Development aid support for economies in PNG remains vital for sustainable economic growth

Development aid support for economies in the Pacific region continues to play a pivotal role in helping governments to meet critical challenges such as fiscal constraints and a shortage of forex. The Papua New Guinea economy is currently faced with economic chaos prominently characterized by hefty government borrowing and a cyclical lack of forex since 2014 despite government interventions in the markets through various means.

Papua New Guinea’s leading commercial bank, the Bank South Pacific, says government loans from multilateral organisations and donor agencies are made available to the Independent State of Papua New Guinea via the Bank of Papua New Guinea, PNG’s Central Bank.

The Bank of PNG will use loan proceeds to bolster foreign reserves and, by way of its intervention policy, make foreign currency available to the market, Robin Fleming, Bank South Pacific Chief Executive Officer said.

“The Bank of PNG generally intervenes in the market on a monthly basis for amounts of around US$50 m per month and this is continuing,” Mr. Fleming explained.

Commenting on the state of the PNG economy, Mr. Fleming said that international travel restrictions that were implemented to reduce the risk of the transmission of COVID-19 have negatively affected airlines as did the domestic travel restrictions when they were also in place.

“Hotels that were reliant on international and domestic travel were also affected and continue to experience much lower occupancy rates. This has been compounded by job losses in the mining sector both at Porgera and with Oil Search” he added.

Mr. Fleming was commenting on the shortage of forex and the state of the economy in light of an IMF loan of US$363.6 million to Papua New Guinea in early June to address the fiscal deficits created by the COVID-19 pandemic. The loan will provide resources to the authorities to maintain macroeconomic stability with the aim of assisting the private sector that has been adversely affected by COVID-19. The government of Papua New Guinea continues to take measures to support businesses, workers, and households to safeguard the health and livelihoods of the population.

The Bank’s CEO also said a successful negotiation of the gas agreement for the multibillion-dollar P’nynag-a multibillion-dollar gas project will provide a boost in confidence for the business sector “as would agreement with the joint venture partners for Wafi Golpu – a world-class mining project in Papua New Guinea’s Morobe that is being negotiated between the developers, customary landowners and the PNG government.”

With its economy dependents on the extractive industry, PNG needs to broaden its fiscal approach, particularly to include agriculture, in order to diversify markets and chart a way forward for sustainable economic growth. However, the extractive industry remains critical for the PNG government to fund its budget with income from the mining and petroleum in particular providing financial support.

Over 190 open and forecasted funding opportunities for Papua New Guinea are currently available on developmentaid.org.