Papua New Guinea (PNG) has high levels of economic and political risk with very high levels of financial system risk as noted by the Asian Business Monitor (ABM).

The ABM provides country by country economic analysis on countries around Asia Pacific region of which PNG is in.

Papua New Guinea is expected to grow in coming years, largely driven by the development of its natural resources including natural gas, gold and minerals as well as the construction of a new liquefied natural gas plant, set to reach full capacity in 2015.

However, experts from the ABM say that the financial sector in the country is in very high risk.

Some key factors listed by the ABM are that;

The banking sector has limited global exposure.
There is currently a push to create a single regulator and streamline the regulatory process.
The current push to create a single regulator and streamline the regulatory process is believed to further increase the risk the financial sector faces currently.

Although the financial sector in PNG has been a source of strength since the reforms in 2000 as noted by the International Monetary Fund (IMF) recently, vulnerabilities exist and need to be carefully managed which seems to be the argument presented by the ABM.

The IMF made very specific observations on the key factors triggering high risk in the financial sector in the country.

“A small open economy, a concentrated financial sector focused on the formal (especially commercial) sector, significant growth expectations, and limited secondary markets are factors that combine to create risks that can be significant in times of stress” IMF notes

Moreover, although capital and liquidity buffers appear high, these may overstate the resilience of the system given these underlying structural vulnerabilities and the effects of recent rapid credit growth.