The International Monetary Fund (IMF) Executive Board has completed the fifth reviews under the Extended Credit Facility (ECF) and Extended Fund Facility (EFF) programs, as well as the second review under the Resilience and Sustainability Facility (RSF) for Papua New Guinea. This marks a significant milestone, enabling the immediate disbursement of funds to support the country's economic stability and growth. The total disbursements under IMF-supported programs now amount to approximately US$851 million, with further support on the horizon.
The ECF/EFF arrangements, approved in March 2023, provide a substantial amount equivalent to 260% of Papua New Guinea's quota, addressing the country's prolonged balance of payments challenges and supporting reforms to tackle structural issues hindering inclusive growth. The 24-month RSF arrangement, approved in December 2024, focuses on mitigating risks to the balance of payments associated with long-term structural challenges posed by climate change.
Papua New Guinea's economic outlook remains positive, with growth projected to reach 4.5% in 2025, driven by increased resource sector production and resilient non-resource sector growth. Headline inflation is expected to rebound to 3.8% in 2025, easing the drag from low betel nut prices. Over the medium term, growth is anticipated to stabilize at just above 3%, primarily driven by the continued expansion of the non-resource sector, with inflation converging to around 4.5%.
However, the outlook is subject to high uncertainty, with risks tilted towards the downside. Papua New Guinea remains vulnerable to domestic and external shocks, exacerbated by capacity constraints and socio-political fragility, which limit the government's ability to implement effective policies for economic stabilization, development, and climate adaptation. Commodity price volatility, global geopolitical risks, escalating protectionist trade measures, and declining international aid could further strain growth and inflation.
Despite these challenges, program performance has been satisfactory, with the authorities demonstrating a sustained commitment to reforms. All but one quantitative performance criterion and all indicative targets for end-June 2025 under the ECF/EFF arrangements were met, while all but one indicative target for end-September 2025 were achieved. The Executive Board approved a waiver for the fiscal deficit criterion, recognizing the minor nature of the deviation and the corrective actions taken.
Mr. Bo Li, Deputy Managing Director and Acting Chair, emphasized the importance of continued reform efforts. He stated, 'The Papua New Guinea authorities have made steady progress in implementing their homegrown reform agenda. Sustained commitment to these reforms will help rebuild policy buffers, address long-standing structural challenges, and secure a more resilient, inclusive, and greener economic growth.'
Key areas of focus include reducing the fiscal deficit, increasing revenue mobilization, containing current spending growth, and improving expenditure efficiency. Protecting social and capital spending, strengthening debt management, and modernizing cash management practices are also crucial. Access to foreign exchange has improved significantly due to central banking reforms and favorable external conditions, with the current crawl-like arrangement appropriate for addressing Kina overvaluation.
Additionally, promoting good governance and enhancing the effectiveness of anti-money laundering and counter-financing of terrorism frameworks are vital for supporting the business environment. Tangible results in the fight against corruption will reinforce the credibility of the Independent Commission Against Corruption.
Building resilience to climate-related risks is essential for achieving high and inclusive growth. The RSF-supported program emphasizes strengthening disaster risk management, integrating climate considerations in infrastructure governance, developing climate finance, and setting incentives for forest protection and fuel efficiency.
