A Sydney based think tank says the hundreds of millions of aid dollars Australia has given to Papua New Guinea have been largely wasted.
In a report called "Papua New Guinea on the Brink" the Centre for Independent Studies paints a picture of a nation wracked with corruption, crime and a disintegrating infrastructure.
Co-author Sue Windybank says the country has been in decline for some time, but there are now indications the slide is worsening and PNG could become a failed state.
She says Australia, PNG's main aid donor, has to rethink the way it provides support.
"We have had a policy since PNG became independent of respecting its sovereign right to make its own choices, make its own way in the world and we have acted as a kind of offshore financier. The idea has been that we would support its development, but little development seems to have taken place and in fact, aid funds tend to operate in a very similar way to mineral resources, in that its a windfall income which tends to be absorbed by the political system instead of going to where it is need most."
Sue Windybank of the Centre for Independent Studies.
Papua New Guinea's parliament reacted angrily to the report with a wide range of MPs expressing their feelings during a noisy three hour debate in the House
The report has so angered the prime minister, Sir Michael Somare that he referred the report's authors - including one of the country's most respected analysts - to the Privileges Committee for investigation.
Arthur Somare, the PM's son, Governor of East Sepik and national MP, said he was outraged by suggestions in the report that PNG leaders were corrupt and incompetent.
He said he felt particularly betrayed that co-author Mike Manning - the former head of PNG's Institute of National Affairs - had been so outspoken about the country's problems.
He also attacked Australian journalists for publishing the report.
Some MPs said the report had some merit but most disagreed with one MP calling for the authors to be jailed.