Papua New Guinea Economic Update

Macroeconomic Stability and Growth: Unlocking the Potential of Agriculture

The World Bank's Papua New Guinea (PNG) Economic Update offers a comprehensive evaluation of the country's economy, highlighting the challenges and opportunities for sustainable growth, macro-fiscal stability, and development in the face of global trade and policy uncertainties. Its special focus explores the potential of the agricultural sector to create jobs, boost exports, and diversify growth beyond the resource sector.

Key Findings

	PNG’s economic growth is expected to accelerate this year, well above its historical average. Growth is projected to increase to 4.7 percent in 2025 compared to 3.8 percent in 2024, driven by both resource and non-resource sectors. The resource sector's growth is anticipated to increased production at the Porgera gold and OK Tedi copper mines, while the non-resource sector is expected to grow due to improved agricultural output. However, over the medium term, growth is expected to slow to around 3 percent.
	Agriculture, a lifeline for at least 85 percent of PNG’s population, has the potential to significantly support economic growth and tackle many of PNG’s developmental challenges. By helping subsistence smallholder farmers transition into commercial and semi-commercial agriculture, more jobs can be created including for women and youth. This will reduce monetary poverty, increase the affordability of essential services, and address factors contributing to fragility and crime. It will also help to boost growth and decrease dependence on the resource sector.
	Commodity prices are expected to decrease in 2025 and 2026; however, the impact of this on the PNG economy is likely to be balanced. Commodity prices, including liquified natural gas are set to decline. At the same time, soaring gold prices and increased production at the Porgera gold mine are likely to counterbalance these effects.
	A balanced budget is projected for 2027 as PNG's fiscal deficit narrowed to 3.2 percent of GDP in 2024. Public debt is sustainable, pending the implementation of the government’s planned fiscal consolidation and conservative financing strategies. These, alongside reforms supporting private sector growth and climate-related adaptation/mitigation measures, can help lower the risk of public debt distress and support sustainability.
	But external and domestic risks are clouding PNG’s economic outlook. Slower global growth, particularly in major trading partners like Japan and China, could reduce demand for PNG's commodity exports. Commodity price volatility has reached unprecedented levels, presenting a significant risk to PNG’s export revenues and foreign exchange reserves. Domestically, the economy is vulnerable to political and social instability, as well as climate change which is increasing the frequency of extreme weather events. Higher global growth and commodity prices and commencement of potential new resource projects in PNG present an upside risk to the outlook.
	To mitigate these risks, the government must focus on strategies that bolster macroeconomic stability, stimulate private investment, and catalyze job creation. The authorities should focus on increasing domestic revenue mobilization, reducing inefficient spending, and reducing borrowing costs. There is a need for greater exchange rate flexibility and to reduce the regulatory burdens that are hampering private sector investment. More investments are needed in education, health, and skills development, particularly for women and youth to build human capital. Supporting non-resource sectors, like agriculture, will promote more inclusive growth.
	Unlocking PNG's agricultural potential can be achieved through three strategic pathways: (1) Boosting productivity and commercialization through cost-effective investments to support smallholders, increase on-farm jobs, and income. For example, increasing investments in high-yielding, pest-resistant crop varieties, along with enhanced farm management practices and mechanization; also supporting targeted investments in innovation packages, integrating research, extension, and field implementation. (2) Scaling up investments in value chains of targeted crops: This would require prioritizing infrastructure (agro-logistics), services and systems that connect farmers to the markets. (3) Strengthening systemic enablers to unlock private investment and long-term growth: Repurposing public investments to strengthen research and development (R&D) and extension services, prioritizing strategic investments to foster public-private partnership (PPP) models to mobilize substantial capital and technical expertise across value chains; strengthening regulatory frameworks including developing fair and transparent land access agreements.