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- GDP (PPP):
- $18.1 billion
- 5.8% growth
- 7.6% 5-year compound annual growth
- $2,399 per capita
- Inflation (CPI):
- FDI Inflow:
Papua New Guinea’s modest formal sector is based on exports of natural resources, and its large informal sector relies on subsistence farming and other small-scale economic activity. Economic growth driven by mining operations has not improved living conditions for most ordinary Papua New Guineans. In an attempt to manage mineral revenue more effectively, the parliament approved legislation to establish a new sovereign wealth fund in 2015.
Economic Freedom Snapshot
- 2016 Economic Freedom Score: 53.2 (up 0.1 point)
- Economic Freedom Status: Mostly Unfree
- Global Ranking: 140th
- Regional Ranking: 30th in the Asia–Pacific Region
- Notable Successes: Trade Freedom
- Concerns: Property Rights, Corruption, and Investment Freedom
- Overall Score Change Since 2012: –0.6
Papua New Guinea’s prospects for long-term economic development are constrained by an inefficient legal system and lingering corruption that undercut the rule of law. Private-sector development is also held back by regulatory deficiencies and the lack of institutionalized open-market policies.
Papua New Guinea is a parliamentary democracy whose nearly 7.5 million people speak over 840 different languages. A year-long constitutional crisis subsided in August 2012 with the reelection of Prime Minister Peter O’Neill, whose People’s National Congress Party won the most seats in parliament. Sir Michael Somare, O’Neill’s chief rival, agreed to form a joint government. In 2014, O’Neill was embroiled in a legal battle over alleged misuse of government funds. Gold and copper mining, oil, and natural gas dominate the formal economy, but the vast majority of Papua New Guineans depend on subsistence hunting or agriculture and the informal economy. Australia provides about US$480 million a year in assistance.
Pervasive corruption fueled by large-scale foreign investment windfalls in mining and petroleum is the biggest hindrance to development. Prime Minister Peter O’Neill pledged to fight it but then disbanded his own anti-corruption task force after it made allegations of wrongdoing by him and other lawmakers involving $28 million in government fees paid to a private law firm. The judicial framework is underresourced and underdeveloped.
The top individual income tax rate is 42 percent, and the top corporate tax rate is 30 percent. Other taxes include a value-added tax and an excise tax. The overall tax burden equals 24.7 percent of total domestic income. Government spending has reached a level equivalent to 28.2 percent of GDP. Budget deficits have been widening, and public debt equals about 36 percent of annual economic output.
Private enterprises face numerous and time-consuming bureaucratic hurdles. Despite some reform efforts, progress toward the structural changes needed to promote entrepreneurial activity has been limited. The formal labor market is not fully developed, and informal labor activity is substantial. The government heavily subsidizes state-owned enterprises providing substandard service in such areas as power, water, banking, and telecommunications.
Papua New Guinea’s average tariff rate is 2.2 percent. Foreign investment is screened by the government. State-owned enterprises operate in several sectors of the economy, including energy and telecommunications. The availability of financial services is inconsistent throughout the economy, and much of the population remains underserved by the formal banking sector.