2013 Index of Economic Freedom

Papua New Guinea

overall score53.6
world rank130
Rule of Law

Property Rights20.0

Freedom From Corruption22.0

Limited Government

Government Spending72.3

Fiscal Freedom67.4

Regulatory Efficiency

Business Freedom58.3

Labor Freedom73.4

Monetary Freedom72.4

Open Markets

Trade Freedom85.0

Investment Freedom35.0

Financial Freedom30.0

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Quick Facts
  • Population:
    • 6.7 million
  • GDP (PPP):
    • $16.9 billion
    • 8.9% growth
    • 7.3% 5-year compound annual growth
    • $2,532 per capita
  • Unemployment:
    • 1.9%
  • Inflation (CPI):
    • 8.4%
  • FDI Inflow:
    • $-309.2 million
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Papua New Guinea’s economic freedom score is 53.6, making its economy the 130th freest in the 2013 Index. Its score is 0.2 point lower than last year, with small improvements in freedom from corruption and trade freedom outweighed by declines in half of the 10 economic freedoms including business freedom and monetary freedom. Papua New Guinea is ranked 26th out of 41 countries in the Asia–Pacific region, and its overall score is lower than the world and regional averages.

Papua New Guinea’s economy continues to be “mostly unfree.” Although it has been expanding due to high commodity prices and a construction boom, the prospects for long-term broad-based economic development are constrained by an inefficient legal system and lingering corruption that undercut the rule of law. Much-needed private-sector development is also held back by regulatory deficiencies and the lack of institutionalized open-market policies.

The economy remains 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. In order to manage all mineral revenue and put into practice stable public finance management, the government has focused since 2011 on establishing a new sovereign wealth fund.

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Background

Papua New Guinea is a parliamentary democracy with nearly 7 million people speaking over 860 different languages. A year-long constitutional crisis seemingly came to an end in August 2012 with the re-election of Prime Minister Peter O’Neill, whose People’s National Congress Party won the most seats in new elections. O’Neill’s minority government now has the backing of chief rival and former leader Sir Michael Somare. The mining of rich deposits of gold, copper, oil, and natural gas dominates the formal economy, but the vast majority of Papua New Guineans depend on subsistence hunting or agriculture and the informal economy. Australia provides around US$480 million a year in assistance, making it the country’s largest donor. Ongoing problems include corruption, weak governance, crime, and the inability to respond effectively to natural disasters.

Rule of LawView Methodology

Property Rights 20.0 Create a Graph using this measurement

Freedom From Corruption 22.0 Create a Graph using this measurement

A modern and well-functioning judicial framework is not firmly in place, and land is often held communally. Corruption is a serious problem due to weak public institutions, lack of transparency, and politicization of the bureaucracy. Political stability improved in 2012 when the two leading parties agreed to form a coalition government after a bitter year-long dispute.

Limited GovernmentView Methodology

The top income tax rate is 42 percent, and the top corporate tax rate is 30 percent. Other taxes include a value-added tax (VAT) and an excise tax. The overall tax burden equals 24.4 percent of total domestic income. Government spending has reached a level equivalent to 30.4 percent of GDP. High commodity prices and fiscal discipline helped the government produce a small surplus this year.

Regulatory EfficiencyView Methodology

The overall regulatory framework remains poor. Despite some reform efforts, progress toward the structural changes needed to promote entrepreneurial activity has been limited. Private enterprises face numerous and time-consuming bureaucratic hurdles. The formal labor market is not fully developed, and informal labor activity is substantial. Inflation has been high, with prices rising due to the lack of competition.

Open MarketsView Methodology

The trade-weighted average tariff rate is 2.5 percent, and some lingering non-tariff barriers add to the cost of trade. Investment-related regulations are non-transparent and inefficient, stifling much-needed growth in new investment. The availability of financial services is inconsistent throughout the economy, and much of the population remains underserved by the formal banking sector.

Country's Score Over Time

Bar Graph of Papua New Guinea Economic Freedom Scores Over a Time Period

Country Comparisons

Bar Graphs comparing Papua New Guinea to other economic country groups

Regional Ranking

rank country overall change
1Hong Kong89.3-0.6
2Singapore880.5
3Australia82.6-0.5
4New Zealand81.4-0.7
5Taiwan72.70.8
6Japan71.80.2
7Macau71.7-0.1
8South Korea70.30.4
9Malaysia 66.1-0.3
10Thailand 64.1-0.8
11Kazakhstan63-0.6
12Mongolia61.70.2
13Sri Lanka60.72.4
14Azerbaijan59.70.8
15Kyrgyz Republic 59.6-0.6
16Cambodia58.50.9
17The Philippines58.21.1
18Fiji57.2-0.1
19Samoa57.1-3.4
20Indonesia56.90.5
21Vanuatu56.60.0
22Tonga56-1.0
23India55.20.6
24Pakistan 55.10.4
25Bhutan55-1.6
26Papua New Guinea53.6-0.2
27Tajikistan53.40.0
28Bangladesh 52.6-0.6
29China51.90.7
30Vietnam51-0.3
31Nepal50.40.2
32Micronesia50.1-0.6
33Laos50.10.1
34Maldives49-0.2
35Uzbekistan460.2
36Kiribati45.9-1.0
37Solomon Islands45-1.2
38Timor-Leste43.70.4
39Turkmenistan42.6-1.2
40Burma39.20.5
41North Korea1.50.5
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