The Impact of COVID-19 and PNG’s Reform Agenda

Introduction

After several years of poor economic performance, including negligible economic and employment growth, and growing debt and debt servicing costs, Papua New Guinea (PNG) commenced 2020 with cautious optimism that the modest recovery which commenced in 2019 would be sustained. The gains made in 2019 were largely the result of external factors, notably improved commodity prices in 2018/19, and an absence of major disruptions as occurred in 2018, notably the major earthquake in February. Sustained economic and social enhancement will require more underlying reforms. The Government hoped this would be achieved partly through adjusting the benefit sharing arrangements of resource projects, SME development, and greater transparency in fiscal and debt management.

However, uncertainty over investment conditions, including exchange rates and limited access to foreign exchange, combined with PNG’s poor infrastructure, deterred much-needed further investment. Then the COVID-19 pandemic arrived, severely disrupting both global markets and domestic economic activity, causing the Government to announce extensive measures. These included a stimulus package, much of which could not be achieved in practice in the light of PNG’s limited capacity, followed by a Supplementary Budget to address the severely reduced government revenue and reallocate public expenditure to priority areas, including public health and support for impacted small to medium enterprises.

This paper reviews the context of PNG’s political economy and the impact of COVID-19 on PNG’s reform agenda. It concludes by offering thoughts on increasing transparency and accountability to the country, key components for a more inclusive, efficient, and effective post-COVID economic recovery.