Papua New Guinea Growth Set to Slow as Global Shocks Weigh on Economy: ADB Outlook

Papua New Guinea's economic growth is expected to moderate over the next two years as global uncertainties—particularly the ongoing Middle East conflict—add pressure to an already fragile economic environment, according to the Asian Development Bank's (ADB) Asian Development Outlook (ADO) April 2026.

The ADB forecasts GDP growth of 3.6% in 2026 and 3.4% in 2027, reflecting a gradual slowdown from recent performance as external shocks ripple through the economy.

Global Conflict Adds Pressure to Domestic Economy

The report highlights that the Middle East conflict is testing the resilience of economies across Asia and the Pacific, including Papua New Guinea (PNG), through multiple transmission channels:

• Rising energy and commodity prices

• Disruptions to global shipping routes

• Tighter financial conditions

For PNG, which relies heavily on imported diesel fuel for electricity generation, higher energy costs are expected to significantly impact the non-resource sector.

"While mining will remain a key growth driver, the Middle East conflict will adversely affect the non-resource sector," said ADB Country Director for PNG Takafumi Kadono, pointing to the country's vulnerability to external energy shocks.

Inflation to Edge Higher Before Stabilising

Inflation is projected to rise from 4.4% in 2025 to 4.6% in 2026, before easing to 4.0% in 2027, as global price pressures gradually subside.

Higher fuel and import costs are expected to feed into domestic prices, placing additional strain on households and businesses.

Reform Efforts Show Early Gains

Despite mounting external challenges, the report acknowledges progress made through recent macro-fiscal reforms.

Government measures have contributed to:

• Reduced fiscal deficits

• Improved exchange rate flexibility

• Better availability of foreign exchange

• Increased private sector confidence

• Stronger support for import-dependent industries

These reforms are seen as critical in stabilising the economy and building resilience against future shocks.

Structural Constraints Continue to Weigh on Growth

However, the outlook remains constrained by persistent structural issues, including:

• Power shortages limiting industrial and business activity

• Security concerns affecting investment and operations

• Inefficiencies in public capital spending

• Shortages of skilled human resources

These challenges, combined with inflationary pressures, continue to hinder broader economic diversification and productivity growth.

Resource Sector Remains Key Growth Driver

The hydrocarbon sector—accounting for around 70% of PNG's resource-sector output—is expected to benefit modestly from higher global energy prices linked to geopolitical tensions.

• Oil output and LNG production are projected to increase slightly in 2026

• LNG production is already operating near maximum capacity

This sector is likely to cushion the overall economy, even as other industries face headwinds.

Papua LNG Project Could Boost Outlook

A potential turning point for the economy lies in the anticipated Papua LNG project, a multibillion-dollar development that could significantly accelerate growth.

A final investment decision and project commencement—along with progress on other resource developments—are expected to:

• Increase investment inflows

• Create jobs

• Strengthen export revenues

• Stimulate broader economic activity

Policy Priorities for Stability

The ADB stresses the importance of continued policy reforms to strengthen resilience, particularly through:

• Enhancing tax collection and revenue mobilisation

• Supporting fiscal consolidation

• Reducing reliance on imports, especially energy

• Addressing structural bottlenecks in infrastructure and skills

Navigating an Uncertain Global Environment

Papua New Guinea's outlook reflects a broader trend among resource-dependent economies navigating global volatility.

While the country's natural resource base provides a buffer, sustained growth will depend on how effectively it can diversify its economy, strengthen institutions, and manage external shocks.

With global uncertainties persisting, the coming years will be critical in determining whether PNG can translate its resource wealth into stable, inclusive, and long-term economic development.