By Jenny Hayward-Jones, Director of the Lowy Institute's Melanesia Program, and Jonathan Pryke, Research Fellow.

Papua New Guinea has been in the international spotlight a lot in the last month and it has been almost all bad news. Revelations of a record budget deficit, the emerging worrying impact of a serious drought, the suspension of Ok Tedi's mining operations, more evidence of horrific sorcery-related violence against women and the reported police shooting of student protesters at the University of Goroka last week are threatening to ruin Papua New Guinea's 2015 success story.

The country should have been enjoying the reflected glory of being the fastest growing economy in the world in 2015, realising the benefits of its first shipment of LNG from Exxon Mobil's landmark project, revelling in a successful hosting of the Pacific Games and preparing to celebrate 40 years of independence from Australia.

Our own conversations in Port Moresby a couple of weeks ago did not give us significant cause for optimism.

Senior corporate figures are for the most part positive about Papua New Guinea's long-term potential but our contacts among the younger generation of Papua New Guineans in both the private and public sectors were nervous about the Government's capacity to manage the immediate challenges facing the country.

Papua New Guinea is renowned for muddling through crises and avoiding the worst-case scenarios that economic forecasters and political analysts predict for the country. This history influences a seemingly unhurried approach to crisis-management – based in part on traditional Melanesian coping mechanisms and negotiation skills, and in part on an Australian-like 'she'll be right, mate' attitude – that can both alarm and reassure.

Prime Minister O'Neill has stepped up his rhetoric on both the economic challenges and the drought this week. He visited the parts of the country hardest hit by the drought and frosts and announced a further 25 million kina in assistance.

In a speech in Brisbane on 27 August, he outlined his strategy to address the budget deficit by 'deferring non-essential spending'. The details of these deferrals will only be unveiled in a supplementary budget to be released in October, a month before the 2016 budget is due to be handed down. With a substantial MYEFO-forecast deficit of 9.4% of GDP, a large amount of expenditure already accounted for in preparation of the Pacific Games and protection of O'Neil's 'core policy areas – of free education, the provision of universal healthcare, improving law and order, and investing in key economic infrastructure' – tough decisions must be made, all while preparing next year's budget. A tall order for any nation.

It's of course not the first time Papua New Guinea has faced serious challenges. The macro-economic and governance crises of the 1990s in Papua New Guinea and the Bougainville conflict were very troubling times for the country.

It would be wrong to assume though, that because the current crises may not yet be as serious as previous ones, Papua New Guinea has the capacity to keep muddling through. It's by no means clear how the Papua New Guinea Government plans to manage the more serious medium and longer-term challenges the current crisis points present. It needs to engage in debate with the public and with international partners, including Australia, about how it responds to the current crises and how it should manage the challenges these crises signal for the future of the country.

Papua New Guinea is fortunate to have significant endowment of natural resources but its governments have not been successful in delivering the benefits to the wider population. Signalling that the bounty from the next major resources investment will solve the problems of today is a familiar promise from Papua New Guinea's governments. Young Papua New Guineans, concerned about their future, are demanding a more sophisticated approach from their leaders.

Photo courtesy of Flickr user BYU–Hawaii.