MIL-OSI Banking: Strengthening The Rules-Based Fiscal Framework in Papua New Guinea: Papua New Guinea

Summary

Papua New Guinea’s public debt has increased significantly in recent years, leading to a high risk of debt distress and exposing significant gaps in the existing fiscal setting. This paper proposes to strengthen the authorities’ fiscal framework by introducing a clear public debt anchor and a primary balance rule. Specifically, we consider setting the medium-term debt anchor at between 30 and 40 percent of GDP to ensure that the debt limit of 60 percent is not breached under most scenarios, and using the primary balance as an operational policy instrument to facilitate the convergence of public debt to its anchor.