Papua New Guinea economy will deteriorate further

Subject

The political and economic outlook for Papua New Guinea.

Significance

Papua New Guinea (PNG) is due for its five-yearly national elections in mid-2017 and the outcome now appears much less certain than a year ago in the face of growing economic and political challenges. PNG’s central bank has effectively started printing money by purchasing government bonds not bought by the private sector. This foreshadows longer-term problems but will help hide PNG’s underlying cash crisis.

Impacts

• A collapse in domestic revenues points to a severe economic contraction.
• The 2017 budget proposes a path to smaller deficits by 2021, but suffers from major errors and unrealistic assumptions.
• The central bank’s printing of money and suppression of the IMF report will damage international investor confidence.