Economy of Papua New Guinea

Papua New Guinea's economy (PNG) is largely underdeveloped with the vast majority of the population living below the poverty line. However, according to the Asian Development Bank, its GDP is expected to grow 3.4% in 2022 and 4.6% in 2023. It is dominated by the agricultural, forestry, and fishing sector and the minerals and energy extraction sector. The agricultural, forestry, and fishing sector accounts for most of the labor force of PNG, while the minerals and energy extraction sector, including gold, copper, oil, and natural gas, is responsible for most of the export earnings.

Top Sectors in Papua New Guinea

Agriculture in Papua New Guinea

The agricultural sector employs most of Papua New Guinea's workforce. Agriculture itself contributes around 25% to the country's GDP and supports over 80% of the population. While most agricultural production is for subsistence farming, cash crops are also exported. Coffee, oil palm, cocoa, copra, tea, rubber, and sugar are the main crops by value. The timber industry experienced a slump in 1998 due to low global prices but recovered in 1999. Despite having 40% of its land covered by timber-rich trees, Papua New Guinea's domestic woodworking industry has been slow to develop. Shrimp is the primary fish export, although licensed foreign fishing boats catch tuna in Papua New Guinea's waters.

Industry in Papua New Guinea

Papua New Guinea's economy relies heavily on imports for manufactured goods. Its industrial sector, excluding mining, contributes only 9% to the GDP and plays a minor role in exports. Small-scale industries produce basic goods like beer, soap, building materials, clothing, paper products, and processed foods. Several factors hinder the development of a larger industrial sector, including the small domestic market, comparatively high wages, and expensive transportation costs.

Papua New Guinea - Key Economic Indicators

Exports and Imports

In 2023, Papua New Guinea (PNG) exported goods worth approximately $10 billion. Major exports include minerals such as gold and copper, as well as agricultural products like coffee, palm oil, and cocoa. On the import side, PNG imported around $4.5 billion worth of goods, including machinery, transportation equipment, food, fuels, and chemicals. This resulted in a trade surplus of about $5.5 billion, reflecting the country's strong export sector.

Infrastructure

Papua New Guinea's infrastructure is developing, with significant investments in roads, bridges, ports, and airports. The country has about 30,000 kilometers of roads, but only 8,700 kilometers are paved. The government, along with international partners, invested approximately $500 million in 2023 to improve transportation infrastructure. Key projects include the Highlands Highway rehabilitation and upgrades to Port Moresby’s Jacksons International Airport.

Balance of Trade

With exports valued at $10 billion and imports at $4.5 billion in 2023, Papua New Guinea enjoys a trade surplus of $5.5 billion. This positive balance of trade is primarily driven by the country's rich natural resources and export-oriented sectors. The surplus helps to stabilize the economy and supports the government’s efforts in infrastructure development and social programs.

Fiscal Policy

In 2023, the Papua New Guinean government’s expenditure was around $5.3 billion, focusing on health, education, infrastructure, and social services. The fiscal deficit was approximately 2% of GDP, around $200 million. Government revenue, largely derived from taxes and export duties, was estimated at $5.1 billion. Efforts to improve tax compliance and broaden the tax base are ongoing to ensure fiscal sustainability.

Monetary Policy

Papua New Guinea's central bank, the Bank of Papua New Guinea, manages the country’s monetary policy. In 2023, the inflation rate was about 4.5%. The central bank aims to maintain price stability and support economic growth through interest rate adjustments and monetary controls. The local currency, the Papua New Guinean kina (PGK), is managed to ensure exchange rate stability against major currencies.

Trade Agreements

Papua New Guinea is a member of several trade agreements and regional economic communities. It is part of the Pacific Agreement on Closer Economic Relations (PACER) Plus and the Melanesian Spearhead Group Trade Agreement. These agreements help to enhance trade relationships and economic cooperation with neighboring countries and trading partners, promoting market access and investment opportunities.

Environmental Regulations

Environmental conservation is crucial for Papua New Guinea, given its rich biodiversity and natural resources. The government has implemented regulations to protect forests, marine areas, and wildlife. Key initiatives include the establishment of protected areas and sustainable land use practices. In 2023, about $50 million was invested in environmental protection projects, including reforestation programs and efforts to combat illegal logging and fishing.

Tax System in Papua New Guinea

Capital gains tax: Not currently present: Papua New Guinea does not currently have a capital gains tax on profits from investments.
Corporate tax rate: 30%: Resident companies (incorporated under PNG law) and non-resident companies with a permanent establishment in PNG are taxed on their worldwide income at a rate of 30%.
Sales tax: Goods and Services Tax (GST): Introduced in 2000, a 12% Value Added Tax (VAT) applies to most goods and services sold or consumed in PNG, except for some basic necessities. Businesses registered for GST collect the tax and remit it to the Internal Revenue Commission (IRC).
Property tax: Limited property tax: PNG has a limited property tax system. Currently, only certain types of properties, such as those in designated commercial zones, may be subject to property tax. The specific rates and exemptions vary.
Payroll tax: Social security contribution: PNG has a payroll tax that contributes to the National Superannuation Scheme (NSS), a social security program. The exact contribution rates for employers and employees require further research.
Tax deductions and credits: Limited information available: Publicly available information on specific tax deductions and credits offered in PNG is limited. Consulting with a PNG tax professional is recommended to understand the latest incentives and deductions available for businesses and individuals.
Tax compliance: Efforts for improvement: The Internal Revenue Commission (IRC) is responsible for tax collection in PNG. The effectiveness of tax compliance efforts is undergoing improvement, with initiatives to modernize tax administration and broaden the tax base.
Tax burden: Moderate burden: Compared to some developed nations, the overall tax burden on individuals and businesses in PNG is considered moderate. This is due to the absence of capital gains tax and potentially lower individual income tax rates (further research needed). However, the introduction of GST has increased the tax burden for consumers.

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Consultancy services for a socio-economic evaluation of ports managed by PNG Ports Corporation Ltd

Papua New Guinea

17 Jan 2025

10 Feb 2025