Australia's increasingly tricky relationship with Papua New Guinea could be about to get more difficult.

PNG's Government has asked Australia to directly fund its health and education spending after it suffered a severe economic downturn and was forced to make major budget cuts.

PNG used the 25th ministerial forum between the two countries to ask Australia to shift its $500 million of annual aid away from narrowly-focused programs and into helping fund its health, education and infrastructure priorities.

Planning Minister Charles Abel said the shift was something that had been discussed for some time.

"The Papua New Guinea Government has sent a signal at this meeting of our desire to move by 2020 into a budget support arrangement where the program is channelled more directly through the PNG budget process," he said.

Australia is the dominant contributor of aid to PNG, providing 68 per cent off its development assistance.

Mr Abel said that money could be having a bigger impact.

"We would like to see a larger proportion of the budget actually going into hard, tangible, on-the-ground outcomes," he said.

PNG's Major Events Minister Justin Tkatchenko said the request arose out of concerns about the effectiveness of Australia's aid program and the amount of money that is spent on contractors and technical assistance.

"Budgetary support will assist in programs and activities that the Government is trying to achieve and that alone will achieve a lot more positive outcomes than what's going on at the moment," he said.

The request came as a surprise to the Australian ministerial delegation.

It also came after PNG suffered a major drop in revenue that forced its Government to slash spending, particularly to health services, but Mr Abel rejected suggestions it was linked to PNG's cash shortage.

"It's a policy-based directive that has come from a series of documents … it's not a knee-jerk reaction," he said.

Request catches Australian ministerial delegation off guard

Australia's aid partnership with PNG is due to be renewed this year, so the Government was already evaluating the program.

But Foreign Minister Julie Bishop said Australia did not know PNG would make the request.

Julie Bishop was not expecting the issue to be raised during her trip to PNG. ( ABC News: Adam Kennedy )

"That's apparently a matter that's been discussed within the PNG Government, it's been raised with us today and we'll consider it," she said.

The change harks back to the way Australia used to deliver aid in PNG, by funding its budget directly.

But Australia stopped doing that in the early 1990s because of concerns about corruption and mismanagement.

Those concerns have not gone away.

Ms Bishop said any change to the aid program would need to meet Australia's accountability standards.

"We want to ensure that it's transparent, that it's value for money and it provides the kind of outcomes that will see economic development and prosperity here in PNG," she said.

"And of course we must be answerable to the Australian taxpayer."

The Government fears those taxpayers are becoming increasingly sceptical about the benefits of foreign aid.

Questions over how aid spending is getting to people who need it

The timing of the request, as PNG tries to weather a severe economic downturn, makes it even harder to sell.

Australia has given $5 billion in aid over the last decade, but has been changing its approach for the past few years.

Australia provides more aid to PNG than any other country. ( Supplied: Mark Palm )

The Australian Government, which has consolidated delivery of its programs into a Papua New Guinea Governance Facility, will be investing more in infrastructure and is seeking more partnerships with agencies like the World Bank and Asian Development Bank to deliver soft loans.

Such changes reflect a broader shift in aid spending, but also an attempt to make a bigger impact and force the PNG Government to comply with the strict standards for governance and program delivery required by multilateral agencies.

Australia also agreed to focus more on private-sector growth and trade, which would help protect and increase the $6.8 billion PNG-Australia trade relationship in the face of threats from China.

But the non-government organisations working in the aid sector have criticised that approach, saying PNG is a clear example of a place where economic growth has not delivered much benefit for disadvantaged people.

Despite 15 years of continuous growth, PNG still has one of the lowest levels of GDP per capita in the region.

Manus issues causing tension

It might not say so publicly, but the PNG Government has also been recently displaying frustration with Australia in other ways.

There has been tension over the Manus Island detention centre, particularly over the need to close it to comply with a PNG Supreme Court ruling.

People within the PNG Government say they are frustrated about the impact of the centre on PNG's reputation, the political risk to the current Government, and the social issues that the day release of detainees has created on Manus Island.

There are questions being asked about the treatment of asylum seekers at Australia's detention centre on Manus Island. ( Reuters )

That frustration has been accentuated by a delay in Australia delivering a promised $200 million redevelopment of the Angau hospital in Lae, which was agreed upon as part of the Manus Island deal.

Australia argues the delay is due to the PNG Government withdrawing its promised contribution, but PNG said it told Australia two years ago to just "get it done".

Recent allegations that the medical company that runs the clinic at the Manus Island detention centre failed to obtain proper registration and breached a raft of other PNG laws — something strongly rejected by the company — could be seen as PNG putting further pressure on Australia to hasten the centre's closure.

There has been no shortage of people noting the detrimental effect of the Manus Island deal on Australia's ability to negotiate with PNG, but with the urgency increasing to close the centre by October, PNG could be looking to squeeze even more benefit out of its relationship with Australia at this time.

That has left Australia with a problem for both its aid program and its diplomatic relationship with the most populous and arguably most influential country in the western Pacific.