2015 Index of Economic Freedom

Papua New Guinea

overall score53.1
world rank137
Rule of Law

Property Rights20.0

Freedom From Corruption25.0

Limited Government

Government Spending68.7

Fiscal Freedom66.9

Regulatory Efficiency

Business Freedom53.5

Labor Freedom74.5

Monetary Freedom72.7

Open Markets

Trade Freedom85.0

Investment Freedom35.0

Financial Freedom30.0

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Quick Facts
  • Population:
    • 7.0 million
  • GDP (PPP):
    • $19.8 billion
    • 4.6% growth
    • 7.4% 5-year compound annual growth
    • $2,834 per capita
  • Unemployment:
    • 2.4%
  • Inflation (CPI):
    • 3.8%
  • FDI Inflow:
    • $18.2 million
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Papua New Guinea’s economic freedom score is 53.1, making its economy the 137th freest in the 2015 Index. Its score is 0.8 point lower than last year, with declines in the management of government spending, business freedom, and monetary freedom outweighing improvements in freedom from corruption and labor freedom. Papua New Guinea is ranked 29th out of 42 countries in the Asia–Pacific region, and its overall score is lower than the world and regional averages.

Papua New Guinea’s commodity-based economy has recorded only modest improvements in economic freedom over the past five years. Failure to pursue a more vigorous reform agenda has contributed to the persistence of poverty, subsistence economic activity, and a large informal sector. Rapid expansion of the mining and petroleum sector has increased the risk of rent-seeking and cronyism among the elite and politically connected.

The judiciary lacks independence and a well-defined institutional framework. Corruption is prevalent, and nepotism undermines effective governance. An externally oriented commodity sector has taken advantage of low tariffs and the lack of non-tariff barriers. However, new investments require government approval, and an underdeveloped financial sector limits domestically funded capital formation.

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Background

Papua New Guinea is a parliamentary democracy with nearly 7 million people and over 840 different languages. A year-long constitutional crisis subsided in August 2012 with the re-election 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, announced that they would form a joint government. O’Neill is currently 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 around US$480 million a year in assistance. Corruption, weak governance, crime, and poverty are endemic.

Rule of LawView Methodology

Property Rights 20.0 Create a Graph using this measurement

Freedom From Corruption 25.0 Create a Graph using this measurement

Prime Minister O’Neill pledged to fight widespread official abuse and corruption fueled by large foreign investment windfalls in mining and petroleum, but the government’s “Taskforce Sweep” anti-corruption unit alleged in 2014 that O’Neill himself authorized $30 million in illegal payments to a law firm. A modern, well-functioning judicial framework is not firmly in place. Land is often held communally.

Limited GovernmentView Methodology

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 amounts to 25.4 percent of domestic income. Public expenditures equal 32.3 percent of domestic production, and public debt equals 33 percent of gross domestic product.

Regulatory EfficiencyView Methodology

Incorporating a business and completing licensing requirements continue to be onerous and time-consuming. A small share of the labor force participates in the formal economy, and the public sector is the major source of employment. The government heavily subsidizes state-owned enterprises that provide substandard service in such areas as power, water, banking, telecommunications, air travel, and seaports.

Open MarketsView Methodology

Papua New Guinea’s average tariff rate is 2.5 percent. Government procurement policies can favor domestic firms. The government screens new foreign investment. The financial sector remains underdeveloped, leaving much of the population without formal access to banking services. Constrained access to financing severely impedes entrepreneurial activity and the sustained development of a vibrant private sector.

Country's Score Over Time

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

Country Comparisons

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Regional Ranking

rank country overall change
1Hong Kong89.6-0.5
2Singapore89.40.0
3New Zealand82.10.9
4Australia81.4-0.6
5Taiwan75.11.2
6Japan73.30.9
7South Korea71.50.3
8Malaysia 70.81.2
9Macau70.3-1.0
10Brunei Darussalam68.9-0.1
11Kazakhstan63.3-0.4
12Thailand 62.4-0.9
13Philippines62.22.1
14Samoa61.90.8
15Kyrgyz Republic 61.30.2
16Vanuatu61.11.6
17Azerbaijan61-0.3
18Tonga59.31.1
19Mongolia59.20.3
20Fiji590.3
21Sri Lanka58.6-1.4
22Indonesia58.1-0.4
23Cambodia57.50.1
24Bhutan57.40.7
25Pakistan 55.60.4
26India54.6-1.1
27Bangladesh 53.9-0.2
28Maldives53.42.4
29Papua New Guinea53.1-0.8
30China52.70.2
31Tajikistan52.70.7
32Vietnam51.70.9
33Laos51.40.2
34Nepal51.31.2
35Micronesia49.6-0.2
36Solomon Islands470.8
37Uzbekistan470.5
38Burma46.90.4
39Kiribati46.40.1
40Timor-Leste45.52.3
41Turkmenistan41.4-0.8
42North Korea1.30.3
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