Managing Fiscal Challenges in Contemporary Papua New Guinea

The rising budget deficits and associated increases in public debt confronting the government of Papua New Guinea (PNG) make it difficult for the government to comply with the legislated debt ceiling of 45 percent of GDP within the foreseeable future. In these circumstances, focusing policy on containing debt to the legislated level could compromise both fiscal sustainability and developmental objectives. The damage being done by COVID-19 is severe and calls for additional flexibility. Rather than focus on the debt ceiling, we argue that the government should use public investments funded with concessional loans to raise GDP and improve developmental outcomes, thereby returning public finances to a path of fiscal sustainability. This does require containing the risks of fiscal profligacy, however.