The Port Moresby Chamber of Commerce & Industry (POMCCI), in collaboration with Deloitte, hosted the Papua New Guinea 2025 Budget Breakfast, provided key insights into the budget and highlighted its implications for businesses and opportunities for the private sector. The breakfast meeting was held on November 4, at the Hilton Hotel in Port Moresby.
Amongst the economists present to discuss was Deloitte Partner, Tax and legal, Andrew Harris, in his presentation, outlined key measures on revenue projections, tax adjustments, and household assistance initiatives. Andrew emphasized the significance of the New Income Tax Act as a once-in-a-generation legislative overhaul. Businesses, individuals, and tax professionals are urged to familiarize themselves with the changes to the evolving tax reform effectively.
The event also featured a panel discussion with insights underlining the importance of fostering collaboration between the public and private sectors to sustain economic progress in the country.
PNG Records Steady Economic Growth Despite Global Challenges:
Prior to the Penal Discussion, Dr. Kishti Sen, International Economist at ANZ, delivered a detailed presentation on PNG’s economic outlook.
He began by analyzing the country’s economic performance over the past three years, emphasizing how external factors like commodity prices have driven growth despite the absence of major projects, even in the face of global economic challenges and the Covid-19 pandemic according to Dr. Sen, who presented the latest national accounts data.
Dr. Sen revealed that Papua New Guinea's economy grew by 3% in 2023. He said this follows an even stronger growth of 5.7% in 2022, revised upward from an initial estimate of 5.2%. In contrast, the economy contracted slightly by 0.5% in 2021, reflecting the height of the Covid-19 pandemic.
Dr. Sen emphasized the significance of this upward trend, "Minus 0.5% in 2021, which was a pandemic year — a recession, but only by a little bit. Then you come out of the recession, post a very strong 5.7%, and go into 2023 with another positive 3%. No major projects happening, yet the economy is still growing.”
He attributed part of this growth to increased government revenue from the liquefied natural gas (LNG) sector. LNG taxes soared from $115 million USD in 2021 to $1.2 billion USD in 2022, boosting the government's consolidated revenue. This windfall enabled the government to maintain its 2022 budget without cutting expenditures or increasing borrowing.
The agricultural sector also played a crucial role. Farmers benefited from higher prices for key exports like coffee and palm oil, which translated into increased consumer spending. This was reflected in a 6.8% rise in the retail and wholesale trade sector in 2022.
“The national income rose sharply due to these price surges, supporting economic growth despite limited project activities,” Dr. Sen said.
Interestingly, inflation remained relatively under control in 2022, even as other countries grappled with rising prices. Dr. Sen concluded that the combined effect of increased government revenue and agricultural prosperity helped sustain the country’s economic momentum.
Discussing inflation, Dr. Sen expressed concerns over the outdated weights used in PNG’s consumer price index (CPI), based on a 2008 household income survey. He suggested that actual inflation could be higher than official figures due to rising food prices and currency depreciation.
“The currency is expected to depreciate until early 2026, potentially reaching 24.4 cents per US dollar. This depreciation, coupled with reduced farm incomes, is likely to push prices higher,” he warned.
Dr. Sen with support from the data he presented, urged the government to intervene more aggressively in the foreign exchange market, leveraging the country’s high foreign reserves.
Turning to fiscal policy, Dr. Sen praised the government’s commitment to its 10-year budget repair plan.
“The goal remains achieving a budget surplus by 2027 and paying off all debt by 2034,” he stated.
He said the importance of disciplined execution and expressed cautious optimism that private sector-led growth could support the government’s fiscal goals if major projects commence by 2026.
“Whenever something goes wrong, there seems to be a positive offset, whether it’s a boom in energy prices, coffee, or palm oil,” he observed.
He remained hopeful for stronger growth post-2026, contingent on major projects materializing.
Panel Discussion, Experts Weigh in on Economic Challenges and Opportunities:
Maygen Turlin from Deloitte chaired an interesting discussion with Khwima Nthara, Country Manager for the World Bank Group in PNG, Kishti Sen, Senior Economist at ANZ, and Paul Flanagan from the Office of Treasury. The discussion gave insights into the PNG 2025 national budget and its ambitious goal of achieving a budget surplus by 2027.
Achieving a Budget Surplus by 2027: Is It Realistic?
Addressing the budget’s feasibility, Mr. Nthara expressed cautious optimism. He pointed to PNG’s declining budget deficit trend—from 8.9% of GDP in 2020 to a projected 2.2% in the latest budget. However, he emphasized the need for fiscal discipline and enhanced revenue generation through public-private partnerships, especially in critical sectors like energy infrastructure.
Mr. Sen echoed similar sentiments, stressing that achieving the surplus depends on reducing fiscal deficits while fostering private sector-led growth. He said that overcoming challenges like foreign exchange shortages would be crucial for expanding PNG’s non-resource economy, which includes sectors such as agriculture, manufacturing, and services.
The government’s tax reforms, including a GST zero-rating for essential goods and adjustments in housing taxes, are expected to reduce revenue by 210 million Kina.
Representing the Office of the Treasurer, Paul Flanagan, in a personal capacity, discussed strategies to offset these losses. He pointed to expected economic growth, enhanced tax compliance, and inflation-driven revenue gains as key factors supporting the government’s fiscal goals.
Strengthening the Financial Sector Amid Grey-Listing Risks:
The panel also addressed the grey-listing of PNG by the Financial Action Task Force (FATF) in 2014 and later removed in 2016.
Nthara warned of potential disruptions in international banking relationships, which could hinder foreign investment. He urged the government to strengthen anti-money laundering regulations and implement a clear action plan.
The Bank of PNG is reportedly taking proactive steps, with international support, to address these concerns.
While the panelists acknowledged significant economic challenges, they agreed that with continued fiscal reforms, targeted investments, and enhanced governance, PNG’s economic prospects remain promising for 2025.
The discussion underscored the importance of public-private collaboration, strong financial regulation, and a consistent policy framework to achieve sustainable economic growth.
