THE International Monetary Fund (IMF) and Papua New Guinea (PNG) have established a preliminary agreement following a comprehensive review of the nation’s economic reform strategies.
This milestone allows the country to access over $USD200 million in financing to support its ongoing efforts in fiscal consolidation and climate resilience.
While the economy remains stable, experts anticipate a slight deceleration in growth and rising inflationary pressures driven by global conflicts and higher import costs.
The government has successfully met several structural benchmarks, including efforts to modernise central banking and improve the transparency of governance frameworks.
“IMF staff and Papua New Guinea authorities have reached a staff-level agreement to complete the sixth reviews of the ECF, EFF, and RSF arrangements,” said Nir Klein, IMF mission chief for PNG.
“Approval by the IMF Executive Board would enable immediate disbursement of $SDR60.53 million (about $US82 million) under ECF/EFF and $SDR98.7 million (around $US134 million) under RSF, totalling $SDR781.71 million (approximately $US1.06 billion) in IMF financial support.
“Economic activity is expected to remain resilient, although real growth is projected to ease to 3.8 per cent in 2026 from an estimated 5.6 per cent in 2025. This easing reflects the levelling off of LNG production capacity and, amid unfolding events in the Middle East, softer external demand for non-resource exports and higher import costs, including oil.
“Headline inflation is projected to rise to 5.0 per cent in 2026, as the extension of GST relief is expected to be outweighed by higher import costs. Gross international reserves, around US$4 billion at the end of December 2025 (about five months of imports), are anticipated to remain adequate.”
The government is committed to its fiscal consolidation strategy amid uncertainty. The fiscal deficit narrowed to 2.4 per cent of GDP in 2025 from 3.3 per cent in 2024, driven by increased resource revenues and spending rationalisation. For the first time since 2021, capital expenditure as a share of GDP also increased.
The fiscal deficit is projected to decline to 1.1 per cent of GDP in 2026, aided by revenue growth and controlled current spending. Balancing the budget by 2027 will further reduce public debt vulnerabilities.
BPNG Enhances Reform Efforts
Klein added the Bank of Papua New Guinea (BPNG) has made significant strides in its reform roadmap, aiming for a gradual return to Kina convertibility.
“The crawl-like arrangement has supported the exchange rate and helped reduce the Kina’s overvaluation, alleviating FX shortages thanks to favourable commodity prices.
“BPNG is also modernising its monetary policy and operationalising its lender of last resort regime. Key steps moving forward include aligning the Kina Facility Rate with the exchange rate arrangement, enhancing transparency in the FX regime, and improving interbank market infrastructure to strengthen central bank credibility and monetary policy transmission.”
PNG authorities have made progress in addressing weaknesses in the anti-money laundering and countering financing of terrorism framework, but further efforts are needed to improve operational competence, compliance, and coordination.
Swift implementation of the Action Plan is crucial to mitigate reputational risks and economic impacts.
Klein noted to address balance-of-payment risks from climate change, authorities are promoting efficient consumption of high-carbon fuels and enhancing climate finance by mandating banks to report on three key sectors.
“A National Emergency Management Authority Act is nearing completion to modernise disaster preparedness. Additionally, climate change is being integrated into public investment management and national road maintenance,” Klein said.
“A centralised database for climate projects and a disaster risk financing strategy are also being developed to boost resilience against disasters.”
