Papua New Guinea

Country risk

Country risk in PNG is high. PNG has an OECD country credit grade of 6 and sub-investment grade sovereign debt ratings from the major ratings agencies. These ratings underline PNG’s vulnerability to economic and financial shocks.

PNG ranks 120th out of 190 economies in the World Bank’s latest ease of doing business survey. Enforcing contracts, resolving insolvency and starting a business are more difficult relative to other Pacific Island countries. On the positive side, access to credit and obtaining protections for investors are somewhat easier compared to regional peers.

PNG has low scores on the World Bank’s governance indicators, including significant constraints in respect of the rule of law, government effectiveness and control of corruption. Such constraints can hurt business confidence, impede economic development, undermine policy formation and implementation and hinder social cohesion. Policy implementation and effectiveness continues to be bolstered by technical assistance from development partners and multilateral lenders providing support to the government’s administration.

Risk of expropriation in PNG is moderate. This aligns with the low scores around contract enforceability in the ease of doing business survey and the weak rule of law scores in the governance indicators. This makes it harder for investors to settle investment disputes. The government’s resource-nationalist policy agenda could also weigh on the attractiveness of foreign investment in PNG.

 

Political risk is moderate to high. Political risk reflects the potential for leadership challenges to inhibit progress of resource developments that leads to weaker outcomes for GDP growth, government finances and foreign exchange liquidity. The potential for political volatility immediately following the 2022 election and at the end of 2023 (when the 18-month constitutional grace period preventing parliamentary no-confidence motions against the government ends) is a risk to policymaking and investors’ confidence. Policies focused on increasing economic benefits from resource projects are likely to continue.