THE International Monetary Fund (IMF) has reached staff-level-agreement on a Resilience and Sustainability Facility (RSF) arrangement and the third reviews under the Extended Credit Facility (ECF) and the Extended Fund Facility (EFF).
An IMF team led by Mr. Tahsin Saadi Sedik, Deputy Division Chief at IMF, visited Port Moresby from September 26 to October 9, 2024, to review progress under the authorities’ homegrown economic reforms supported by the ECF and EFF arrangements of SDR684.3 million (about US$918 million), and to discuss the authorities’ request for access to the RSF.
At the conclusion of the mission, Mr. Saadi Sedik issued the following statement:
“I am pleased to announce that IMF staff and the PNG authorities have reached a staff-level agreement on: the policies needed to complete the third reviews of the ECF and EFF arrangements; and a new 24-month RSF arrangement with access of SDR197.4 million (about US$265 million), which will run in parallel to the ECF-EFF arrangements, to support the authorities’ policy agenda aimed at enhancing resilience to climate change.
“To enhance PNG’s capacity to address challenges posed by climate change and reinforce its resilience, the proposed RSF arrangement, subject to approval by the IMF Executive Board, would help build policy buffers and contribute to enhancing the effective implementation of PNG’s climate commitments. PNG would become the first Pacific Island country to benefit from RSF support. Building on these commitments, reforms under the proposed RSF arrangement will focus on strengthening disaster risk management capacity, supporting the inclusion of climate considerations in public investment decisions, encouraging the development of green finance, and enhancing mitigation policies. These reforms, which will be supported by capacity development activities from PNG’s international partners, are expected to catalyse financing for climate and sustainable development.
“The completion of the third reviews of the ECF-EFF, upon approval by the Executive Board of the IMF, would allow for the immediate disbursement of SDR94.75 million (approximately US$127 million) in financing, bringing the total IMF financial support disbursed thus far under the ECF-EFF arrangements to SDR321.12 million (about US$430 million). Adding the new RSF support, the total IMF commitment under all these arrangements would be SDR881.72 million (about US$1.19 billion).
“Papua New Guinea’s economic outlook remains positive. Growth is expected to increase to 4.5 percent in 2024 from 2.9 percent in 2023, supported by the resumption of activities at the Porgera gold mine and improvements in access to foreign exchange. Average headline inflation is projected to remain historically low at 1.3 percent in 2024, while core inflation, which excludes volatile items such as betel nut, is projected to moderately increase to 3.9 percent in 2024, while staying below the historical average, mainly driven by food and transportation costs. Gross international reserves stood at US$3.2 billion at end-June 2024, providing space to continue implementing central banking reforms.
“Performance since the start of the ECF-EFF arrangements has been strong. The government of PNG has continued to make progress in implementing its structural reform agenda, focused on advancing budget repair, modernizing central banking, and improving governance. These reforms are bearing fruit, with notable positive outcomes including: (i) the easing of foreign exchange shortages, which contributes to improving the business environment; (ii) the reduction of excess liquidity in the banking sector, which enhances monetary policy transmission; (iii) a lower fiscal deficit, which strengthens public debt sustainability; and (iv) progress in the operationalization of the anti-corruption framework.
“The government remains committed to an ambitious fiscal consolidation strategy set out in its 13-year budget repair plan. After reducing the fiscal deficit by 0.9 percentage points of GDP in 2023, while creating space for more social spending, the authorities are on track to deliver an additional 0.4 percentage points of GDP reduction in 2024. The authorities remain committed to implementing their prudent borrowing strategy aimed at preserving debt sustainability.
“The Bank of Papua New Guinea (BPNG) has continued to actively implement its roadmap of reforms to help alleviate foreign exchange shortages, gradually return to kina convertibility, and modernize its monetary policy operations. The increased flexibility of the exchange rate under the de facto crawl-like arrangement, combined with the BPNG’s foreign exchange intervention strategy, has supported improved access to foreign exchange, particularly for essential import orders. The reduction of the structural misalignment of the kina will help enhance the competitiveness of PNG’s exports, including in the agricultural sector, and thus increase rural incomes and improve living standards. The BPNG continues monitoring developments in domestic financial markets and stands ready to calibrate its policy stance accordingly. The BPNG is also modernizing its monetary policy operations, enabling commercial banks to improve their liquidity management. Amendments to the Central Banking Act, adopted in September by Parliament, have significantly improved the mandate, governance, and autonomy of the BPNG.
“The governance and anti-corruption frameworks are being strengthened. The Independent Commission Against Corruption (ICAC), benefiting from a significant increase in funding, has successfully defined its operational procedures and set up more secure information systems.
“The IMF will continue to work closely with the Papua New Guinea authorities and stands ready to help them, not only through financing and policy advice, but also through technical assistance.
“The IMF staff team is grateful to the authorities for their warm hospitality, productive collaboration, and candid policy dialogue. The IMF team held meetings with Minister for Treasury Ian Ling-Stuckey, Governor of BPNG Elizabeth Genia, Secretary of Treasury Andrew Oaeke, and other senior government officials. The team also had constructive meetings with representatives from the private sector and development partners.”
