FDI Incentives Aim To Broaden PNG Growth

Papua New Guinea’s recent Investment Week highlighted the nation’s ongoing efforts to attract diversified capital inflows amid persistent structural constraints in key areas including infrastructure, energy, and mining sectors. The economy faces a moderate slowdown, with Gross Domestic Product (GDP) growth projected at 3.8% for 2025, slightly below the decade average of 4.2%, a deceleration that reflects subdued global commodity prices and chronic domestic bottlenecks in logistics and energy supply.

Mechanistically, Foreign Direct Investment (FDI) has historically been highly concentrated in the extractive industries, primarily Liquefied Natural Gas (LNG) and gold. However, current government initiatives aim to actively broaden participation by offering targeted incentives for energy generation, agribusiness, and digital infrastructure development.

The nation’s heavy reliance on resources remains a fiscal vulnerability: revenues from LNG and gold accounted for 25% of total government revenues in the Fiscal Year (FY) 2024, underscoring its exposure to volatile global price cycles. Capital flows for the first nine months of 2025 totaled USD 1.2 billion, a figure still dominated by project financing channeled through multilateral development partners, confirming the limited private-sector-led diversification thus far.

Market signals suggest a degree of cautious optimism regarding immediate stability. The PNG Kina (PGK) remains relatively stable near 0.28 USD, a stability primarily supported by comfortable foreign exchange reserves that cover an estimated 3.1 months of imports. Institutional investors are closely monitoring sovereign risk, with 10-year government bond yields (PGGB10) currently at 7.15%.

This elevated yield reflects both expected domestic inflation and a significant project funding risk premia demanded by the market. Sectoral implications include the potential acceleration of large energy and port projects if the government can maintain policy incentives and deliver necessary regulatory clarity. Historically, PNG has struggled to efficiently convert resource wealth into broad-based public infrastructure, a failure that continues to constrain wider private sector confidence.

Forward-looking, the trajectory of economic growth is conditional on policy execution. GDP growth could rise toward 4.0% over the next 12–18 months if two key conditions are met: foreign capital inflows materially diversify beyond extractives, and critical structural bottlenecks in transport and energy are effectively addressed. Key indicators for defining the sustainability of economic diversification will include new project approvals, non-mining FDI inflows, the spread movement of PGGB10 yields, and the actual execution rate of the capital spending budget.