Papua New Guinea Economy

Subchapters:

Basic data
Public finances and the state budget
Banking system
Tax system

Basic data

The dramatic drop in GDP growth in 2020 caused by the pandemic was replaced by moderate growth of 1.8% in 2021. This year, the Asian Development Bank also predicts a slight increase in exports. Apart from the mining industry, growth in 2022 will remain lower overall compared to the pre-pandemic situation.

According to cheeroutdoor.com, mining and quarrying, which together account for about 10% of GDP, also increased, mainly due to increased production at the Porgera gold mine and, to a lesser extent, the Ok Tedi gold and copper mine. Outside the mining sector, the country’s overall economic picture was weak. Although the current government’s economic policy is not significantly different from the previous one, there are some important differences. These are especially new priorities in the reform of state-owned enterprises (SOEs) and increasing domestic ownership of mining and oil assets. In line with the second of these objectives, the cabinet sought to renegotiate two new investment projects: Papua LNG and the PNG LNG project in the P’nyang field. Together, the two projects are set to fuel the economy with planned capital expenditures in excess of $10 billion. However, negotiations have been suspended, causing project delays and dampening business confidence.

The most important long-term export items are coffee, vanilla, cocoa, tobacco, vegetable and animal oils, gold, copper ore or oil and natural gas. The main import commodities are: machines and transport equipment, fuels and chemicals, foodstuffs, refrigeration equipment.

Table from MOP + additionally balance of payments, indebtedness/GDP.

Pointer	2019	2020	2021	2022	2023
GDP growth (%)	3.7	-3	1.8	2.7	3
GDP/population (USD/PPP)	3,880.00	4,285.10	4,420.00	4,590.00	4,760.0
Inflation (%)	3.7	4.6	4.2	4.6	4.2
Unemployment (%)	2.4	2.7	3.2	3	2.8
Export of goods (billion USD)	10.9	9.3	10.9	12.3	12
Import of goods (billion USD)	3.8	3	3.3	3.5	4.9
Trade Balance (Billion USD)	7	6.3	7.5	8.7	6.9
Industrial production (% change)	ON	ON	ON	ON	ON
Population (millions)	8.8	9	9.1	9.3	9.5
Competitiveness	ON	ON	ON	ON	ON
OECD export risk	06.VII	06.VII	06.VII	ON	ON

Source: EIU, OECD, IMD

Public finance and state budget

Public finance	2021
State budget balance (% of GDP)	-7.2
Public debt (% of GDP)	52
Current account balance (billion USD)	5.2

Taxes	2022
AFTER	ON
F.O	ON
VAT	ON

The current account showed a significant surplus in 2021, driven by higher LNG and gold exports, as well as rising gold prices. But the weak economy caused government finances to deteriorate in 2021, with revenues falling and spending controls insufficient. The resulting deficit of 7.2% of GDP was a significant departure from the earlier strategy of fiscal consolidation. Due to the tight cash flow situation from the government during 2021, many projects could not be implemented as planned. The average annual inflation decreased to 3.63% in 2021 (from the original 4.87% – 2020), the estimate for 2022 calculates an increase to approx. 4.52%.

Banking system

The banking system includes the central bank Bank of Papua New Guinea, commercial banks, financial firms, commercial banks, insurance companies and loan societies. The currency is the Papuan kina (PGK) equivalent to 100 toea. The previously dominant PNGBC (Papua New Guinea Banking Corporation) was taken over by BSP (Bank of South Pacific) after financial problems. Other important banks include the Australian ANZ and Westpac.

Tax system

Since 2017, there has been an increased export tax on unprocessed wood (now 23.75% – 61.75% based on the price per m3), consumption tax on alcohol, tobacco products and manufactured and imported diesel fuel, airport tax from 30 to 114 PGK, tax from the turnover of betting offices and others. Changes (mainly towards higher taxation) can also be found in the case of additional income tax, tax on employee benefits, etc. The highest state authority for tax collection is the Internal Revenue Commission.

Personal income tax remains the same after the reforms of the tax system. Residents (staying for more than 6 months in PNG) will be taxed on income up to PGK 10,000 per annum, with rates from the PGK 12,500 band and above being the same for non-residents as for residents (22-42%).

Corporate income tax – a general tax rate of 30% applies to all private resident and state-owned companies. The original higher taxation of mining (48%) and oil (50%) companies should be partly compensated by the introduction of a high withholding tax for these sectors. Income tax for all non-resident companies is 48%. PNG has signed double taxation agreements with Australia, New Zealand, the United Kingdom, Canada, China, Malaysia, Singapore, South Korea, Fiji and Germany.