Stimulate or stagnate: steering Papua New Guinea’s economy through the COVID-19 crisis


The global economic meltdown that has been triggered by the COVID-19 virus outbreak has hit Papua New Guinea. What are the implications for the country’s business and financial sectors?

Prime Minister Marape

The 8th Prime Minister of PNG, James Marape, addresses the nation on 23 March 2020 to talk about the 14-day lockdown. Credit: Department of the Prime Minister and NEC

To combat the uncertainty, job losses and trading restrictions brought on by PNG’s first case of COVID-19, the Marape-Steven government has signalled that it will be providing incentives to give a ‘helping hand’ to micro, small and medium enterprises (MSMEs) and State Owned Enterprises (SOEs).

There will also be debt relief. In a statement, Prime Minister James Marape said that the government will be ‘working with the central bank and commercial banks [plus non-bank lenders] to defer loan repayments by three months or more for those citizens, and businesses, with bank loans.’

He said the government is also working to use its ‘business stimulus fund we budgeted in 2020 [national] budget’ as security ‘in our partnership with commercial banks’. The aim is to lower interest rates on business borrowings.

‘The IMF and ADB (Asian Development Bank) will undoubtedly demand massive cuts in public spending.’

The Marape statement said that the government is also asking the country’s two super-funds to look at advancing some contributor funds to ‘those employees who have been laid off as a result of Corona period lay-off at work places.’

Central bank intervention

The Bank of Papua New Guinea has responded to the COVID-19 crisis by announcing a sharp drop in interest rates, moves on foreign exchange availability, and quantitative easing.

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The aim, according to a statement by the bank’s Governor, Loi Bakani, is to maintain stability in the country’s monetary, financial and payment systems. Measures to take effect immediately are:

  1. Lower interest rates. The Central Bank has announced an easing of monetary policy (interest rates) by lowering the cost of money to ‘make liquidity (access to money) available to commercial banks.’ The base interest rate for PNG, the Kina Facility Rate, will be dropped by 200 basis points: from five per cent to three per cent. Commercial banks in turn are expected to reduce their lending rates.
  2. Banks will have more cash. Commercial banks will be allowed to reduce the amount of cash they are required to hold from 10 per cent to seven per cent. This, too, is intended to improve the amount of cash in the system.
  3. More foreign exchange should become available. The Central Bank announced the intention to ‘provide US dollar liquidity to the domestic foreign exchange based on its assessment of supply and demand.’ There will especially be a focus on medical supplies.
  4. The Bank will buy back its own debt. The Central Bank has announced its intention to buy back government securities: Treasury Bills and Inscribed Stock. This is a strategy known as Quantitative Easing* and is intended to ‘provide liquidity to holders of those instruments.’ The buy-backs will be available on request and will be offered for a three-month period.
  5. Interbank lending will be stimulated. The bank will increase the margin on its borrowing and lending for repurchase operations (short-term borrowing for dealers in government securities). The aim is to ‘encourage interbank borrowing and lending among commercial banks.’
  6. Bank payments will be facilitated. The statement said the bank will ‘continue to provide the Intra-Day Liquidity facility to commercial banks ‘to support the efficient clearing of payments transactions. This facility will now be accessed on demand based on prevailing limits.’

IMF to the rescue?

Where will the PNG government get its funding from in the crisis? Concessional (low interest) finance from multilateral agencies is the main focus.

The PNG Treasurer, Ian Ling-Stuckey, has reportedly applied for US$252 million (K860 million) from multilateral agencies, including the International Monetary Fund (IMF) and Asian Development Bank, to support the PNG government’s response to the virus. (Globally, the IMF has indicated it will mobilise its US$1 trillion lending capacity to fight coronavirus.)

According to consultant Jeffrey Wall, the government is understood to be in detailed negotiations with the IMF and ADB on a budget support and debt management program reportedly worth around A$2 billion (K4.22 billion).

This may come at a price, he suggests.

‘The IMF and ADB (Asian Development Bank) will undoubtedly demand massive cuts in public spending, especially recurrent spending on salaries and wages and related bureaucratic costs,’ he suggests.

Foreign exchange still an issue

Bank South Pacific’s Robin Fleming. Credit: BAI

The Chief Executive of Bank South Pacific, Robin Fleming, reportedly said that the supply of foreign exchange has not improved and ‘exports at this stage are marginally lower then they were last year.’

He said all businesses are asking the government to consider providing additional foreign exchange as part of any stimulus.

According to the Bank of PNG’s Monthly Economic Review the level of gross foreign exchange reserves at the end of November 2019 was US$2.21 billion (K7.391 billion), which was deemed ‘sufficient for 4.9 months of total and 9.1 months of non-mineral import covers.’ By the end of last year, the reserves had risen to US$2.34 billion (K7.83 billion).

Fleming added that there needed to be more domestic liquidity (money in the system).

PNG’s currency and sovereign bond

PNG’s currency has been resilient, in part because it is so thinly traded. According to Kina Securities, over the last month the kina is down only 0.5 per cent against the US dollar and it is up by 10.2 per cent against the Australian dollar and 8.6 per cent against the British pound. It is steady against the Japanese yen.

Papua New Guineas’s US$500 million (K1.723 billion) sovereign bond has weakened, however. According to BondEvalue, the price of the bond has fallen from a high of US$109.6 on February 26 to US$94.2 on March 26 – a drop of 14 per cent. It is now yielding interest of between 9.13 and 9.62 per cent.

Weak position

A comment from PNG’s Institute of National Affairs notes that, despite having a large resource sector and a strong trade surplus, Papua New Guinea was already in a weak economic position when the crisis hit.

‘Increased public borrowing, including directly and indirectly for State equity in resource investments, has resulted in debt servicing increasingly displacing other public expenditure,’ the INA comment said.

‘So, the capacity to handle an additional social (public health) and economic crisis of an uncertain duration is limited – and yet it is essential at this point.’


  1. Allan Wawah says

    Thank you Marape-Steven government for being proactive and compassionate on our struggling people, SMEs and other foreign direct investments. The effects of COVID-19 is overwelming on our economy, livelihood and SME. The decision and courage to make decisions on our coutry’s behalf should be commended. God will continue to richly bless leaders who have the heart and passion for their beloved people.

  2. Jock. Tonokun says

    Nothing mention in the news.

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