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Barker Says Forex is Very Tight

by PNG Business News - February 04, 2021

According to Institute of National Affairs (INA) executive director Paul Barker, foreign exchange (forex) has stayed very tight since 2017, considered to be one of the major hindrances to investments and businesses in PNG.

He added that his concern was the imbalance in the markets, partly linked with rigidities in the setting of exchange rates, and the unusual scene of a strong positive current account balance where a section of exports get remitted to PNG.

“While servicing major commercial overseas debt prevails, it combines increasingly with the need for servicing the growing foreign public debt,” Barker said. “The foreign exchange that has been available has effectively been rationed, with priority expenditure taking precedence, including fuel, food and debt servicing, while remitting dividends overseas has largely been on hold for several years.”

On “certain privileged persons able to secure precedence, Barker said he won’t comment further on that.

He said that most businesses need foreign exchange for different reasons.

“Even exporters needed to pay for replacement plant and equipment, sometimes for technical inputs,” he said. “And undue constraint can also handicap their capacity to produce and export. It becomes a vicious circle.”

Although the situation was improving in 2018 and 2019, Barker said, “But 2020 saw the collapse in prices of several major export commodities. This included liquefied natural gas/oil, copper and vegetable oil at the start of the year. It was associated with the severe fall in demand linked to the Covid-19 pandemic and was not balanced by the strengthened gold prices, particularly following the closure of the country’s second-largest gold mine, Porgera.”



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PNG Business News - February 15, 2021

Foreign Exchange Liquidity Is Expected To Rise In 2021

The foreign exchange liquidity in the country is predicted to increase this year. According to the Bank South Pacific, this could happen although the first quarter may be tight. In the BSP Economic and Market Insight December 2020 quarter publication, group general manager treasury Rohan George said that the foreign exchange inflows were expected to decrease by 13 per cent with the support of the Bank of PNG (forex) intervention and 20 per cent without its forex support, from levels enjoyed in the last quarter of 2020. He predicted that these were all because of the effect of the fire at Ok Tedi, the Porgera mine shutdown, Government businesses and State-owned entities strong end-of-year inflows “are likely to be partially offset by increased forex intervention by the Bank of PNG”.“The Kina is likely to continue its gradual fall against the US Dollar (10bps/month), while persistent Australian dollar strength will see larger falls in the Kina against the Australian dollar cross-rate,” he said.The high import demand is also on downward pressure on the Kina exchange rate against the US dollar. “A look ahead into 2021 is promising,” he said. “For instance, Japan has committed to a K1 billion low-interest loan to help finance PNG’s budget deficit. Further, the Government has provided assurances regarding multi-billion Kina resource projects like the Wafi-Golpu, Papua LNG, Pasca offshore, and the re-opening of the Porgera mine. A successful conclusion of negotiations will provide foreign exchange relief.”

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PNG Business News - February 09, 2021

Kina Drops By 2.9 Per cent Against the US Dollar

According to the Bank South Pacific (BSP) chief executive officer Robin Fleming, the kina depreciated by 2.9 per cent against the US dollar in 2020.“During the course of 2020, the Kina depreciated by 2.9 per cent against the USD, therefore, the cost of goods increase associated with the exchange rate for USD denominated imports would have been around 2.9 per cent,” he said. “For Australian dollar imports, this may have been somewhat higher as the Australian dollar appreciated by 16 per cent against the Kina from last June, predominantly due to movements in the USD and AUD cross rates. In respect to inflation, the most recent publication from the Bank of PNG (BPNG) released in January was that its September 2020 monthly economic review suggests overall inflation is still low.He added, “BPNG’s September 2020 monetary policy has inflation around 3.3 per cent and the Department of Treasury 2021 budget papers indicated inflation for 2020 around four per cent. The BPNG Sept 2020 monthly economic review showed that inflation annual headline retail price index (RPI) to Sept 2020 increased by 0.5 per cent.”This was driven by price increases in alcoholic beverages, among others. According to the BPNG statement, the annual headline inflation decreased from 4.8 per cent in December 2018 to 3.1 per cent in March 2020. This was due to stable or low-income prices in seasonal produce, low imported inflation and high competition. BPNG Governor Loi Bakani said that the import of costs was below 25 per cent.

Finance

PNG Business News - January 22, 2021

Budget Management Committee Meets with Department Heads to Resolve Issues

To work out outstanding issues with government payments, the Budget Management Committee (BMC) met with department heads, the Bank of PNG Governor, Loi Bakani, and BSP CEO, Robin Fleming.The BMC is composed of Chairman and Treasurer, Ian Ling-Stuckey, Finance Minister John Pundari, Planning Minister Rainbo Paita and his Vice Minister, Dr Kobby Bomareo.Ling-Stuckey said, “We have heard the frustrations of our local businesses, Members of Parliament and Government agencies, with late and declined government payments. This has to stop if we are to deliver services to our people. Extraordinarily, as the meeting explored deeper into the underlying issues, there were three main factors that contributed to the bouncing cheque’s issue.”“First, over the last decade, with growing concerns about corruption and new anti-money laundering and counter-terrorist financing laws, there has been an increasing but seemingly, uncoordinated practice to double and triple check the authorisations of payments made by the government,” he said. “More and more of the underlying documentation to authorise payments has had to be sent to both commercial banks as well as BPNG. Second, the updated Kina Automated Transfer System (KATS) introduced by BPNG has modernised many elements of banking in PNG. Cheques used to take 14 days to clear. Now, if they are not cleared in 2 days, they are dishonoured. This means that if all the increased documentation is not provided in only two days, then the cheque will automatically bounce.”He continued, “Third, from September last year, the meeting heard for the first time on Tuesday that the email from the Department of Finance that used to provide the necessary documentation within two days broke down since about September last year and for all of the 4th Quarter, and this was apparently, the primary reason for bounced cheques, according to frank advice tabled by the Deputy Governor of the Bank of PNG (BPNG). So the breakdown in the Finance Department email system, combined with the reduction in the cheque clearance time to two days, combined with the increased duplication of documentation requirements, appears to have contributed and resulted in the recent experience of bounced cheques,” explained the Treasurer.”“In the month of December 2020, government cheques valued over K500,000 that were dishonoured totalled K200 million, of which K74 million were rewritten but dishonoured again. This is clearly unacceptable,” he added. “More needs to be done to deal with the underlying issues. The Budget Management Committee meeting on Tuesday resolved to modernise the government payment system and was advised that the primary solution to ending bounced cheques included adopting electronic transfers for all government payments. It was the view of all BMC ministers and their departments that the very long checklist, adopted by the Bank of PNG, should be reduced, if not, perhaps eliminated altogether, and that oversight of a checklist be transferred back to the Department of Finance and/or the originating source of the funds.”He said, “It is embarrassing that the Government of PNG is unable to meet its bills reliably and on time. Our SME’s are crying out for money they are owed, and all they receive are bouncing cheques. The BMC meeting directed the Secretary of Finance to ensure that the documentation process from the email system does not break down again. I have also asked that a backup system, perhaps a consideration for an encrypted system like WhatsApp that is user friendly, is made to ensure information can get through to BPNG.”“More fundamentally, we must address the underlying issues. Our meeting agreed the multiple document checklist culture must end,” Treasurer Ling-Stuckey said. “Our departmental heads have been tasked to work with the Bank of Papua New Guinea and the commercial banks to do away with outdated practices. We can do this while still maintaining the integrity of our Anti-Money Laundering Laws. Australia and New Zealand manage government payments and their international obligations successfully without needing additional oversight by third parties. It is time we modernised our systems to bring them in line with international best practice. Countries like Fiji have used electronic transfers for years. It is embarrassing that PNG is still stuck in 1975 issuing a very large share of payments through paper cheques. Cheques create opportunities for corruption and slow down our financial system.”Meanwhile, Minister Pundari said the Department of Finance need to review the Financial Management System and come out with a plan to move towards electronic transactions. He stated, “This will stop the perennial problem of bouncing cheques. You can’t electronically transact funds that you don’t hold. Our private sector relies on electronic transactions. It is time our public sector moved to a modern payment system suitable for a rapidly developing country like Papua New Guinea.”


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PNG Business News - July 22, 2021

Oil Search Considering Merging with Santos

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PNG Business News - July 21, 2021

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PNG Business News - July 21, 2021

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