Papua New Guinea Nears $189m IMF Financing as Growth Slows and Reforms Advance

The Bank of Papua New Guinea’s exchange rate framework, introduced in January 2024, has reduced the kina’s overvaluation and, supported by favourable commodity prices, eased foreign currency shortages.

Papua New Guinea could receive up to US$189 million after reaching a staff-level agreement with the International Monetary Fund on the final reviews of its lending arrangements. An IMF team led by Nir Klein visited Port Moresby from September 24 to October 7, 2026, to assess the government's homegrown reforms. Executive Board approval would unlock approximately US$82 million under the Extended Credit Facility and Extended Fund Facility, plus up to US$107 million under the Resilience and Sustainability Facility, bringing total disbursed support to about US$1.193 billion.

Growth is projected to slow to 3.1 percent in 2026 from 6.2 percent in 2025, reflecting plateauing liquefied natural gas production, El Niño's impact on agriculture and mining, and weaker non-resource activity. Softer external demand and higher import costs linked to the Middle East war add pressure. Inflation is expected to reach 4.8 percent as betelnut, food and transport prices rise, partly offset by broader GST relief. Reserves stood near US$4 billion at end-June, covering around five months of imports, and are expected to remain adequate.

Budget Repair Faces Spending Pressures

The programme remains broadly on track, with all but one end-June quantitative performance criterion and every indicative target met; most structural benchmarks and several climate reform measures have been completed or are advancing. The fiscal deficit has narrowed considerably and public debt has started falling, but unexpected spending pressures and delayed state-owned enterprise dividends caused a temporary first-half budget shortfall despite a substantial resource revenue windfall. A September supplementary budget reaffirmed the PGK1.6 billion deficit target for 2026 and accommodated emerging needs, including El Niño-related spending. The IMF called for revenue administration reforms, better cash management and protection of Treasury's authority to authorise expenditure, welcoming gazetted amendments to the 2019 Public Financial Management Act that formalise this power.

Kina Reforms and Stronger Institutions Remain Central

The Bank of Papua New Guinea's exchange rate framework, introduced in January 2024, has reduced the kina's overvaluation and, supported by favourable commodity prices, eased foreign currency shortages. Restoring kina convertibility requires clearer communication of the framework's operating rules, market price discovery within announced limits and gradual alignment of the Kina Facility Rate. Secured interbank lending, an interbank interest rate benchmark and sustained absorption of excess liquidity would improve monetary policy transmission. Financial safeguards include completing emergency liquidity arrangements, activating the framework for managing system-wide financial risks, improving supervisory data and stress testing, and carefully sequencing the Treasury Single Account transition.

Governance priorities include activating the Internal Revenue Commission Oversight Board, appointing permanent leadership at the Independent Commission Against Corruption and fully staffing the central bank board. Legislative reforms and completion of the National Risk Assessment have strengthened measures against money laundering and terrorist financing. Implementing the Financial Action Task Force Action Plan remains essential to closing remaining gaps and securing a quick exit from its grey list, making effective follow-through an important test of institutional credibility and accountability.

Climate Resilience Shapes the Next Phase

Climate reforms address longer-term external financing risks through stronger disaster management, climate-informed public investment, improved access to climate finance and fiscal incentives for forest protection and fuel efficiency. Further priorities include establishing a National Emergency Management Authority with clear responsibilities, adopting investment regulations covering climate risks throughout project development and expanding a central climate-project database to support financing for mitigation and adaptation. The programme expires in December 2026, with continued IMF engagement through Article IV consultations, Post Financing Assessments and technical assistance; authorities will consider a possible successor programme after the 2027 general elections. Klein thanked officials for productive discussions, including Treasury Minister Ling-Stuckey, central bank Governor Genia, Treasury Secretary Oaeke and Deputy Governor Yabom, alongside private-sector, civil-society and development-partner representatives.