The Westpac Wailis Papua New Guinea Economic Update and Outlook for May 2025 published on 2 June shows a commodity boom, resource sector investments, and policy reforms are driving optimism amid global trade tensions.
Titled “Optimistic 2025: PNG mostly resolves forex issues, sees favourable commodity prices,” the report shows the outlook for this year remains optimistic with growth expected to reach 4.7 percent, driven by a combination of robust investment activity, improved foreign exchange liquidity, and elevated commodity prices.
This projection aligns closely with the International Monetary Fund’s (IMF) own upgraded forecast of 4.6% for PNG, reflecting strong economic momentum from 2024 and the successful implementation of key fiscal and structural reforms.
Forex Pressures Eased, Confidence Rebounds
The sharp reduction in foreign exchange backlogs, which previously delayed payments to offshore suppliers for months, was noted in the report, as Westpac says some orders are now being cleared in less than a week, thanks to coordinated policy actions by the Bank of PNG (BPNG), a managed 15% depreciation of the Kina over five years, and inflows from high commodity export revenues.
The Kina Facility Rate (KFR) has remained unchanged at 4.0% since March 2025. In a surprise move, BPNG reduced the cash reserve requirement to 11%, effectively increasing liquidity in the financial system. Although inflation risks remain, this policy stance has helped sustain business sentiment while ensuring adequate foreign currency access.
Commodity prices continue to play a pivotal role in PNG’s economic trajectory, with several key products that have performed strongly as listed:
- Coffee: Prices surged due to adverse weather globally. Despite a 28% drop in PNG’s export volumes (from 57,900 tonnes in 2023 to 41,600 tonnes in 2024), high prices have supported incomes. Advocates are calling for renewed investment in coffee plantations to rebuild capacity.
- Cocoa: PNG exported 39,800 tonnes in 2024, up 3.4% from 2023. Although global supply remains tight, improving weather in West Africa may support more stable prices in the medium term.
- Coconut oil: The El Niño effect slashed global supply by 10%, pushing prices past US$2,700/metric ton, nearly double last year’s prices. PNG, which contributes around 0.05 million metric tons annually, stands to benefit greatly from this price spike.
- Gold: PNG gold exports surged 49.7% to K13.6 billion in 2024, buoyed by increased output at the reopened Porgera mine and global price volatility following U.S. trade policies. Gold briefly hit US$3,400/oz and is expected to remain elevated.
- LNG: While total liquefied natural gas exports fell slightly from K20.6 billion (2023) to K19.6 billion (2024) due to softer prices, demand remains strong. The outlook remains positive with PNG well-placed to capitalise on its role as a transition energy provider amid global decarbonisation.
Major Projects Fuel Investment Outlook
- OK Tedi Acquires Misima Gold and Silver Project
Ok Tedi Mining Limited has acquired the Misima Gold and Silver Project from Kingston Resources for A$60 million, with potential contingent payments of up to A$35 million. The project holds 3.8 million ounces of gold and 22.1 million ounces of silver in reserves. Mining ceased in 2004, and restarting the project could require over US$476 million, as estimated in 2022.
OK Tedi, which posted a K1.9 billion turnover and K681 million net profit in Q1 2025, is well-positioned to fund the project. Kingston retains royalty rights from any future production.
- Papua LNG Edging Closer to Final Investment Decision
The long-anticipated Papua LNG project, led by TotalEnergies in partnership with ExxonMobil and Santos, is nearing its Final Investment Decision (FID), now expected by late 2025 or early 2026. The project, based on the Elk-Antelope fields, plans to produce 5.6 million tonnes annually, co-locating its infrastructure with PNG LNG’s existing assets.
Cost estimates have ballooned from US$10 billion to up to US$18 billion, necessitating further cost optimisations. If successful, first LNG production is anticipated by late 2027 or early 2028, significantly enhancing foreign investment and easing forex pressure.
Macroeconomic Stability and Inflation Risks
According to the report, inflation remains a concern, driven in part by the PNG Kina’s depreciation, which has increased import costs for essential items like fuel and food.
PNG’s inflation rate rose to 0.67% in Q4 2024, up from -0.86% in the previous quarter. March 2025 inflation data is still pending, prompting BPNG to adopt a cautious “wait and see” approach.
Recent Monetary Policy Committee (MPC) minutes revealed a split vote on raising interest rates, with growing support for monetary tightening once updated inflation data becomes available.
Encouragingly, foreign exchange reserves have stabilised at K14.2 billion (US$3.6 billion) as of December 2024, boosting macroeconomic confidence.
The financial sector has shown signs of investor interest beginning with April’s Treasury Bill auction, which saw K251.4 million offered, with successful bids totaling K180.7 million. The 273-day bills were oversubscribed, indicating investor preference for mid-to-long-term investments.
A Government Bond auction in May received K197.1 million in bids against a K200 million offer, with a strong oversubscription for 10-year bonds which is a signal of confidence in PNG’s long-term financial outlook.
The Central Bank Bill auction in May attracted K638 million in bids for the 7-day term alone, all of which were fully allotted at a 4.00% yield.
Exchange Rate
The Westpac report notes the PGK/USD exchange rate declined from 0.2463 to 0.2440 in May, consistent with BPNG’s managed depreciation policy. Westpac forecasts a gradual stabilisation:
- Q2 2025: 0.2405
- Q1 2026: 0.2450
- Q1 2027: 0.2650
Other key rates (June 2025 estimates):
- PGK/AUD: 0.3879
- PGK/NZD: 0.4326
- PGK/EUR: 0.2186
- PGK/JPY: 34.87
Global Risks Remain, But PNG Shielded
The inauguration of American President Donald Trump for a second term and subsequent “Liberation Day” tariffs disrupted international trade, weakened the United States dollar, and introduced geopolitical uncertainty. However, PNG’s direct exposure to the US remains low at just 1% of PNG’s exports in 2023 which limits direct impact.
Meanwhile, strong demand from China and India, along with elevated commodity prices, continues to support PNG’s external position.
Westpac concludes that PNG is well-positioned to exceed its 4.7% growth forecast, possibly nearing China’s 5% target, especially if momentum in the resource sector continues and infrastructure investment expands.
The Opportunities stated in the report are that PNG’s near-term outlook is boosted by high coffee and cocoa prices, while a thriving real estate sector remains an ongoing opportunity.
Unexploited opportunities in telecommunications and real estate offer long-term growth potential, the report adds, as only one-third of PNG’s population is connected to telecommunications and just 25% connected to the internet. Expanding digital infrastructure could unlock a new wave of inclusive development, it added.
