Papua New Guinea’s economy is set to continue its strong recovery in 2025, fueled by robust resource exports, a record trade surplus, and solid government spending, according to the latest PNG Westpac Wailis, a quarterly economic update providing in-depth insights into the country’s economy.
However, economic challenges remain, including persistent inflation, currency depreciation, and global trade uncertainties.
The National Statistical Office (NSO) revised PNG’s 2023 GDP growth from 3.0% to 3.8%, reflecting stronger-than-expected performance in crude oil and natural gas production. This revision has led to an upward adjustment in 2024 GDP growth to 4.3% from the previous estimate of 3.7%. For 2025, GDP is forecast to grow by 4.7%, slightly lower than the earlier 5.1% projection due to base effects.
Sectoral Growth Projections (2021-2027)
Data from Westpac’s forecast highlights the growth trends across primary, industrial, and service sectors:
- Mining & Quarrying: After recovering from a -11.6% contraction in 2021, the sector grew 5.1% in 2022 and is projected to expand by 3.6% in 2025.
- Construction: Buoyed by resource projects, the sector recorded 13.4% growth in 2022 and is expected to maintain momentum with a 5.0% expansion in 2025.
- Telecommunications & ICT: One of the fastest-growing sectors, increasing by 15.5% in 2023, is set to continue double-digit growth as Vodafone and Starlink expand services.
- Wholesale & Retail Trade: Forecast to grow 3.8% in 2025, reflecting higher consumer spending due to government expenditure and trade sector expansion.
Inflationary Pressures Persist Across Regions
PNG continues to battle persistent underlying inflation, which reached 5.4% year pace in the December 2024 quarter, up from 4.4% in September 2024. Headline inflation was just 0.7% in the year due to falling betal nut prices. The underlying inflationary pressure largely stem from increases in:
- Alcoholic Beverages & Tobacco (+6.4% year and +21.5% year respectively)
- Transportation (+3.5%), with fuel prices being year volatile lifting 20.3% in the year to the June quarter before dropping 7.1% in the year to December.
- Food & Beverages (+4.8% year), with cereal prices up 6.8% and dairy products rising by 5.0% in the year to December.
Inflation has varied significantly across PNG’s regions:
- Goroka, Hagen and Madang recorded the highest inflation at 7.2% in the year to December, more than double the national average.
- Lae experienced deflation (-4.3% year), continuing a downward trend from -6.3% in the year to September 2024.
- Port Moresby saw almost stable prices at 0.5% in the year to December, demonstrating less price volatility than other provinces.
Trade Surplus Reaches Record High as Imports Decline
PNG’s trade balance reached an all-time high, with merchandise exports rising by 10% while imports fell by 20% in the first three quarters of 2024.
The September quarter alone recorded a trade surplus of K9.1 billion, driven by gold, copper, and agricultural exports.
Export Performance by Commodity (2024)
Gold exports surged by 47%, reaching K9.2 billion in the first three quarters of 2024, supported by high global gold prices and the reopening of the Porgera mine.
Cocoa and coffee prices hit record levels, but despite strong prices, coffee exports fell by 47% in volume due to declining production by PNG producers.
Furthermore, agricultural exports rose by 13%, boosted by strong cocoa and marine product shipments. LNG exports declined 6% in the first three quarters of 2024 but rebounded in the last quarter, especially with Japan increasing its LNG purchases.
On the import side the 20% drop can be attributed to, at least in part, to foreign exchange shortages making it difficult for businesses to source international products. The largest declines were seen in:
- Food & Live Animal imports (-30%)
- Mineral fuels & lubricants (-37%)
- Manufactured goods (-25%)
Westpac warns that unless foreign exchange liquidity improves, import constraints are likely to persist into 2025 affecting consumer and business supply chains.
Bank of PNG Holds Kina Facility Rate at 4.0% Due To inflation Concerns
The Bank of Papua New Guinea (BPNG) has decided to keep the Kina Facility Rate (KFR) unchanged at 4.0% following its February Monetary Policy Committee (MPC) meeting. The central bank had previously raised the KFR by one percentage point in September 2024 to curb inflationary pressures amid a sound economic outlook.
With inflation remaining persistently high, analysts anticipate the possibility of further interest rate hikes in the coming months. The next Monetary Policy Statement, scheduled for release on March 31, will provide an updated assessment of economic conditions, potential interest rate changes, and the overall outlook for the PNG economy.
The Bank of PNG has maintained its strategy of a managed depreciation of the Kina through its "crawling peg" exchange rate system. In December 2024, the Kina weakened from 0.2516 to 0.2500 against the US dollar, followed by further declines to 0.2494 in mid-January and 0.2492 in early February.
The Kina has appreciated against the Australian dollar and Japanese yen due to the strengthening of the US dollar, particularly after Donald Trump’s return to the US presidency. However, this appreciation has increased pressure on the Kina to depreciate further against the greenback.
January saw a notable increase in foreign exchange auction volumes conducted by the central bank, rising to K400 million, up from K259 million in December. This suggests an effort by BPNG to provide liquidity to the market while managing exchange rate fluctuations.
Westpac projects that the Kina will continue its gradual depreciation through the first half of 2025, reaching 0.2402 by mid-year. However, a potential appreciation is expected toward the end of 2025 as large-scale resource projects bring in significant foreign exchange inflows.
The bank’s latest forecasts predict the Kina at 0.2450 by March 2025, falling to 0.2405 by mid-year, before stabilizing and strengthening in 2026, reaching 0.2600 by December 2026.
- USD: Expected to depreciate to 0.2405 by June 2025, before stabilizing in late 2025.
- AUD: Kina projected to fluctuate between 0.3879 - 0.4056 in 2025.
- JPY: Kina remains stable, around 37.04-37.98 per 100 JPY.
- Global Risks: US Tariff Threats and Commodity Price Volatility
Westpac highlights that the Trump administration’s new protectionist policies pose risks to global trade. While PNG’s direct exports to the US are minimal (less than 1% of total exports), the indirect impact on major trading partners (China, Japan, and Australia) could disrupt commodity markets and supply chains.
In response to US-imposed tariffs, China introduced a 15% tariff on US coal, LNG, and crude oil, which could affect global energy markets, potentially impacting PNG’s key resource exports.
With economic conditions evolving, stakeholders will closely watch the upcoming March 31 Monetary Policy Statement for further guidance on interest rates, currency stability, and the broader economic outlook for the country.
Commodity Price Forecasts (2025)
- Gold prices to remain high at $2,870/oz in Q1 2025 before slightly easing to $2,850/oz by year-end.
- Copper prices to remain above $9,100/t, benefiting PNG’s exports.
- Brent crude oil to average $70-$75 per barrel, with potential fluctuations based on global trade policies and geopolitical events.
Moreover, the 2025 National Budget includes a 5.4% increase in government spending, aimed at boosting economic growth. Key focus areas include:
- Education, Health, and Law & Justice: Increased funding for social sectors.
- Infrastructure & Transport: Reduction in budget allocations, despite the need for improved connectivity.
Government revenue is expected to rise by 10.8% in 2025, supported by strong economic activity and tax collections. However, foreign exchange constraints remain a challenge, impacting the government’s ability to finance essential imports and projects.
Although the country faces challenges in inflation, currency depreciation, and global trade uncertainties, PNG’s economic outlook for 2025 remains positive with strong growth expected in mining, agriculture, telecommunications, and construction.
The trade surplus and strong commodity exports provide a buffer against external shocks, but economic policies must address inflationary pressures and foreign exchange liquidity to ensure sustainable long-term growth, as the report states.
PNG is well-positioned to continue its growth trajectory while being aware of global economic uncertainties, with careful economic management and policy interventions.
The full PNG Westpac Wallis report for February can be found HERE
