Financial Crime World

Financial Institution Risk Assessment in Papua New Guinea

Papua New Guinea (PNG) presents a unique set of challenges for financial institutions, with political and economic uncertainties affecting corporate payment behavior and a difficult business environment.

Challenges Facing Financial Institutions

  • The country’s corporate default probability is appreciable, according to Coface.
  • PNG has a business climate rating of C, indicating many troublesome weaknesses in its institutional framework.
  • Debt collection is unpredictable, and corporate financial information is often unavailable or unreliable.
  • Intercompany transactions run major risks in this difficult environment.

Strengths of Papua New Guinea

  • Abundant natural resources
  • Plans to develop new gas fields and build liquefied natural gas production units
  • New mines
  • Home to 15% of the world’s tropical rainforests
  • Receives financial support from multilateral and bilateral partners

Weaknesses of Papua New Guinea

  • Exposure to natural and climatic disasters
  • Weak infrastructure network
  • Weak budgetary resources
  • Dependence on commodity exports
  • Governance shortcomings, such as corruption and red tape
  • Mining recovery is expected to drive growth in 2022.
  • Activity at the Porgera gold mine is expected to resume.
  • Natural gas extraction and liquefaction capacity is set to expand.
  • However, the fragile fiscal situation is likely to persist, with public debt continuing to grow.

Challenges Facing the Government

  • Managing the COVID-19 crisis
  • Resolving the question of independence for Bougainville
  • The country’s foreign exchange reserves are comfortable, but the trade and current account surpluses may face a marginal deterioration in 2022 due to less favorable commodity prices.

Recommendations for Financial Institutions Operating in Papua New Guinea

  • Carefully assess risks and develop strategies to mitigate them.
  • Thoroughly understand the local business environment, political climate, and economic trends.
  • Develop strategies to manage exposure to natural and climatic disasters, weak infrastructure network, and dependence on commodity exports.
  • Consider the impact of governance shortcomings on financial institutions operating in PNG.