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The Australian Government Department of Foreign Affairs and Trade (DFAT) is developing a strategy for its work on growth and private sector development in Papua New Guinea. This paper provides an input to that process by reviewing the current drivers and constraints to growth in PNG, and the current and previous activities of AusAid / DFAT and other donors on this agenda in PNG, and discussing some options for possible interventions or programmes that DFAT could develop or support to tackle the major constraints to growth and PSD.

Despite abundant natural resources, PNG has failed to provide sufficiently broad-based economic and social opportunities for the majority of its population. The challenge is how to capitalise on the natural resources to create more broad-based economic opportunities, for local producers, entrepreneurs and small and medium enterprises. The economy is also constrained by geographical factors and a widely dispersed population, which raise the costs of infrastructure and service provision and reduce market access.

Performance has been undermined by poor economic management, governance and coordination, with deficient expenditure and accountability of spending on core public goods such as transport infrastructure, but also on effective provision of law and order, education and health. This together with poorly-performing state-owned enterprises, often enjoying a monopoly position, seriously undermines service provision, pushes up the cost of doing business, and reduces the competitiveness of the private sector generally.