Papua New Guinea (PNG) is rich in gold, oil, gas, copper, silver, timber and is home to abundant fisheries. Its population of less than 7 million is strikingly diverse, organized in small, fragmented social groups and speaking over 800 distinct languages.  The economy is highly dualistic, consisting of an enclave based formal sector that focuses mainly on large-scale export of natural resources, and an informal sector dominated by the subsistence and semi-subsistence activities of the majority rural population, although a local non-mineral SME sector is now emerging.

PNG’s economy has weathered recent years’ global economic volatility well. Stronger macroeconomic management has turned a series of positive external income shocks and large new investments into the longest uninterrupted period of economic growth since the country’s independence in 1975. Despite a significant shock to its export prices, the economy slowed only modestly in 2009, to expand by 5.5 percent, before recovering to around 7 percent growth in 2010 and an expected 9 percent expansion in 2011 (based on information available mid-year).

Prudent macroeconomic management has helped PNG transform the commodity price booms into resiliency to the crises in the global economy. During the first mineral price boom the government prudently capped growth of government spending, saved temporary windfall mineral revenue and paid down its most expensive external debt; the non-mineral budget deficit (a key indicator of fiscal stance in a resource rich economy) remained largely steady around 5-6 percent of GDP, close to the estimated long-term sustainable level. With the decline of prices of copper and oil, two of PNG’s main export commodities, in 2008-09, these prudent policies provided the space for a significant fiscal impulse to the external shock. The expansion in the 2009 and budgets 2010 constituted slippages from the government’s medium-term fiscal framework, but the 2011 budget reconfirms the government’s commitment to managing the income shocks through prudent fiscal policy. Going forward, the government plans to compliment a stronger fiscal rule with a framework of offshore Sovereign Wealth Funds. These will serve fiscal stabilization, savings and public investment goals into the long-term, and will be formalized through an Organic Law.

The turn-around from the economic crises of the late 1990s has been broadly based. While the USD 15 billion PNG-LNG investment has been the most notable, other investments in communications, construction and real estate, for example, have given significant impetus and created spillovers into other sectors. These investments have supported growth in formal employment, creating shortages of skilled labor. Indeed by 2012 the economy was characterized by various bottlenecks, as investments in new supply lagged the growth in demand, allowing suppliers to charge sharply higher prices. In addition to the scarcity of skilled labor, most notable have been shortages of land in the main urban centers, inadequate infrastructure such as port handling capacity and electricity supply, and for transportation services. Together these factors, plus the resurgence in global energy prices have lifted official CPI inflation to the high-single digits in 2011, and the true rate is likely to be higher given weakness in the coverage and measurement of the official CPI. Monetary policy has responded by allowing the exchange rate to appreciate, tightening the policy interest rate, and increasing banks’ reserves requirements (so reducing the amount of liquidity in the banking system).

The PNG LNG Project is a significant force in the economy.  Implemented by a consortium of international and domestic investors led by Exxon Mobil, the expected investment is around US$15 billion, which is nearly double PNG’s current annual GDP.  The project received the Final Investment Decision approval in December 2009, and Sales and Purchase Agreements were completed in February 2010.  Major construction soon commenced, and is expected to peak in 2012. The first gas shipments are scheduled in late 2014.

There has been important progress in key areas of structural reform in recent years; in particular, opening markets in telecommunications and air transport has produced major welfare gains for the population.  To diversify the economy and increase employment, attention is needed to challenges such as maintaining law and order, improving the business climate, commercializing state-owned enterprises, reducing the regulatory and licensing burden, and equitably accessing resources (including land) for development.  Developing infrastructure – electricity, telecommunications, road and other transport – continues to be a critical precondition for accelerated private sector-led growth.

Translating strong macroeconomic performance and extractive industry revenues into a broad improvement in living standards remains the key challenge for PNG.  Ensuring the integrity of the public financial management for service provision, improving efficiency of sectoral spending, raising the performance of the civil service, and improving transparency and accountability in budget management will be crucial in converting the forthcoming windfall revenue into palpable improvement in service delivery.

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The World Bank has been working with Papua New Guinea since 1975.

The World Bank Group is near the end of its joint IFC-IDA Country Assistance Strategy (CAS) covering the four year period of 2008-2012.  The World Bank is committed to an active and long-term partnership with Papua New Guinea, aligning its strategy with the Government of Papua New Guinea’s medium- and long-term strategic development frameworks. The new WBG Country Partnership Strategy (CPS) will be developed in collaboration with government and stakeholders in the first six months of 2012

The Government has recently engaged in three nested processes whose results together provide the strategic context and framework for development assistance going forward:  the National Vision 2050, which articulates the aspiration of diversifying away from minerals wealth towards broader growth and employment and improved service delivery, the Development Strategic Plan (DSP) 2010-2030, which provides more specific guidance on key national priorities, and National Development Strategy 2011-15, which outlines immediate activities and priorities. 


Key objectives of the Bank’s cooperation include:

• Promoting sound macroeconomic and public expenditure management
• Promote well-governed, sustainable extractive industries offering significant benefits at local as well as national levels
• Promote the ability of the private sector to provide significant employment and livelihood opportunities
• Improve livelihoods through policies and investments that promote inclusive, sustainable growth in key agricultural subsectors.
• Support the development of more responsive, accountable local governments that deliver cost-effective public services for community needs
• Help develop well-managed national and local transport services
• Expand access to reliable, affordable electricity to support service delivery and rural enterprise development
• Facilitate provision of reliable, affordable access to telecommunications
• Contribute to harmonized approaches to improve education and health outcomes

Current projects include

• Road Maintenance and Rehabilitation Project (RMRP)
• Smallholder Agriculture Development Project (SADP)
• Second Mining Sector Technical Assistance Project (Mining TA-2)
• Productive Partnerships in Agriculture Project (PPAP)
• Urban Youth Employment Project
• Rural Communications Project
• Second Chance Education:  Flexible and Open Distance Education
• SME Access to Finance Risk-Sharing Facility
• RMRP – II
• Inclusive Development in Post-Conflict
• Financial Competency Study

Projects under development include

• Energy Sector Development Project

Recently Completed Projects

• Women’s Self Reliance in Mining and Petroleum Areas (financed by JSDF)
• Sustainable Energy Financing Project (financed by GEF)
• Second Gazelle Restoration Project

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