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MalasiaMinor slowdown in growth in 2026 on back of falling gas prices
Growth accelerated in 2025, driven by revenues from exports of liquefied natural gas and minerals (gold, copper, nickel), boosted by both high prices and increased extraction volumes. For gold, the increase is due in particular to the gradual ramp-up of the Porgera mine, which resumed operations at the end of 2023, as well as to the expansion of the Kainantu – both the latter are on the main island – and the Lihir mines in the far east of the archipelago. These projects will continue in 2026.
Growth is expected to soften in 2026. The value of exports will continue to grow, but at a slower pace. Prices for agricultural products (palm oil, coffee, cocoa, coconut, etc.) and liquefied natural gas (which accounts for around 40% of exports) could decline, while those for gold and copper are expected to continue to rise. Increased public operating expenditure, particularly on security, will also help support activity. The same is true of public investment, which is expected to intensify in road infrastructure, such as the Ramu Highway, a motorway parallel to the Ramu River on the main island, which was partly financed by the World Bank. The route will connect two of the main ports—Madang on the north coast and Lae on the east coast—via Watarais in the interior, where it will join up with the Highlands Highway, which crosses the island from east to west. Private investment will focus mainly on telecommunications, and gold and copper mining, notably the major Wafi-Golpu joint venture (65 km west of Lae), financed by the South Africa group Harmony and the US Newmont Corporation. However, uncertainty is clouding several projects for environmental reasons: the decision to exploit undersea rare earth deposits remains on hold, and the Papua LNG gas project, led by TotalEnergies, ExxonMobil and Santos, is still under debate due to its financial and environmental costs.
Inflation is expected to remain high in 2026 despite a hike in the key interest rate (5% in the Autumn of 2025) and less fuel shortages—made possible by increased foreign exchange reserves and the reduction of payment arrears to foreign supplier. The trend will be driven by the deliberate depreciation of the kina, which until now has been overvalued, as well as by high energy costs, with electricity production and inter-island air links that are heavily dependent on fuel imports. However, food inflation is expected to remain contained owing to increased agricultural production (80% of the population is engaged in subsistence farming) and the extension of the VAT exemption for 13 basic food products. Household consumption is therefore expected to grow at a moderate pace.
Continued fiscal consolidation, but sovereign risk remains high
The reduction in the public deficit is expected to continue in 2026. The budgets of the ministries of Defence, the Attorney-General and Justice will be significantly increased, with the aim of reducing insecurity and preventing clashes between rival gangs in large cities, between local communities and mine workers, and between tribes in rural areas. These recurring and multifaceted clashes regularly result in dozens of deaths and injuries, and disrupt economic activity. Investment spending—mainly on roads—and subsidies to stimulate agricultural exports (palm oil, cocoa, etc.) will also increase, as will education and health budgets (salary increases, vaccination campaigns, contributions to school fees). Last, as previously mentioned, the VAT exemption on 13 basic food items will be maintained. However, revenues will grow faster than expenditures on back of higher mining revenues and dividends paid by public companies, as well as tax reform (Income Tax Assessment Act) and wider powers given to tax administrations, which should increase revenues without raising income tax rates or customs duties.
The debt-to-GDP ratio is expected to continue to decline. Approximately half Papua New Guinea’s debt is domestic, while 53% of the external debt is held on concessional terms by multilateral creditors (IMF, World Bank, Asian Development Bank). The remainder is held by bilateral creditors, mainly Australia and China, and by private investors to the tune of 2% of GDP via a Eurobond maturing in 2028. According to the IMF, the potential failure to repay the bond at maturity and the persistent shortage of foreign currency point to a high risk of default, despite the rapid consolidation of public accounts. Delays in external payments have begun to ease thanks to the increase in foreign exchange reserves, and recent disbursements under IMF programs are also helping to ease currency tensions.
Last, the current account surplus is expected to widen in 2026, with exports growing faster than imports. The surplus should be sufficient to cover the financial account deficit generated by the amortisation of public debt and loans taken out by mining companies for their operations, which will exceed disbursements under IMF programs and FDI. The loans mainly come from Australia, South Africa, Canada, China, the US, Japan, Malaysia, and may also come from France if Total Energie’s gas project goes ahead.
Risk of social instability and inter-community violence
Since gaining independence in 1975, the country has been a unicameral parliamentary democracy. James Marape has served as Prime Minister since 2019. He won a second term in the 2022 legislative elections thanks to a diverse coalition of independent candidates and micro-parties—a common configuration in the country. He is expected to remain in office until the end of his term in 2027 after defeating two no-confidence motions in September 2024 and April 2025. Although his attempts to narrow the public deficit and prevent a flare-up of armed conflict with the Bougainville secessionists by acknowledging their quest for the island’s independence and the transfer of shares in the copper mine to the island government are appreciated, discontent over the cost of living, unemployment and the low redistribution of mining revenues continues to grow.
In this climate of frustration and lack of economic opportunities, which is particularly acute among young people, clashes between gangs and tribes, as well as attacks on women accused of witchcraft, are becoming increasingly frequent and brutal, especially in the Highlands (inland), causing families to flee to urban areas. Strengthening the resources of the police and army—some of whose personnel remain corrupt and, at times, excessively violent—will not be enough to resolve this crisis or effectively combat trafficking in arms, human beings, and drugs, which is facilitated by the country's archipelagic nature, without greater involvement from local communities.
Internationally, Papua New Guinea maintains close relations with Commonwealth members, particularly those with strong mining expertise—South Africa, Canada and especially Australia. The latter remains its main partner: it is an important outlet for mineral exports, a major provider of development aid and FDI in infrastructure and mining, and a key military ally in the wake of two agreements signed in 2023 and 2025 – the first devoted to combating trafficking and the second to providing mutual assistance in the event of aggression. The military partnership also extends to the US, which has made Papua an outpost for its presence in the South Pacific by establishing dozens of naval bases across the archipelago in exchange for support for the development of the armed forces and the fight against trafficking. Last, Papua New Guinea's two-largest commercial markets are Japan (LNG and copper) and China (LNG, nickel, timber). The latter is seeking to boost its influence, both financially by partly filling the void left by the cessation of USAID programmes and through investments and loans, and commercially by negotiating a bilateral free trade agreement, which is opposed by the US and Australia.
