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A Glimmer of Gold in the Pacific
Hiding behind the picturesque beaches, tropical rainforests, and immense coral reef biodiversity of Papua New Guinea is a precarious socio-economic situation. High unemployment, crime and a volatile political landscape often dominate the headlines of the natural-resource rich pacific nation and have hindered economic development. However, tailwinds from ongoing and prospective natural resource projects along with a recent push for fiscal reforms poise the country for an upswing and position it for increasing geopolitical importance.
The vast majority of Papua New Guinea’s population lives below the poverty line; but GDP has been on the rise in recent years. The island’s economy is heavily reliant on natural resource exports, which have grown thanks to sizable investments in the country’s extraction and exportation capabilities. In 2014, the country opened its first major gas project, Papua New Guinea LNG, which cost $19B and represented more than 50% of the country’s GDP. Another sizable project, Papua LNG, is in the works and the country is on the verge of making its largest LNG discovery yet. Developments have also been made to expand and improve copper, gold, and nickel mining capabilities.
From a fiscal perspective, Papua New Guinea reached an inflection point in 2019 when it approached the International Monetary Fund (IMF) for aid. The IMF first designed a staff monitor program for the country and later awarded it a financial package in March 2023 after it surpassed its fiscal targets with ease. The additional inflow of aid is intended to help Papua New Guinea’s government tackle reforms such as balancing the fiscal budget by 2027 and un-pegging the currency. Beyond fiscal reforms, the government has embraced other forms of change as well, including creating an anti-corruption commission and redefining the central bank’s responsibilities to include both promoting economic growth and maintaining price stability.
Papua New Guinea still has a long road ahead of it, but it has made notable progress. Security and political issues continue to pose the biggest headwinds to economic development. This was tested earlier in January when a police strike turned violent in the capital city. While the Prime Minister, James Marape, was able to restore order, it might end up costing him political popularity. Only two prime ministers have completed their full terms since 1975. Marape’s 18-month grace period is expiring on February 9th, after that he could face being removed from office through a vote of no confidence.
The island’s advantageous geographic location coupled with tailwinds from natural resource exports and reforms have increased its value from a geopolitical viewpoint. Australia has long had deep ties with the country, but it recently has gone so far as to state that Papua New Guinea’s stability is vital to its well-being. Elsewhere, the US signed a security pact with the country as it competes with China for control in the Pacific. Papua New Guinea is becoming as good as gold as far as geopolitical currency goes, both literally and figuratively. But investors and allies will be keeping a close eye on the country to ensure the reforms and resource tailwinds are enough to keep it on a path of upward trajectory, and it is not just fool’s gold.
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