2014 Index of Economic Freedom

Papua New Guinea

overall score53.9
world rank132
Rule of Law

Property Rights20.0

Freedom From Corruption20.2

Limited Government

Government Spending75.4

Fiscal Freedom66.7

Regulatory Efficiency

Business Freedom57.0

Labor Freedom73.7

Monetary Freedom75.5

Open Markets

Trade Freedom85.1

Investment Freedom35.0

Financial Freedom30.0

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Quick Facts
  • Population:
    • 6.8 million
  • GDP (PPP):
    • $19.1 billion
    • 9.1% growth
    • 8.1% 5-year compound annual growth
    • $2,797 per capita
  • Unemployment:
    • 1.9%
  • Inflation (CPI):
    • 4.0%
  • FDI Inflow:
    • $28.8 million
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Papua New Guinea’s economic freedom score is 53.9, making its economy the 132nd freest in the 2014 Index. Its score is 0.3 point higher than last year, with improvements in the control of government spending and monetary freedom counterbalanced by declines in freedom from corruption, business freedom, and fiscal freedom. Papua New Guinea is ranked 28th out of 42 countries in the Asia–Pacific region, and its overall score is lower than the world average.

Over Papua New Guinea’s 19-year history in the Index, its economic freedom score has declined by almost 5 points, one of the 20 worst losses. Seven of the 10 economic freedoms, notably property rights, freedom from corruption, investment freedom, and business freedom, have declined. Grading was suspended from 2002 to 2008; since 2009, Papua New Guinea’s economy has been rated “mostly unfree.”

Papua New Guinea’s economy includes 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 economy has been expanding due to high commodity prices and a construction boom, but an inefficient legal system and lingering corruption undercut the rule of law.

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Background

Papua New Guinea is a parliamentary democracy with nearly 7 million people speaking over 840 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 parliament. Sir Michael Somare, O’Neill’s chief rival, announced that they would form a joint government. 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. The country is plagued by corruption, weak governance, crime, and poverty.

Rule of LawView Methodology

Property Rights 20.0 Create a Graph using this measurement

Freedom From Corruption 20.2 Create a Graph using this measurement

Official abuse and corruption, particularly misappropriation of public funds and nepotism, are widespread. The risk of domestic corruption is likely to be enhanced as rapid economic growth continues, fueled by large-scale foreign investment in mining and petroleum. A modern and well-functioning judicial framework is not firmly in place, and land is often held communally.

Limited GovernmentView Methodology

Papua New Guinea’s top individual income tax rate is 42 percent, and its top corporate tax rate is 30 percent. Other taxes include a value-added tax (VAT) and an excise tax. The overall tax burden equals 25.8 percent of domestic income. Government spending amounts to 29 percent of GDP. Public debt in the most recent year was about 14 percent of GDP.

Regulatory EfficiencyView Methodology

Progress toward the structural changes needed to promote entrepreneurial activity has been limited. Private enterprises face numerous time-consuming bureaucratic hurdles. The formal labor market is not fully developed, and informal labor activity is substantial. 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

The average tariff rate for Papua New Guinea is 2.5 percent, and there are few non-tariff barriers to trade. New foreign investment may be screened by the government, and foreign investment in some sectors of the economy is restricted. 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 Kong90.10.8
2Singapore89.41.4
3Australia82-0.6
4New Zealand81.2-0.2
5Taiwan73.91.2
6Japan72.40.6
7Macau71.3-0.4
8South Korea71.20.9
9Malaysia 69.63.5
10Kazakhstan63.70.7
11Thailand 63.3-0.8
12Azerbaijan61.31.6
13Samoa61.14.0
14Kyrgyz Republic 61.11.5
15The Philippines60.11.9
16Sri Lanka60-0.7
17Vanuatu59.52.9
18Mongolia58.9-2.8
19Fiji58.71.5
20Indonesia58.51.6
21Tonga58.22.2
22Cambodia57.4-1.1
23Bhutan56.71.7
24India55.70.5
25Pakistan 55.20.1
26Bangladesh 54.11.5
27Papua New Guinea53.90.3
28China52.50.6
29Tajikistan52-1.4
30Laos51.21.1
31Maldives512.0
32Vietnam50.8-0.2
33Nepal50.1-0.3
34Micronesia49.8-0.3
35Burma46.57.3
36Uzbekistan46.50.5
37Kiribati46.30.4
38Solomon Islands46.21.2
39Timor-Leste43.2-0.5
40Turkmenistan42.2-0.4
41North Korea1-0.5
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