Papua New Guinea is quietly defying the odds. In March 2023, the International Monetary Fund (IMF) approved a three-year, US$918 million program to support macroeconomic stabilisation and reform. Nearly two years later, PNG has passed four program reviews, a rare achievement when almost half of IMF programs fail before completing even the first review. In a region where fiscal stress and political volatility commonly derail reform, PNG stands out as an unexpected success story.
The IMF must calibrate its approach to what is realistically implementable without provoking a backlash. Finding the right balance is tricky.
Yet the deeper question is not just whether the program is technically on track, but whether it is leading PNG in the right direction and what it means for Australia, PNG’s most important development and strategic partner.
On paper, PNG has made progress across all three pillars of the IMF-supported program: fiscal repair, central banking reform, and governance.
The fiscal deficit has narrowed, falling from 4.3% of GDP in 2023 to 3.4% in 2024. This reflects genuine improvements, including tighter spending control and better tax enforcement by the Internal Revenue Commission. Measures such as GST withholding for state enterprises and a more predictable dividend policy for state-owned firms have helped stabilise revenues. Growth in the non-resource economy and stronger global prices for LNG and gold have also buoyed the budget (GDP growth was 3.8% in 2023 and 4.2% in 2024). Whether fiscal consolidation endures when commodity prices ease will be the real test.
On monetary and exchange rate policy, the central bank has begun unwinding the crawling peg that kept the kina artificially high for nearly a decade and created chronic foreign exchange (FX) shortages, forcing companies and government agencies alike to queue for months to access US dollars. The IMF program allows for a gradual depreciation of the kina and injects more foreign exchange into the market. Higher gold, coffee and cocoa prices, weaker import demand, and the exit of PNG’s major fuel importer from onshore FX markets have also helped reduce the backlog in FX orders. But banks warn the relief may be temporary: structural issues – especially an inflexible exchange rate – remain, and long delays in accessing FX continue to undermine business confidence and the repatriation of profits.
It is on governance reform that the program’s credibility is weakest, and the case of the Independent Commission Against Corruption (ICAC) is the most illustrative. Meant to be a flagship achievement, ICAC has instead been marred by mismanagement, inflated salaries and internal dysfunction, sidelining its three foreign commissioners and damaging public confidence. Even Prime Minister James Marape has acknowledged the problems, and the IMF is now calling for stronger safeguards. The consequences are serious: stalled anti-corruption efforts mean PNG is almost certain to be grey-listed by the Financial Action Task Force next year, raising borrowing costs, disrupting banking links and deterring investment. ICAC’s success or failure will shape not only public trust and accountability but PNG’s international financial standing.
Of the several governance-related structural benchmarks in the IMF program, only one has been fully met. Corruption remains widespread while overall governance indicators continue to deteriorate.
This tension cuts to the core of the program. On one side, one could argue the IMF has been too soft, providing large external financing without pushing hard enough on deeper institutional weaknesses. A gentle program may stabilise macroeconomic conditions in the short term, but leave underlying governance issues unaddressed. Others warn that pushing harder could trigger political resistance or economic disruption. A rapid return to the kina’s convertibility, for example, would alleviate FX shortages but also raise import prices in a country where living costs are already high. Similarly, aggressive anti-corruption prosecutions could threaten political coalitions that sustain basic policy continuity.
Australia has a vested developmental interest in PNG’s fiscal stability and a strategic interest in avoiding governance backsliding that could open space for external competitors.
PNG’s reform environment is not just technocratic, it is political. The IMF must calibrate its approach to what is realistically implementable without provoking a backlash. Finding the right balance is tricky.
So far, the IMF has walked this line. But harder reforms lie ahead: ensuring resource projects deliver fair fiscal returns, genuinely operationalising the Sovereign Wealth Fund, improving public financial management, and restoring credibility to anti-corruption institutions. These steps will be decisive for PNG’s long-term trajectory.
This is where Australia comes in. Canberra is PNG’s largest bilateral lender and a key supporter of the IMF program, having provided AU$3.13 billion in direct budget support since 2019. That financing has helped PNG avoid sharper adjustment and borrow at far lower cost than on domestic markets, but it also places Australia on the hook.
As PNG’s largest creditor, Australia has both leverage and responsibility. It must ensure the reform program keeps PNG on a sustainable path rather than leaving Australia as lender of last resort. That means using its influence to push for steady progress on deeper reforms – particularly transparency, governance, and public financial management – while recognising the political constraints that make rapid or punitive adjustment risky.
Australia has a vested developmental interest in PNG’s fiscal stability and a strategic interest in avoiding governance backsliding that could open space for external competitors. Canberra will need to remain closely engaged both as a financier and as a partner shaping the trajectory of reforms.
PNG has performed better than many expected. But the balance between stabilisation and deeper transformation remains fragile. The most important reforms are the ones still ahead, and Australia shouldn’t shy away from ensuring that progress leaves Canberra off the hook.
