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- GDP (PPP):
- $20.5 billion
- 9.0% growth
- 8.4% 5-year compound annual growth
- $2,652 per capita
- Inflation (CPI):
- FDI Inflow:
Papua New Guinea’s economy has long been divided between a formal sector based on exports of natural resources and a large informal sector that relies on subsistence farming and other small-scale economic activity. The government intrudes in many aspects of the economy through state ownership and regulation, not only raising the costs of conducting entrepreneurial activity, but also discouraging broader-based development of the private sector.
In an effort to enhance regulatory efficiency, the government introduced an online business registration system early in 2016. Nonetheless, private-sector development is still held back by the lack of institutionalized open-market policies and an inefficient legal system.
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. Protests against O’Neill, including student protests in 2016 during which police opened fire on protesters, continue today. Elections will be held in 2017. Gold and copper mining, oil, and natural gas dominate the formal economy.
The law does not permit direct foreign ownership of land, and there are substantial delays both in the government’s issuance of long-term leases and in other legal processes to facilitate acquisition and disposition of property rights. The judicial framework is inadequately resourced and underdeveloped. Pervasive corruption and nepotism fueled by large foreign investment windfalls in mining and petroleum are the biggest hindrances to development.
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 23.5 percent of total domestic income. Government spending has amounted to 34.4 percent of total output (GDP) over the past three years, and budget deficits have averaged 7.6 percent of GDP. Public debt is equivalent to 40.8 percent of GDP.
The overall regulatory framework remains poor. Labor regulations are relatively flexible, but the formal labor market is not fully developed. Lower prices for liquefied natural gas have caused fiscal deficits to balloon, forcing drastic cuts in transportation, health care, and education subsidies. Heavily subsidized state-owned enterprises provide substandard services for power, water, banking, telecommunications, air travel, and seaports.
Trade is important to Papua New Guinea’s economy; the value of exports and imports taken together equals 57 percent of GDP. The average applied tariff rate is 2.3 percent. Foreign investors may not own land, and investment in several other sectors is restricted. State-owned enterprises distort the economy. Financial intermediation varies across the country, and a large portion of the population remains unconnected to the banking system.