palm oilCoffeeLogsGoldCopperNickelLNGCrude oilOthersExport growth(RHS)35-30-20-100102030402018201920202021202220232024ExtractiveNon-extractiveTotal01,0002,0003,0004,0005,0006,0007,0002019202020

231、21202220232024FoodManufacturingChemicalsMachinery and transportMineral fuelsOthers-20%-10%0%10%20%30%40%201920202021202220232024FoodManufacturingChemicalsMachinery and transportMineral fuelsOthersTotal import growthFigure 1.42 Export price growth(Percent)Figure 1.44 Import composition(US$million)Fig

232、ure 1.43 Export volume growth(Percent)Figure 1.45 Contributions to import growth(Percent,year-on-year)Source:Bank of PNG.Source:Bank of PNG.Source:Bank of PNG.Source:Bank of PNG.29.In 2024,there was a decline in imports compared to 2023,with reductions noted across all categories(Figure 1.44).Total

233、goods imports for 2024 were US$4.7 billion(14.9 percent of GDP),down from 17.5 percent of GDP in 2023.Notable decreases include food and live animal imports,industry inputs such as mineral fuels,lubricants and chemicals,and manufactured goods(Figure 1.45).The slowdown in imports is due to the deprec

234、iating kina,foreign exchange shortages,and tightening monetary policy.Overall,the terms of trade for PNG worsened in 2024,driven by higher import prices due to the depreciating kina outweighing increases in selected export categories.In the first quarter of 2025,imports continued to decline,includin

235、g in food,and manufacturing inputs,goods,and machinery.-200204060802018201920202021202220232024ExtractiveNon-extractiveTotal368090100110120130140Jan-18Jul-18Jan-19Jul-19Jan-20Jul-20Jan-21Jul-21Jan-22Jul-22Jan-23Jul-23Jan-24Jul-24Jan-25REERUS$A$Figure 1.46 Kina performance against major currencies (I

236、ndex)Figure 1.47 Changes in the kina-US$exchange rate(Month-on-month,percent)Sources:Bank of PNG,IMF.Note:Index,100=Jan.2019,higher indicates appreciation of the kina against the currency Source:Bank of PNG.6See the World Bank(2024)for a detailed explanation of the crawl-like mechanism.30.In January

237、 2024,the BPNG adopted a crawl-like exchange rate regime,moving from a floating exchange rate.6 The goal of the new arrangement is to ensure kina convertibility,eliminate currency overvaluation,restore balance in the foreign exchange market,and boost exports in the non-extractive sector.The crawl op

238、erates as a managed float,trading within a narrow band and is supported by foreign exchange auctions,which were introduced in May 2024 and provide predictable and more frequent access to foreign exchange.The crawl arrangement is intended to move the kina closer to its market clearing level,which is

239、lower than the level that the kina was trading at prior to the introduction of the crawl.Over time,the crawl arrangement is expected to clear foreign exchange backlogs,improve confidence,support exports and manage inflation.Over the longer term,the BPNG has announced its intention to gradually move

240、towards a flexible exchange rate,contingent on structural reforms in fiscal and monetary policy,also supported by the IMF program.The BPNG also intends to continue intervening in the foreign exchange market to eliminate outstanding foreign exchange orders by 2026.31.The crawl-like arrangement has al

241、lowed the kina to gradually depreciate against the USD,with the average value in 2024 6.9 percent lower than the average value in 2023(Figure 1.46).In line with the BPNGs policy,the kina depreciated consistently against the USD throughout the year(Figure 1.47).The kina also depreciated against most

242、other currenciesthe average value of the kina in 2024 was 6.0 percent lower against the Australian dollar and 6.7 percent lower against the euro.The average trade-weighted index in 2024 was 4.9 percent lower than in 2023,while the average Real Effective Exchange Rate fell 6.8 percent.However,the IMF

243、 assessed PNGs external position in 2024 as moderately weaker than the level implied by medium-term fundamentals and desirable policies,with the REER estimated to be overvalued by 6.2 percent.This represents a slight increase in the estimated overvaluation compared to 2023,but a halving of the overv

244、aluation since 2022.-2.0%-1.8%-1.6%-1.4%-1.2%-1.0%-0.8%-0.6%-0.4%-0.2%0.0%0.220.230.240.250.260.270.280.29Jun-22Aug-22Oct-22Dec-22Feb-23Apr-23Jun-23Aug-23Oct-23Dec-23Feb-24Apr-24Jun-24Aug-24Oct-24Dec-24Feb-25US$/KinaMonthly change(RHS)3732.Despite the gradual depreciation of the kina and tighter mon

245、etary policy by the BPNG,foreign exchange shortages persist.The BPNG continued to intervene throughout 2024,with the total backlog of outstanding foreign exchange orders decreasing from 1.3 billion kina in March 2024 to 795 million in January 2025,and further to 127 million by the end of May,with th

246、e clearing time for outstanding orders declining from 1-3 months in 2024 to less than a week in 2025(BPNG 2025a,BPNG 2025b).In the five months to May 2025 there was a net outflow of 2.7 billion kina(US$0.7 billion)which was met by a BPNG intervention of 2.0 billion kina(US$0.5 billion).The continual

247、 intervention in the foreign exchange market has reduced the BPNGs foreign exchange reserves,which fell to US$3.7 billion by end-2024,down from US$3.9 billion in December 2023.They have fallen further to US$3.2 billion in May 2025,however this remains above the BPNGs target of no less than US$2.0 bi

248、llion to meet the economys foreign exchange needs.Concurrently,the reserves coverage declined from 6.7 months at end-2023 to 5.6 months at end-2024 of imports of goods and services.At the end of the March quarter in 2025,reserves coverage stood at approximately 6 months of imports.38Box 1.2 Commodit

249、y price shocks and the exchange rate in Papua New GuineaPNGs economy is heavily influenced by global commodity markets due to its resource-rich export base.Research highlights that volatility in commodity prices significantly influences the exchange rate(Butt et al.2020,Chowdhury 2022,Doojav and Dam

250、dinjav 2023).Hence,movements in global commodity prices have a strong impact on PNGs exchange rate,which in turn affects trade competitiveness,fiscal revenues,inflation,external balances,and economic growth.Since 1994,PNG has floated its currency under a managed float regime.However,in 2014,in respo

251、nse to a foreign exchange shortage and market volatility,the country adopted a crawl-like exchange rate system,where the kina is managed against a trade-weighted basket of currencies to provide greater stability(IMF 2024).Since 2014,the country fluctuated between a crawl-like system and a more restr

252、ictive,stabilized system,with the most recent development being a move back to a crawl-like arrangement in 2024.Figure B.1.3 Relationship between commodity prices and the kina exchange rateSources:World Bank Commodity Price Data(The Pink Sheet),IMF-IFS,Bank of PNG,and authors calculations.39Figure B

253、.1.3 shows the long-run co-movement between monthly exchange rate and global commodity prices from 1976 to 2025.The graph plots the log of the kina/USD exchange rate alongside log indices of global energy,metal,and precious metal prices.This highlights several key features:During periods of high glo

254、bal demand,such as the commodity booms in the mid-2000s and early 2010s,the kina appreciated significantly,buoyed by increased export revenues.This appreciation reflected the robust economic activity driven by the mining and energy sectors.However,the countrys vulnerability becomes starkly evident d

255、uring commodity downturns.The 2014-2015 global resource price collapse serves as a prime example,where the kina depreciated sharply in response to falling commodity prices.This depreciation not only affected the countrys foreign exchange reserves but also led to broader economic challenges,including

256、 inflationary pressures and reduced fiscal revenues.Energy prices exhibit stronger contemporaneous correlation with the kina exchange rate,likely reflecting PNGs primary export composition.To quantify the short-to medium-term responses of the exchange rate to commodity price shocks,a Vector Autoregr

257、ession(VAR)model was estimated using monthly data from 1976 to 2024.The model identifies structural shocks to energy and precious metal prices and traces their impact on the exchange rate over a 12-month horizon.Figure B.1.4 presents impulse response functions to one-standard-deviation shocks in glo

258、bal energy and precious metal prices.The shaded areas indicate 95 percent confidence intervals,showing that the effects are statistically significant for several months after the shock.A positive global energy price shock leads to an appreciation of the PNG kina over the following year.This suggests

259、 that increases in energy prices,particularly LNG,enhance PNGs terms of trade and generate foreign exchange inflows.Source:Depicted from VAR model.Figure B.1.4 Exchange rate response to commodity price shocks40 For precious metal price shocks,the response is less pronounced and more volatile.This co

260、uld be due to the relatively smaller share of precious metals in PNGs export portfolio compared to energy.The initial impact may be positive,but the effect is not as sustained or significant as for energy and metal price shocks.The cyclical nature of global commodity markets thus poses a persistent

261、risk to PNGs economic stability and the analysis highlights the critical role of commodity prices in shaping the exchange rate dynamics in PNG.The strong correlation between commodity price movements and the kina exchange rate underscores the vulnerability of the economy to global market fluctuation

262、s.This commodity currency effectwhere exchange rates move closely with commodity priceis well-documented in resource-rich developing economies(Chen and Rogoff 2003,Arezki et al.2012).The analysis emphasizes among others,the critical need for diversification and the development of other sectors to cu

263、shion against such external shocks(see Part 2).Source:Staff analysis.Table 1.3 Selected external sector indicators US$,millions2018201920202021202220232024Exports,f.o.b.,of which:9,79410,9389,07010,84214,61112,82313,374 Extractive sector7,8029,1347,2338,74912,27811,09211,352Imports,f.o.b.3,7994,2213

264、,5874,3685,8785,4064,678Current account3,2813,5573,4173,2844,5662,7924,759 (in percent of GDP)13.514.314.512.314.99.115.1Overall balance of payments5621254505508125562Gross official reserves2,2152,3132,6863,2404,0323,8583,666 (in months of goods and services imports)4.35.25.04.55.96.75.6 (in months

265、of non-extractive imports)7.48.16.46.07.37.96.9Nominal exchange rate(kina/US$),period average3.303.393.463.513.523.593.86Nominal exchange rate(kina/US$),end of period 3.373.413.513.513.523.744.00Sources:IMF and WB staff calculations.41The outlook remains positive,but risks are tilted to the downside

266、.GDP growth is anticipated to converge to the historical average over the medium-term if decisions around the mega LNG projects are not finalized soon and structural reforms not prioritized.Inflation is expected to increase but remain under 5 percent over the medium term.The current account surplus

267、is projected to narrow modestly as imports pick up,supported by improved foreign exchange supply.Foreign exchange reserves are projected to remain adequate but vulnerable to commodity price volatility.The fiscal deficit is projected to continue narrowing as the government remains committed to implem

268、enting its fiscal repair plan,supported by an integrated framework for fiscal stability and sustainable development in PNG.1.3 PNG Economic Outlook42Box 1.3 Underlying baseline assumptionSlower global growth could indirectly impact PNG,primarily through lower demand for its commodity exports.However

269、,growth for PNGs main export destination,China has been revised up since April,bolstering economic prospects.In addition,growth is projected to accelerate in Australia and Japan,two other key trading partners for PNG.The price dynamics present a mixed picture:while LNG export prices are projected to

270、 fall,gold prices have recently hit record highs and are projected to remain high.Prices of certain other metals have risen significantly since the start of the year and are projected to remain high.Staff analysis suggests that the direct effects of recent tariff increases will likely be minimal on

271、PNG given the limited engagement with the US in trade and financing.Despite the challenging external environment,domestic factors in both resource and non-resource sectors are expected to boost growth in 2025.In the resource sector,production capacity at the Porgera gold mine is expected to increase

272、 to 75 percent,almost double that of 2024.Additionally,improved access to foreign exchange,coupled with a weaker currency and favorable agricultural production as supported by the GoPNGs strategic focus on agriculture as a key driver for economic growth and job creation,is projected to enhance growt

273、h in the non-resource sector(see Part 2 and Annex 1 for details).33.Growth momentum is expected to continue in 2025,supported by increased production at the Porgera gold mine and OK Tedi mine.Growth has been revised slightly up from April 2025 Macro Poverty Outlook(MPO)projections as a more balanced

274、 impact is anticipated from the impact of the global slowdown and global commodity price decline.Projections are mostly aligned with the October MPO projections(see Annex 1).Real GDP growth is projected to increase to 4.7 percent,with both resource and non-resource sectors expected to drive growth.T

275、he resource sectors growth is forecast to accelerate to 4.7 percent as the Porgera gold mine and OK Tedi copper concentrate mine ramp up production,while the non-resource sectors growth is forecast to accelerate to 4.8 percent,driven generally by improved agricultural production and access to foreig

276、n exchange.Higher cocoa and palm oil production is expected to boost growth in the AFF sector.1.3.2 Medium-term Growth Prospects34.In the medium term,growth is expected to settle at the historical average of just over 3 percent as mining production normalizes and the non-resource sector is expected

277、to be the main driver of growth.This is broadly in line with the average growth in Pacific Island countries(Figure 1.1).The non-resource sector is projected to grow approximately 4.0 percent annually on average in the medium term,driven by expected expansion in the AFF sector,assisted by government

278、investment in infrastructure and structural reforms(Part 2).The persistence of high levels of informality may distort the measurement of economic growth and impact the countrys growth potential.However,through increased formalization,PNG can enhance its growth prospects and make it more inclusive(An

279、nex 5).1.3.1 Growth Outlook 4335.While the economic outlook appears positive,risks are tilted to the downside.Slower growth could result from lower export demand,the projected decline in commodity prices,reduced business confidence,political and social instability,and the impact of droughts and othe

280、r climate-related events.The impact of further commodity price declines may compound the potential effects of trade uncertainty(see Annex 1).Domestically,while fiscal and monetary tightening are necessary to ensure long-term macro-fiscal sustainability,they can suppress growth prospects,particularly

281、 if they are prolonged and not accompanied by structural reforms to boost productivity and investment.In addition,PNG continues to face risks stemming from conflict and violence.The brief episode of violence and looting in January 2024,although short-lived,underscored the potential for such disrupti

282、ons to adversely affect economic stability.On a positive note,if the recent depreciation of the USD against other currencies persists,it could bolster PNGs external competitiveness and strengthen export resilience,given the current crawling peg arrangement with the USD.The outlook does not account f

283、or potential new resource projects,like the proposed Papua LNG,Pnyang LNG and Wafi-Golpu.The final investment decision and construction start,along with higher commodity prices present an upside risk to the outlook.1.3.3 Inflation36.Headline inflation is projected to accelerate to approximately 4.8

284、percent in 2025 due to base effects and the passthrough of exchange rate depreciation.It is expected to slow slightly to 4.5 percent over the medium term.The BPNGs tightening monetary policy stance,combined with softening global commodity prices,is expected to put downward pressure on inflation.Howe

285、ver,the depreciating kina will largely counteract this through the import channel.The projected acceleration in inflation in 2025 warrants further tightening of monetary policy.Data from the first quarter of 2025 evidences accelerating headline inflation,in line with expected trends.1.3.4 External S

286、ector 37.The current account surplus is projected to shrink in 2025 as imports recover,supported by improved access to foreign exchange reserves.Exports are expected to continue increasing as the impact from the global commodity price decline is expected to be balanced.While LNG prices are expected

287、to decline in 2025 and 2026,gold prices are expected to increase sharply due to safe-haven demand amid rising geopolitical and economic policy uncertainty(Annex 1).The improved outlook for gold prices is expected to be boosted by the increased production at the Porgera gold mine.Revenue from coffee

288、and cocoa exports is also projected to remain elevated,bolstered by consistently high prices in 2025.On the other hand,as access to foreign exchange improves,imports are expected to increase in 2025,offsetting the positive impact of lower global prices on imports.Over the medium term,unless investme

289、nt decisions on new resource projects are made and production commences,the current account surplus is expected to gradually narrow to around 11 percent of GDP by 2027.38.Foreign reserves are projected to remain adequate.Although the shrinking current account surplus and the absence of new foreign d

290、irect investments are likely to exert pressure on reserves,a modest rise in imports over the medium term is anticipated to counterbalance these pressures.In 2025,foreign reserves are projected at just under US$3 billion,equivalent to 4.3 months of imports of goods and services,increasing to around U

291、S$3.7 billion,equivalent to 4.9 months by 2027.According to the IMFs reserve adequacy assessment,maintaining a minimum reserve level of approximately US$2.0 billion seems adequate to meet needs without severe disruption.Nonetheless,for a fragile state such as PNG,it is advisable to maintain reserves

292、 above this minimum threshold.This is due to the heightened uncertainty the country experiences and the vulnerability of its reserves to fluctuations in commodity prices.441.3.5 Fiscal and Debt39.The fiscal deficit is expected to narrow further to 2.6 percent of GDP in 2025.The consolidation is expe

293、cted to be supported from increases in both resource and non-resource revenues and grants.Total revenues are projected to increase by 0.8 percentage points to 17.9 percent of GDP,while expenditures as a share of GDP remain broadly unchanged from 2024.Recurring expenditure is expected to fall in line

294、 with the governments commitment to its fiscal consolidation strategy.However,capital expenditure is expected to increase,offsetting the gains from decreases in recurrent expenditure.40.The government introduced several revenue reforms in 2024,some of which are expected to boost revenues in 2025 and

295、 over the medium term.These included:a permanent increase in the tax-free threshold from 12,500 to 20,000 kina;an increase in excise tax on Second Tier Tobacco;reducing import duties on basic and intermediate household products;implementing a GST exemption on thirteen essential goods from June 1,202

296、5,to June 30,2026;and the adoption of a dividend policy for SOEs and state entities.The implementation of the GST exemption,increase in the tax-free threshold and reduction in import duties is expected to put downward pressure on tax revenue.However,this is expected to be offset by the excise tax an

297、d dividend reforms.A Dividend Policy for Holding Entities and State-Owned Enterprises was approved by the National Executive Council in April 2025.7 The rewritten Income Tax Act was approved by the Parliament in March 2025.It is a significant milestone to simplify tax policies and mobilize tax reven

298、ue and is expected to come into force in 2026.Similarly,while the Non-Tax Revenue Administration Act was certified by the Speaker of Parliament for implementation on April 17,2023,full enforcement of the Act is expected from January 1,2026.These reforms form part of the governments Medium-Term Reven

299、ue Strategy(2023-2027)which is focused on broadening the tax base,simplifying laws,and improving compliancewith an eventual goal of increasing the countrys tax-to-GDP ratio to 17.9 percent of GDP by 2027,from 15.2 percent in 2024(Annex 3).41.Public debt is expected to decrease in 2025 to 47.4 percen

300、t of GDP.The fall in public debt is attributable to the lower fiscal deficit,strong nominal GDP growth,and the governments shift towards concessional financing.The implementation of the MDTS 2023-2027 is also expected to lower public debt in the future and reduce the governments risk through lengthe

301、ning debt maturities,reducing rollover risks and lowering borrowing costs across the portfolio.The government is steadfast in its commitment to debt management and discipline,prompting the 2025 budget to further amend the Fiscal Responsibility Act.The debt ceiling has been reduced to 55 percent of G

302、DP,following a previous reduction to 57.5 percent in 2024.The government is planning on financing its 2025 deficit from a combination of domestic and external debt,with the intention of moving the balance of domestic to external debt to a 40:60 ratio.42.Importantly,as this Economic Update explains,a

303、lthough PNGs growth forecasts are positive,they are tilted downward,largely owing to elevated external and global risks.Heightened trade uncertainties,fluctuating commodity prices,and exchange rate volatilities could all adversely affect PNGs credit rating,as market access is limited and debt carryi

304、ng capacity is weak.Climate change also poses added risks to PNGs fiscal and debt management,through vulnerabilities to trade shocks,higher costs and investments associated with natural disaster mitigation and recovery,as well as subsequent higher contingent liabilities from climate-related events.C

305、learly,when coupled with PNGs elevated debt risks amid huge development needs,these factors could further implicate PNGs capacity to repay the entire principal on the Eurobond in 2028.Given these challenges,it is crucial to proactively explore repayment strategies now to safeguard against future fis

306、cal pressures and ensure debt sustainability.7The new Dividend policy is expected to make the calculation and payment of dividends to the budget more transparent and predictable by explicitly integrating it in the annual budget preparation process led by the Department of Treasury.45Table 1.4 Select

307、ed economic indicators2024202520262027EstimateProjectionsReal GDP growth3.84.73.53.1Resource sector growth1.74.71.40.1Non-resource sector growth4.54.84.24.1Headline inflation(annual percent change)0.64.84.64.6Fiscal balance(percent of GDP)-3.2-2.6-1.20.0Total government revenue(percent of GDP)17.117

308、.918.618.8Primary balance(percent of GDP)-0.80.01.42.3Public debt(percent of GDP)49.447.445.843.2Current account balance(percent of GDP)15.110.812.711.3Sources:Country authorities;IMF;World Bank staff estimates and projections.461.4 Policy Considerations43.In light of the uncertain global environmen

309、t and the heightened exposure to external shocks,it is imperative for PNG to prioritize strategies that reduce macroeconomic volatility and enhance macroeconomic stability.This can be achieved through a multifaceted approach.To alleviate fiscal and debt sustainability concerns,the authorities should

310、 continue fiscal consolidation and focus on increasing domestic revenue mobilization,reducing inefficient spending,and reducing borrowing costs.In addition,it would be critical to strengthen debt management,particularly in preparation for the Eurobond bullet payment due in 2028.To improve countercyc

311、licality of macroeconomic policies,the GoPNG and BPNG should develop high-frequency macro statistics and ensure timely data releases,reintroduce kina convertibility and allow greater exchange rate flexibility,and plan a phase-in of new resource projects asynchronously.Additionally,diversifying the e

312、conomy beyond its traditional reliance on extractive industries will help to broaden the growth base,create jobs,and reduce vulnerability to global commodity price fluctuations.These measures,collectively,will not only stabilize the macroeconomic landscape but also build PNGs resilience to future ex

313、ternal shocks.44.To achieve sustainable economic growth and job creation,the GoPNG must reduce informality and foster a business-friendly environment that encourages private sector development.Formalizing businesses expands the tax base,boosting government revenue and productivity through better acc

314、ess to credit,technology,and skilled labor.Policy reforms should reduce regulatory burdens,enhance access to finance,and ensure reliable infrastructure,especially in energy and transport.Building human capital through investments in education,health,and skills development,particularly for women and

315、youth,will improve labor force participation and productivity.Strengthening institutions,including improving the governance and anti-corruption framework and ensuring consistent policy implementation are crucial to reducing investor uncertainty.Finally,supporting non-resource sectors like agricultur

316、e,manufacturing,and services will promote broader-based and more inclusive growth.PNG is at a critical juncture,needing to balance its fiscal constraints and high debt distress risk with pressing development needs,particularly in human capital and infrastructure.While fiscal consolidation is imperat

317、ive,the lack of buoyancy in resource revenues is concerning.This has led to has led to cuts in capital spending,which combined with inefficiencies could undermine growth and socioeconomic progress.With the uncertain global environment presenting further challenges,strategic decisions are needed to n

318、avigate uncertainty and drive sustainable growth.PNGs integrated framework for fiscal stability and sustainable development is a step in the right direction,but timely implementation and strong commitment will be crucial to achieving its ambitious goals(Annex 3).Balancing fiscal prudence with develo

319、pment investments and structural reforms to boost private sector development can build resilience,foster sustainable growth,spur job creation,reduce poverty and promote broader socio-economic development.47Pathways to Job Creation:Accelerating Agricultural Growth and Prosperity in Papua New GuineaPA

320、RT 24845.The agriculture sector in PNG significantly contributes to economic activity.It directly accounts for 17 percent of the countrys GDP,surpassing many similar countries in the Pacific.This sector supports several downstream and upstream industries,generating an additional 0.42 kina of income

321、in non-agricultural parts of the agri-food system for every kina of agricultural value added.PNG is a net exporter of agri-food commodities,with exports totaling US$1.35 billion compared to imports of US$0.83 billion from 2015 to 2019.In 2019,56 percent of working-age individuals in PNG were employe

322、d in agriculture.Smallholder farmers cultivate diverse crops based on geographic location and agro-ecological zones.In the Highlands,staple root crops like sweet potato and coffee,the main cash crop,are extensively grown.In the islands,cocoa and coconut are predominant,while coastal lowlands focus o

323、n oil palm cultivation.Other niche crops such as vanilla and kava are grown in selected areas,offering high returns but requiring longer maturation periods.The most commonly grown crops for home consumption include bananas,sweet potatoes,cassava,and beans,with between 62 and 83 percent of all farmer

324、s cultivating these crops.The most commonly produced crops for sale are cash crops,including coconut,coffee,betelnut,oil palm and cocoa.46.The aggregate contribution of agriculture to economic activity understates the sectors importance to the population as a source of employment and food security.T

325、he most recent estimates show that roughly 90 percent of the population lived in a household that grew crops in 2018,with many of those crops being primarily used for own consumption.Smallholders produce 96 percent of all agricultural produce,almost all the food and 75 percent of coffee,65 percent o

326、f cocoa,66 percent of copra and 35 percent of oil palm(Currey 1993).Subsistence agriculture is the single most prevalent primary occupation in the country,with approximately 42 percent of working-age men self-reporting it as their primary occupation.This figure is over five times the 8 percent who r

327、eported working in commercial agriculture and over four times the 10 percent who reported working in low-level sales occupations.82.1 Job Creation to Address Development ChallengesPapua New Guineas population is projected to reach 13 million by 2032,growing at an annual rate of 3.1 percent.With 58 p

328、ercent of its current 11.8 million people under 25,the country faces a significant youth bulge,one of the highest in the Pacific.In response,the Government of Papua New Guinea(GoPNG)aims to create 1 million jobs in the next four years by harnessing its natural resources and mobilizing substantial pr

329、ivate sector resources.Key to this initiative is the National Agriculture Sector Plan(NASP)and the Medium-Term Development Plan IV.Agriculture is identified as a crucial driver for job creation and enhancing well-being,as rural economies depend heavily on this sector.Improved agricultural performanc

330、e can raise farm incomes and increase demand for non-farm goods and services,fostering growth and employment in related rural enterprises.This Special Focus presents key findings,opportunities,challenges,and solutions to ensure agricultural development supports the countrys goals for creating better

331、 and sustainable jobs.8Authors calculations using the 2016-2018 Demographic and Health Survey.4947.The structural transformation of food systems affects also the number of jobs created and their distribution along value chains.Poorer countries typically have most of their labor absorbed in the subsi

332、stence agriculture sector and similarly have a high proportion of economic output contributed by the agricultural sector.As a country becomes richer,excess workers from the least efficient agricultural producers either move into commercial and more efficient agricultural production or become employe

333、d in off-farm sectors that are closely related to agricultural production,such as the transportation,processing,or selling of agricultural goods(see Annex 4).9 Figure 2.1 further shows that these patterns continue to hold across countries today and illustrates that the share employed in agriculture is smaller for countries with higher per capita incomes;and the share employed in services and other