On December 11, 2024, the International Monetary Fund (IMF) Executive Board approved a Resilience and Sustainability Facility (RSF) arrangement for Papua New Guinea. The two-year program amounts to SDR 197.40 million, equivalent to approximately US$259 million. Disbursements will commence upon completion of the first review of the arrangement. This initiative aims to address climate change challenges and enhance disaster risk management in Papua New Guinea by integrating climate considerations into public investment decisions and promoting green finance.
Papua New Guinea is notable as the first Pacific Island nation and only the second country in the Asia-Pacific region to access this facility. Additionally, the IMF Executive Board completed its third reviews under existing Extended Credit Facility (ECF) and Extended Fund Facility (EFF) arrangements, initially approved on March 22, 2023. These arrangements support reforms targeting structural impediments to inclusive growth. Completion of these reviews allows for an immediate disbursement of SDR 94.75 million (about US$125 million), bringing total disbursements under these programs to SDR 321.12 million (approximately US$422 million). A seven-month extension was also granted for these arrangements to allow further time for key reforms.
The economic outlook for Papua New Guinea remains positive with expected growth rates of 4.5% in 2024 and 4.6% in 2025, up from 2.9% in 2023. This growth is attributed to resumed activities at the Porgera gold mine and improved foreign exchange access. Inflation is projected at a low rate of 1.3% in 2024 due to declining betel nut prices but core inflation may rise due to food and transportation costs.
Despite a positive medium-term outlook, significant downside risks remain due to domestic and external vulnerabilities exacerbated by capacity constraints affecting policy implementation for economic stabilization and development.
"The Papua New Guinea authorities have continued implementing the reform agenda under their Fund-supported program," said Mr. Bo Li, Deputy Managing Director and Acting Chair of the IMF Executive Board.
He emphasized that ongoing fiscal adjustments are necessary: "To durably reduce debt vulnerabilities while freeing up fiscal space for development...further fiscal adjustment should rely on...the modernization of key tax legislation."
Foreign exchange shortages have eased following central banking reforms aimed at greater exchange rate flexibility: "Consistent with its sequenced roadmap of reforms, the central bank should continue working toward restoring kina convertibility," Mr. Li added.
Efforts against corruption are encouraged through operationalizing the Independent Commission Against Corruption (ICAC): "Allocating appropriate budget resources...are key to allow ICAC to effectively carry out its missions."
Given high vulnerability to climate change, managing its impact is critical: "Reforms under the new RSF arrangement will help...build resilience against climate-related risks."
In conclusion, both ECF/EFF and RSF arrangements aim to support Papua New Guinea's reform agenda while addressing balance of payment needs without disruptive adjustments.