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IMF Says PNG Recovery On Track, Reform Discipline Must Continue
Scott Waide, RNZ Pacific PNG correspondent
There are signs of positive recovery in the Papua New Guinea economy, but the government needs to maintain the reform momentum in order to see long-term benefits, the head of the International Monetary Fund (IMF) in the country says.
Sohrab Rafiq said economic growth is expected to be higher than the 2024 average, inflation is at its lowest in many years, and access to foreign currency needed for imports has been drastically eased in the last two years.
"We think growth will be around 4.5 percent, which is higher than it was in 2023 when it was around 3 percent. Inflation has ended the year at below 1 percent, which is below the country's historical average of around 5 to 6 percent.
"FX (foreign exchange) wait times are considerably down. For small to medium enterprises, they wait between two to four weeks. This is a considerably shorter wait time than before the IMF program started two years ago."
In 2023, the IMF approved a US$918 million loan to the Papua New Guinea government for a period of 36 months.
The fund proposed several policy reforms as part of the loan conditions.
One of the conditions was for the Bank of Papua New Guinea to introduce a flexible exchange rate system.
This has resulted in the depreciation of the Kina.
The argument is that a cheaper Kina will be attractive for private enterprise seeking to invest in Papua New Guinea.
Papua New Guinean economist Dr Thomas Wangi, who has followed the IMF intervention, wrote in a National Research Institute paper in 2023 that the depreciating currency may ease foreign exchange shortages but cause imported inflation - meaning a noticeable rise in the cost of goods and services.
"Will the proposed policy reform be inflationary? The simple answer is yes," Wangi said.
He added that historical data from 1994 have shown that the depreciation of the Kina led to a sharp rise in inflation.
The IMF, meanwhile, says the Kina's true market value has to be reflected and with an inflow of foreign currency from increased business activities, there is a possibility to see an appreciation of the Kina.
RNZ
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