Westpac Wailis
PNG experienced a promising start to 2025, following a better than expected year in 2024, a lift in business conditions on the back of high commodity prices and improving foreign exchange liquidity. With signs that a FID on Papua LNG may be achieved late this year or early 2026 the settings are there for PNG to possibly exceed our expectations for growth of 4.7% this year.
Read the full report with more analysis, data and charts at: Westpac Wailis May 2025 (PDF 598KB)
2025 began on a positive note. Following a better than expected year in 2024, the latest CEO100 Survey reported rising business confidence, with local firms anticipating improvements in profits, employment, and investment. This optimism was supported by strong commodity prices—particularly for coffee, cocoa, and vanilla—which boosted incomes for small producers. As noted by Shamal Chand, high commodity prices also helped ease foreign exchange constraints.
However, the global environment has been far from stable. The inauguration of Donald Trump as the 45th U.S. president introduced considerable uncertainty, particularly around trade policy. His administration’s announcement of “reciprocal” tariffs on “Liberation Day” triggered global trade disruptions and financial market volatility. A series of erratic policy shifts—including tariff hikes, partial rollbacks, and selective exemptions—further fuelled uncertainty.
Global trade patterns are undergoing a significant shift. The U.S. dollar weakened amid declining confidence in U.S. economic leadership. Westpac’s Chief Economist Luci Ellis described the situation as a “TINA McRAE” event—where “There Is No Alternative” to U.S. Treasuries, yet “Markets Can Reallocate Assets Easily.” This dynamic, along with speculation over U.S. debt restructuring, a Moody’s downgrade, and a deficit-expanding spending bill, places downward pressure on the dollar.
We view the tariff war as an act of self-harm for U.S., potentially pushing it toward recession while limiting the Federal Reserve’s ability to respond due to inflationary pressures. While global growth is expected to slow, many countries—especially China—retain room for policy support. China is still on track to meet its 5% growth target through robust stimulus measures.
PNG is not immune to the fallout from “Liberation Day.” A 10% tariff was imposed on countries not subject to reciprocal tariffs. However, the impact will be limited as the U.S. accounted for just 1% of PNG’s exports in 2023, ranking as its 12th largest export market.
On positive note the tariff war has boosted gold and copper prices well above our earlier expectations, a trend likely to persist well into 2026. With coffee, cocoa, vanilla and coconut oil prices all holding around their recent highs, they continue to boost local incomes and improve liquidity in the foreign exchange market. The foreign exchange market has improved with a significant reduction in wait time for clearing FX orders and with BPNG committed to the kina depreciation, along with commodity prices boosting export returns, we would expect this improvement FX liquidity to continue. It also appears that the Final Investment Decision on Papua LNG is getting closer and could be announced late this year, or early 2026, which will help the kina find base in the second half of this year.
All combined the settings are there for PNG to possibly exceed our expectations for growth of 4.7% this year, a number that is only just shy of China’s target growth of 5%.
Economy: In the February, we forecast the Papua New Guinean economy to grow by 4.7% this year, as robust momentum from last year flowed in 2025 creating an positive outlook for investment supported by a favourable commodity prices. Our forecast is unchanged. Since February, the International Monetary Fund (IMF) upgraded its PNG growth outlook to 4.6%, based on strong investment activity. The foreign exchange market improved significantly this year led by a Kina depreciation, IMF fiscal support and additional inflows as high commodity prices boosted exporters’ returns. This strengthens the outlook for both investment and domestic demand with importers wait time to pay offshore suppliers significantly reduced.
Commodities: Cocoa and coffee prices have remained elevated after a strong rally the previous year due supply shortages. We expect that cocoa and coffee prices will remain elevated for some time, giving farmers and exporters an opportunity to benefit from an income boost. All we can see farmers reacting positively to current prices. Gold rose to a record $3,400/oz post “Liberation Day,” regaining its safe-haven status amidst increasing market volatility. Westpac Economics expects gold to hold around current levels with meaningful near-term upside risks. Coconut oil is another opportunity with a strong rally after the El Nino effect hit major markets taking prices to the highest level seen in the last twenty years.
Kina and Forex: The Bank of PNG kept the Kina Facility Rate (KFR) unchanged at 4.0% in March despite a split vote with an indication of the potential for future rate hikes. In May, the KFR was left unchanged as well. Unexpectedly in May, the cash reserve requirement was reduced to 11%, increasing liquidity, while the KFR remained at 4.0%. There has also been a significant reduction in foreign exchange order backlogs resulting in much shorter clearing times, in some cases from months to less than a week, with is a significant positive for business sentiment. The IMF program and reforms have led to significant progress in easing forex shortages and gradual Kina depreciation without leading to significant inflationary pressure.
Investment outlook: Ok Tedi Mining Limited has acquired the Misima Gold and Silver Project for A$60 million, with potential additional payments up to A$35 million, expanding its gold and silver reserves. The acquisition, backed by Ok Tedi's strong liquidity, provides the company with control over a major gold development in the Solomon Sea, while Kingston Resources will earn royalties on future production. We are also closely monitoring TotalEnergies’ Papua LNG project with final investment decision expected later this year. If plan goes as expected, production will begin in late 2027 or early 2028.
Opportunities: PNG’s near-term outlook is boosted by high coffee and cocoa prices, while a thriving real estate sector remains an ongoing opportunity. Communications represent another significant opportunity with only one-third of the population having access to telecommunications and just a quarter has access to the internet. Expanding digital access could be a powerful driver of long-term economic growth.
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