Papua New Guinea: Selected Issues

This Selected Issues paper proposes to strengthen Papua New Guinea’s (PNG) authorities’ fiscal framework by introducing a clear public debt anchor and a primary balance rule. Specifically, it considers setting the medium-term debt anchor at between 30 and 40 percent of gross domestic product to be appropriate to ensure that the debt limit of 60 percent is not breached under most scenarios. In addition, it suggests using the primary balance as an operational policy instrument to facilitate the convergence of public debt to its anchor and keep it at that level over the longer term. PNG needs to improve the efficacy of the current fiscal framework to maintain debt sustainability and guide fiscal policies. Advancing Public Financial Management reforms along with mobilizing revenue in accordance with the Medium-Term Revenue Strategy and enhancing expenditure and commitment controls are also critical to enhance the credibility of the fiscal framework. The operationalization of a sovereign wealth fund, aimed at managing resource revenues and promoting intergenerational equity, requires careful consideration of its structure and governance to ensure its effectiveness in contributing to fiscal stability and development objectives.