The Westpac Bank August 2025, PNG Economic Update highlights a strong economic growth for Papua New Guinea (PNG), nearly matching China’s pace and outstripping the OECD average. The country’s growth forecast is around 4.7% for 2025, supported by strong domestic demand and elevated export prices for key commodities like gold and copper. Yet, as growth becomes more visible, PNG faces crucial challenges that require decisive government action across fiscal management, infrastructure, diversification, and human capital development.
Growth Environment and Outlook
PNG’s recent economic performance was bolstered by improved commodity prices and solid sales from key mining players such as Ok Tedi Mining and Lihir Gold. The report notes that while resource projects await final investment decisions that will spur further growth, merely waiting is insufficient. Structural reforms are needed to support sustained economic welfare gains for the average citizen.
Population growth in PNG averages nearly 2% annually, which heightens the urgency for faster economic expansion to lift living standards. PNG’s 2024 GDP growth is estimated at 4.3%, revised upward from earlier projections, due primarily to better-than-expected performance in petroleum and gas sectors. However, the forecast for 2025 is slightly lowered to 4.7%, reflecting a stronger base effect in 2024 and indicating the economy needs additional stimulus beyond resource developments.
Key challenges for PNG’s growth include:
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Fiscal discipline and sustainable sovereign debt.
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Economic diversification beyond resources.
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Infrastructure development.
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Building human capital in education and health.
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Enhancing governance and investment climates.
Fiscal Management: Discipline and Reform
PNG continues efforts at fiscal consolidation to reduce government deficits, which currently run a significant but improving negative balance. The report urges the government to further broaden and reform the tax base to enhance revenue collection efficiency and fairness. Concessional financing arrangements remain important, allowing PNG access to cheaper debt sources.
The ongoing deficit reduction will be critical to preserving debt sustainability and investor confidence. The fact that deficits are shrinking as a percentage of GDP is a positive sign, but further discipline and structural reform are necessary, especially to support the large public expenditure increase planned under the 2025 budget.
Diversification: Expanding Beyond Commodities
Diversification remains a major priority given PNG’s reliance on volatile commodity exports. The government is focusing heavily on boosting agriculture by supporting smallholder farmers to commercialize and improve productivity. This effort is still in early stages and requires substantial investment in both human skills and physical capital like transport and processing infrastructure.
Small and medium enterprises (SMEs) also represent an underdeveloped segment with great potential to broaden the economic base. Facilitating SME growth will require better access to finance, training, and market linkages. There is scope to expand non-resource sectors including tourism, manufacturing, and digital services, but these require strategic policy support and infrastructure.
Infrastructure Investment: The Backbone for Growth
PNG’s infrastructure deficit is a significant growth constraint. Reliable transport, logistics, energy, and communications networks are essential to reduce transaction costs, expand market reach, and integrate rural communities.
Major infrastructure priorities mentioned include:
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Road, port, and air connectivity improvements.
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Expansion of energy access with reliable electricity and internet to boost productivity.
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Upgrading water and sanitation systems to improve public health.
The Kaugel Hydropower Project exemplifies infrastructure commitments aimed at increasing rural electrification and supporting industrial activity like mining and special economic zones.
The report highlights ongoing reforms and renewal initiatives in state-owned enterprises (SOEs), which manage much of PNG’s infrastructure and utilities. The goal is to bring financial discipline, operational efficiency, and transparency to these entities to ensure sustainable service delivery.
Human Capital Development: Education and Health
Investments in human capital are vital for PNG’s long-term growth potential. Education, particularly at the primary and secondary levels, needs focus on expanding access, improving teaching quality, and raising literacy and numeracy rates. The Learning Enhancement and Access Project is a key national initiative supporting these goals.
Healthcare improvements, especially in rural areas, are critical for reducing disparities and increasing productivity. Strengthening primary care services aligns with the government’s social development objectives.
Youth and women’s empowerment through targeted skills training and employment programs is another vital area supporting inclusive growth and social stability.
Governance and Investment Climate: Transparency and Reform
Improving governance and institutional frameworks remains a high priority. The report stresses the importance of reducing corruption, enhancing public service delivery, and creating a transparent legal environment. Such reforms will underpin private sector confidence and attract the investment necessary for sustained diversification.
Simplifying regulations, ensuring land access, and promoting public-private partnerships are key enablers. In parallel, increasing exchange rate flexibility and improving foreign exchange availability will bolster macroeconomic stability and enhance competitiveness.
Trade and Tariffs: Navigating International Markets
PNG’s trade environment faces new challenges. The US recently imposed a 15% tariff on PNG exports without bilateral reductions, unlike some trading partners. The PNG government has maintained a commitment to free and fair trade and opted not to retaliate.
Prime Minister James Marape has deepened partnerships with the US on trade, security, and fisheries, emphasizing sustainable resource management and a shift from aid dependence to trade-led growth. Maritime security and combating illegal fishing remain priority areas within bilateral cooperation.
Commodity Markets: Copper, Gold, and Beyond
Commodity exports are the lifeblood of PNG’s economy.
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Gold production and exports saw a significant increase in 2024, contributing to export growth and fiscal revenues. Gold prices remain near record highs, supporting optimism for continued mining sector strength.
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Copper markets have been volatile due to tariff threats in the US and global supply-demand dynamics. While the medium-term outlook is constructive, short-term uncertainty persists.
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PNG’s Ok Tedi Mining reported particularly strong performance, driven by elevated commodity prices and solid sales volumes.
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The Misima Gold and Silver Project acquisition by Ok Tedi and other projects like K92 Mining’s output expansion highlight active investment in PNG’s resource base.
Santos’ completion of the Angore gas project adds to PNG’s gas reserves and export capacity, maintaining momentum in this crucial sector.
Local Business Conditions and SOE Reforms
PNG businesses report mixed conditions. The local economy is expanding but still faces supply-side constraints.
State-owned enterprises are a focus for governance reforms. PNG Power Ltd (PPL), for instance, is undergoing leadership changes and transformative projects to improve generation capacity, transmission reliability, and financial performance. Addressing high system losses and improving revenue collection are critical priorities.
The strategic alignment of SOEs with national electrification goals and partial privatization plans aims to enhance operational efficiency and support rural energy access.
Foreign Exchange and Monetary Policy
The Bank of Papua New Guinea (BPNG) has maintained stable interest rates at 4% through mid-2025 while managing a gradual depreciation of the kina exchange rate. Improved foreign exchange liquidity suggests movement toward greater currency convertibility and market equilibrium. Treasury bill auctions have seen strong demand, reflecting confidence in the government’s liquidity management.
Despite global uncertainties, PNG’s central bank has maintained a managed crawling-peg regime to balance external pressures while supporting domestic macroeconomic stability.
Economic Risks and Policy Priorities
While the economic outlook is cautiously optimistic, risks remain. The country’s dependence on resource projects to provide growth stimulus means delayed Final Investment Decisions hold back momentum. Domestic infrastructure and human capital gaps threaten to constrain productivity gains.
Policy priorities for PNG include:
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Continued fiscal consolidation with effective tax reforms.
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Accelerated infrastructure development focused on transport, energy, and digital connectivity.
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Strengthened education and healthcare systems for broader human capital development.
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Improvements in institutional governance to boost private investment.
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Measures to diversify the economy beyond resource dependency, especially promoting agriculture and SMEs.
Outlook Summary
PNG’s economy is on a positive trajectory, with resource sectors and domestic demand driving growth around 4.7% for 2025. Infrastructure projects, SOE reforms, and trade partnerships will shape the medium-term outlook. However, translating growth into widespread economic welfare requires ongoing reform and diversification effort, supported by investments in human capital and governance.
The government’s role in maintaining fiscal discipline, enhancing the investment climate, and delivering public services remains critical to PNG’s economic future.
