Financial Sector Development Strategy in Papua New Guinea

Project Development Objective (PDO)

This project aims to assist the Papua New Guinea authorities to develop an implementable financial service sector development strategy (FSDS) for a more robust and inclusive financial system to better support the real economic development in Papua New Guinea.


A FSAP (Financial Sector Assessment Program) for Papua New Guinea was carried out in 2010–11. The FSDS is designed to follow up with the findings and implement the recommendations of the FSAP to (a) improve financial inclusion, financial infrastructure and efficiency, prudential regulatory capacity and to (b) improve crisis management capacity, deepen the government debt market, and improve its capacity to supervise anti-money laundering and counterterrorism financing (AML/CTF). Specifically, the government decided that a sequenced, prioritized strategy for implementation would highlight any important financial sector reforms still needed and would connect the required financial sector reforms to the country’s overall economic growth strategy. 
The government identified the following challenges to financial services development:
1.  Financial inclusion: Increase services to small and medium enterprises, the informal sector, and
     rural households.
2.  Financial intermediation and governance: Ease facilitation of public transfers of funds to lower
     levels of government and final beneficiaries efficiently and transparently.
3.  Government bond development: Expand the government and the potential secondary bond
4.  Policy and regulatory coordination: Increase coordination and clarify the authorities and the
     accountability of relevant government agencies, regulatory agencies, and supervisory agencies
     in the financial sector.
5.  Financial infrastructure: Improve clearing and settlement systems and develop legal frameworks. 
6.  Financial literacy and consumer protection: Improve the public’s financial knowledge and increase
     consumer protection.  


The FSDS is composed of the following three activities: 
Activity 1: Provide analytical and advisory service to the Papua New Guinea Treasury and partner agencies (the steering committee members) in (a) the stocktaking and legal analysis of the financial services sector and (b) the recent reforms taken by the Papua New Guinea government in the financial sector following the FSAP. 
Activity 2: Draft the FSDS with a time-bound action plan on policy measures. The Papua New Guinea Treasury team is leading the drafting of the strategy paper with inputs and analysis from the World Bank, consultants, and key stakeholders.
Activity 3: Facilitate consultation among stakeholders and provide advice on implementing the FSDS’s arrangement and finalization. The World Bank is supporting authorities’ efforts to determine (a) priorities and the sequence of implementation and (b) appropriate institutional arrangements.

Expected Outcomes

The short- and medium-term expected outputs include the following:
1.  Agree on the reform plan and initiate its implementation. 
2.  Deliver the stocktaking report and legal and regulatory analysis. 
3.  Draft the FSDS with (a) clear assignment of responsibilities for the project steering committee,
    (b) anticipated budget and resource allocations, and (c) time-bound implementation plan.
4.  Increase coordination among relevant agencies.
5.  Increase donors’ coordination and support.
6.  Implement financial sector reforms.