KEY ISSUES Context. Papua New Guinea?s (PNG) economy is experiencing an important transition, as new liquefied natural gas (LNG) production and exports commence. While resource sector activity in 2014?15 will be buoyed by gas production, non-resource sector growth will remain low in 2014 as LNG production has little knock-on effect on the wider economy. Meanwhile, the sharp fiscal expansions of the past three years have significantly reduced fiscal space, and excess demand for foreign exchange has persisted following a large de facto appreciation of the kina after the introduction in early June 2014 of a trading band around the official exchange rate and the requirement for banks to use the band in their transactions with customers. Outlook and risks. The overall growth outlook in the short run is favorable, but it masks weakness in the non-resource sector and employment conditions. Risks to the near-term outlook are increasingly tilted to the downside as global economic weakness could weigh on external demand and commodity prices, with fiscal stimulus limited by the need to ensure debt sustainability. The recent exchange rate measure also heightens risks to the growth outlook as well as to the external position. Policy assessment. A key challenge facing PNG is to maintain fiscal and debt sustainability while pursuing development objectives. Continued macroeconomic and financial stability will also require better management of excess banking system liquidity and exchange rate policy. To meet these challenges, policies should aim to: ? Consolidate the fiscal position in line with the government?s current debt targets through restraining low-impact expenditure and strengthening revenue collection. ? Improve spending quality, through improved composition and public financial management, and ensure budget integrity in managing public resources. ? Withdraw excess liquidity held by banks more fully and allow the exchange rate to be more determined by market forces in order to eliminate excess demand for foreign exchange. ? Accelerate structural reforms, focusing on lowering the cost of doing business, to support non-resource sector growth.
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|Size: ||14.0 MB|
|Publisher: ||INTERNATIONAL MONETARY FUND|
|Date published: || 2014|
|ISBN: ||9781484333020 (DRM-EPUB)|
|Copying:||of 20 selections every 20 days allowed|
|Printing:||of 20 pages every 20 days allowed|
|Read Aloud: ||not allowed|