See "Westpac Wailis August 2026"

Papua New Guinea has entered the second half of 2026 in a stronger position than anticipated, supported by elevated commodity prices, improving activity in both resource and non-resource sectors, and ongoing IMF-backed reforms. However, this edition also talks about the growing disconnect between positive macroeconomic indicators and broader living standards.

Economic growth is forecast at 4.6% in 2026, driven by mining, agriculture, communications, construction and services. Commodity exports remain strong, with gold exports to Australia reaching a record high of K8.2bn in January-May 2026, up 36.4% from a year earlier. Domestic demand has also strengthened, reflected in import growth averaging 15.9% in the first half of 2026. Despite slightly lower LNG export volumes, export receipts continue to benefit from high global LNG prices.

The IMF reform programme has delivered notable improvements in financial markets. The Bank of Papua New Guinea (BPNG) has maintained its crawl-like exchange rate regime, with the kina depreciating by around 3.6% against the US dollar year-to-date. Foreign exchange shortages have eased considerably, with unmet demand falling significantly. Investor confidence has improved, government securities remain oversubscribed, and the country remains on track to achieve its first budget surplus in more than a decade by 2027. Nevertheless, FX auctions and central bank intervention remain necessary, indicating the market has not yet fully cleared.

A major theme of this edition's "Westpac Wailis" is that strong economic growth has not fully translated into improved livelihoods. Around 80-85% of PNG's population lives in rural areas and participates primarily in informal economic activity. Many communities continue to face challenges related to unreliable infrastructure, limited electricity access, poor transport connectivity and inadequate public services. This translates from significant statistical gaps, including the absence of a new Household Income and Expenditure Survey since 2009-10, making it difficult to accurately assess poverty and living standards.

The outlook is increasingly shaped by the emergence of a very strong El Niño event. Climate models suggest conditions will peak between late 2026 and early 2027, bringing heightened drought and frost risks, particularly in the Highlands. Early impacts have already been reported, including water shortages, disruptions to mining operations, food insecurity concerns and transport challenges along the Fly River. The event poses risks to agricultural production, export crops, food security and household incomes.

Inflation is expected to reaccelerate despite government fuel stabilisation measures and GST relief. Headline inflation is forecast to rise above 5% in the near-term, driven by imported inflation, kina depreciation, food prices, transport costs and El Niño-related supply disruptions.

Looking ahead, an earlier-than-expected Papua LNG final investment decision could further improve foreign exchange availability and support growth. However, downside risks remain significant. These include a potential decline in global commodity prices, the incomplete transition to a fully market-clearing foreign exchange system, climate-related disruptions from El Niño, and growing political pressures ahead of the 2027 national election, which could contribute to fiscal slippage and divert resources away from long-term development priorities.

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