Economic vulnerability and resilience in Papua New Guinea

Abstract

Papua New Guinea (PNG) is a small nation by international standards but dominates the Pacific Islands where it is by far the largest country in terms of population, area and natural resources. It has a small, open economy reliant on mining and petroleum resources for its immediate wealth but also possessing abundant agricultural potential and one of the largest forestry and fishery resources in the world. With all of this PNG has not been able to turn its windfall gains into solid and sustainable growth, and still relies on aid from Australia, the European Union and other donors, to balance its budget. There have been many attempts to reform the economy, the administration and the government. These have largely failed due to a lack of political commitment and lack of clear direction. If the country is to overcome the effects of its economic vulnerability, it has to find answers to its governance problems which are the cause of severe misallocation of resources. Whether it likes it or not PNG will have to come to terms with globalisation and will have to step up efficiency and macroeconomic management. PNG must seriously prepare itself to compete in a liberalised trading environment, and this can only be done with improved governance.