Papua New Guinea's Economic Growth to Moderate Amid Challenges and Geopolitical Risks

The ADO 2025 highlights several key factors influencing this outlook, including infrastructural challenges, security concerns, and the high cost of doing business in PNG.

Papua New Guinea (PNG) has shown impressive economic resilience following a strong recovery in 2024, with GDP growth of 4.3%. This growth, driven by both resource and non-resource sectors, reflects the nation’s potential despite various challenges, according to the Asian Development Outlook (ADO) 2025. However, economic growth is projected to moderate in the coming years, with a forecasted growth rate of 4.2% in 2025 and a further decline to 3.8% in 2026.

The ADO 2025 highlights several key factors influencing this outlook, including infrastructural challenges, security concerns, and the high cost of doing business in PNG. Power blackouts remain a persistent issue, further compounded by social unrest and rising geopolitical risks. The ongoing security challenges, notably around the reopened Porgera Gold Mine, along with issues like potential "grey listing" and high operational costs, are expected to slow the economy’s momentum.

The global economic environment also presents several external risks. Rising trade tensions, particularly in light of the U.S. administration's recent tariff changes announced on April 2, 2025, could exacerbate PNG’s challenges. While ADO projections were finalized before the announcement of these tariffs, the report notes that such changes could affect trade, investment, and overall growth in the Asia-Pacific region. The ADO April 2025 assesses the potential impact of these higher tariffs, with faster and larger-than-expected changes in U.S. trade policies posing risks to global and regional economic growth.

Inflation in Papua New Guinea has shown a notable decrease, falling to just 0.7% in 2024, the lowest level in recent years. However, challenges remain, particularly with persistent elevated prices for food, clothing, and footwear. Although the significant drop in volatile betel nut prices helped reduce inflation in 2024, this effect is unlikely to continue. As a result, inflation is expected to rise to 3.8% in 2025, followed by 4.3% in 2026.

Despite these concerns, PNG has made considerable progress in stabilizing its economy, notably in areas such as macroeconomic reforms, mobilizing domestic revenue, and reducing the fiscal deficit. ADB Country Director for PNG, Said Zaidansyah, emphasized that while the government deserves recognition for these efforts, bolstering internal resilience amid external shocks must remain a priority to safeguard long-term growth prospects.

One of the most significant developments in 2024 was the reopening of the Porgera Gold Mine, a key resource for PNG’s economy. Unfortunately, its operations were constrained due to landslides and civil unrest, limiting its production capacity. Additionally, hydrocarbon output weakened due to a decline in liquefied natural gas (LNG) production. On a more positive note, export growth in commodities such as copper, coffee, cocoa, copra, and fish was strong in 2024, supported by favorable international prices.

Looking ahead to 2025, mining is expected to be a critical growth driver for PNG. The production at Porgera is projected to increase, providing a boost to the economy. However, the oil and gas sector may face challenges, with hydrocarbon output likely remaining flat due to expected price volatility.

Another area of focus for PNG’s economic prospects is foreign exchange availability. The ADO report points to significant improvements in the availability of foreign exchange in the country, along with efforts to ease the import backlog. These measures should help create a more favorable environment for private sector growth.

In conclusion, while PNG’s economy has demonstrated resilience and growth potential, a number of risks loom on the horizon. External factors such as global trade tensions, rising inflation, and geopolitical uncertainties could weigh on economic performance. However, with continued efforts to improve internal infrastructure, strengthen macroeconomic policies, and address security and operational challenges, PNG remains poised to navigate these challenges and capitalize on its abundant natural resources for future growth.