Papua New Guinea

Country Information

Location and People

Papua New Guinea (PNG) comprises a group of islands that includes the eastern half of the island of New Guinea, the second-largest island in the world. PNG shares New Guinea Island with Indonesia, on the west. To the south of PNG lie the Coral Sea and Australia, while the South Pacific Ocean lies to the north. The country is mostly mountainous, with coastal lowlands and rolling foothills, and one of the world's largest swamps along its southwest coast.

The total land area is 452,860 square kilometers, home to about 5.3 million people. Melanesian, Papuan, Negrito, Micronesian, and Polynesian ethnic groups make up the bulk of the population. However, PNG is characterized by enormous linguistic and cultural diversity. There are over 800 language groups and thousands of ethno-political groups, each with its distinctive cultural attributes.

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Historical Background

The eastern half of the Island of New Guinea was divided between Germany (north) and the United Kingdom (south) in 1885. The latter area was transferred to Australia in 1902, which occupied the northern portion during World War I. Australia continued to administer the combined areas until independence in 1975. A nine-year secessionist revolt on the island of Bougainville ended in 1997.

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Socio- Economic Conditions

Key Social and Poverty Indicators

The PNG economy is extremely dualistic. An export-oriented, capital-intensive minerals sector is a major engine of economic growth, generating crucial export and taxation and hydrocarbons revenue, much of which supports a dominant public sector. A semi-subsistence sector provides livelihood for 85% of the population.

PNG is richly endowed with natural resources, including forestry, fish, nickel, cobalt, oil, copper, and gold. Minerals account for over 70% of export earnings. The country's rugged terrain, however, makes for very high infrastructure costs and extreme low population densities, hampering exploitation of resources. Complex customary land tenure systems, a serious peace-and-order problem, poor human resource development, and a population growth rate of over 3% also constrain development.

Since the mid-1990s, PNG's growth performance has generally been weak, with poverty increasing. Per capita gross domestic product (GDP) in 2004 was about 10% lower than at the time of independence in 1975. An unfavorable external environment is partially to blame. However, the poor performance is attributable in large part to governance and peace-and-order problems, deep-seated structural impediments to growth (exacerbated by neglect of rural physical infrastructure), and inadequately focused macroeconomic policies.

The Government acknowledges the need for reform, as evidenced by public discussions, statements of policy and intent, and passage of significant legislation. However the champions of reform appear unable to translate these intentions into concrete and consistent actions. Corruption is a critical problem, and is publicly acknowledged by Government leaders and the general public. As the Government itself notes, country conditions include chronic political instability, weak management capacity in Government, a corrupt civil service, an internal system of patronage, social conflicts and poor security, and small and isolated markets.

PNG's human development index of the United Nations Development Programme (UNDP) has improved steadily since the mid-1970s, but only very slowly, and PNG's international ranking is only 132nd, reflecting alarming economic and social intracountry disparities. On the UNDP poverty index, PNG is 61st among developing countries. PNG ranks last among Pacific developing member countries on both indexes. PNG clearly faces formidable tasks and challenges in achieving the MDGs.

Poverty estimates have not been updated since the last household survey in 1996. However, the World Bank has projected poverty levels using information on the rate and sector patterns of output and employment growth. According to the projections, poverty has increased at an alarming rate in recent years. The proportion of poor living under the national poverty line was estimated to be about 53.5% in 2003, compared with 37.5% in the benchmark year of 1996. The proportion of the population living on less than US$1 a day is estimated to have increased from 24.6% to 39.1% in 2003.

Many health indicators have deteriorated in recent years, including the availability and performance of health facilities. Immunization and infant mortality rates have deteriorated since 1990. The increase in reported HIV/AIDS cases is alarming. According to the 2004 Pacific Islands Regional Millenium Development Goals Report, PNG is the only Pacific island country currently considered to have a generalized epidemic of HIV. An HIV/AIDS consensus workshop was held in November 2004, and the estimated number of HIV infections in the 15-45 age group was between 45,000 and 75,000. The workshop consensus was that the number of cases would double every 2 years.

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Country Outlook

The ability of the economy to generate agricultural growth in the context of declining petroleum output is crucial to economic results in the medium term. Non-mineral output growth is essential for employment generation. But even if current forecasts prove accurate, growth will be too slow for substantial inroads into the problems of unemployment and underemployment. The country's growth rate needs to at least double before this occurs.

A reverse in the decline in lending to the private sector is crucial to improving medium- to long-term growth prospects. More fundamentally, it is likely that a sustained turnaround in private sector borrowing requires political stability and significant progress in addressing long-standing law-and-order and governance problems. The continued presence of Australian technical advisors and reduced number of police is expected to reassure investors, but how much this reassurance will translate into actual borrowing and investment remains to be seen.