PNG Business News - May 18, 2021
Study: Measures May Brings More Pressure on Gov Finances
According to an S&P Global Rating research update, measures introduced in the battle against the Covid-19 are likely to bring more pressure on PNG's government finances. According to the study, the global pandemic has exacerbated PNG's systemic fiscal problems. “Much weaker revenues, coupled with larger recurrent expenditure, are a feature of the fiscal landscape,” it said. “Larger fiscal deficits and weak economic growth have propelled general government net debt, according to our calculations, to above 46.6 per cent of gross domestic product (GDP) in 2021. “We forecast it to reach around 47.5 per cent in 2024 due to delays to the government’s fiscal consolidation efforts because of fallout from the Covid-19. “It states that weaker tax revenues and dividends from State-owned corporations have substantially lowered revenue expectations since the start of the pandemic. “On the expenditure side, significant overruns were incurred from a public sector wage bill because of increased wages and additional staff numbers. “In response, the Government has cut capital expenditure, partially offsetting the weaker revenues. “But this does not address vulnerabilities linked to PNG’s narrow tax base and it will continue to weigh on future growth.” According to the study, the government started its staff-monitoring scheme with the International Monetary Fund in 2020, detailing its 20 institutional benchmarks. “The incumbent government’s focus is on fiscal consolidation and lowering debt,” it said. “We expect this focus to provide an anchor to the government’s economic and social reform agenda. “Carrying out the agenda has been difficult because disruptions caused by the global pandemic have delayed targets. We estimate the general government deficits to average 3.3 per cent of GDP between 2021 and 2024. “The 2020 fiscal deficit was higher than the Government had projected. “The economic slowdown and low commodity prices led to lower revenue collections. “Government expenditure, meanwhile, increased due to pandemic-related fiscal support. “To mitigate some of the revenue shortfalls, the Government applied for additional Covid-19 financing facilities established by multilateral development partners. “We expect multilateral and bilateral partner loans to finance fiscal deficits, with net debt increasing to about 46.6 per cent of GDP in 2021.” The government has included debt from state-owned enterprises (SOEs) in its debt calculation, which is higher than our normal concept of general government debt, according to the study. “A lack of disclosure means we are unable to separate the debt of SOEs from that of the general government,” it said. “The Government continues to increase its reliance on external borrowing, with its debt strategy targeting a 50:50 split between domestic and external financing. “Wider fiscal deficits in recent years have strained the ability of the domestic financial system to absorb large amounts of government debt, which is reflected in higher local interest rates. “PNG has diversified its funding base via drawdowns from a Credit Suisse, Asian Development Bank, and World Bank credit facilities budget support loan from Australia as well as its US$500 million (K1.7bil) sovereign bond issuance. “The Government has used some of these proceeds to retire short-term expensive domestic debt, lowering its average cost of debt domestically. “We anticipate interest payments to rise as debt stock increases to about 23 per cent of general government revenues by 2024. “PNG’s external position remains weak. “The country’s terms of trade volatility have subsided over the past few years. “External debt ballooned between 2010 and 2013 during the construction phase of a liquid natural gas project. “Large current account deficits – financed by a combination of external debt and foreign direct investment – averaged about 30 per cent of GDP. “The country’s external imbalances have contracted during the past few years, with LNG production since 2014 resulting in repayment of external liabilities. “Future LNG projects could exacerbate external imbalances again during the construction phase. “We project a moderation in current account surpluses in 2023-2024, rather than the double-digit current account deficits of 2010-2013. “We forecast net external debt to be about 124 per cent of current account receipts (CARs) in 2021.” PNG's net external debt stood at 370 per cent of CARs in 2012, according to the study update. “We consider PNG’s strong current account surpluses to overstate its external position,” the report said. “Project development agreements allow developers of mining projects to keep export receipts in offshore foreign currency accounts. “These US dollar revenues deflate our external ratios, presenting a stronger external picture than would otherwise be the case. “We expect net external debt to peak at about 250 per cent of CARs in 2024.” Foreign exchange reserves have been stable over the past 12 months, remaining at about US$2.3 billion (K7.97bil) as of June 2020, according to the study. “PNG held about US$4.4 billion (K15.26bil) in international reserves in 2011, declining to US$1.7 billion (K5.89bil) in 2017,” it said. “This has also resulted in an easing of the shortage in US dollars in PNG, helping to lower the value and shorten the clearing time of outstanding foreign exchange orders. “However, we believe PNG maintains extensive foreign-exchange restrictions. “This is symptomatic of a currency that persists above the market-clearing exchange rate. PNG’s exchange rate arrangements were “crawl-like”, according to the International Monetary Fund. “During the past few years, the PNG Kina has depreciated against the US dollar, falling around 15 per cent since 2015,” the report said. “More broadly, the Bank of PNG’s weak monetary policy flexibility is a rating constraint. “This weakness mainly reflects the limited transmission of monetary policy settings to the interest rates faced by borrowers, largely because of the high level of liquidity in the banking system. “PNG’s banking system is stable, with limited competition. “It relies heavily on deposit funding, which is supported by high levels of liquidity. It also has a small net external asset position and limited linkages to global markets. “That said, the country’s low-income levels and credit concentrations increase banking system risks. “Legal infrastructure and judicial system delays also pose challenges to enforcing creditor rights.”
PNG Business News - May 18, 2021
BSP Sign MoU for Digital Payment Solution
BSP Financial Group Limited (BSP) and the Department of Finance have signed a Memorandum of Understanding (MoU) to allow the government to raise non-tax revenue through a digital payment solution. This is the first such MoU with any government agency, according to BSP Group CEO Robin Fleming. “These payment gateway modes would appropriately suit different paying sectors of the population of which some are rural-based suited with mobile payment mode and Kiosk which would be made available in all-cash offices and popular and common public access points, while online will suit city residents and overseas paying clients,” Fleming said. This Digital Payment Solution will be used to pay for non-tax costs such as police clearance, warrants, bails, visas and renewals, property leases, resettlement facilities fees and job permits, coal and petroleum discovery licenses, petroleum production and production licenses, among other domestic recurring fees and charges. The Payment Solution, according to BSP General Manager Digital Nuni Kulu, would allow for direct payment tracing, expand the government's payment scope across the world, save time and money while improving consumer engagement and government service delivery. “The Department of Finance’s Website Portal is custom-made to capture a wide range of government services, boosting revenue generation and drive cashless transactions through online payments,” Kulu added. Dr. Ken Ngangan, the Finance Secretary, stated that the payment solution would result in the timely recovery of non-tax revenue and would boost the government's revenue collection activities in order to fulfill the government's budget needs.
PNG Business News - May 10, 2021
PNG Kina Continues to Fall Against US Dollar
The PNG Kina is expected to continue falling against the US dollar. The Kina traded steady in the first quarter of 2021, according to the BSP's Pacific and Economic Market Insight survey, thus depreciating 2.4 per cent year on year against the US dollar, from 0.2920 to 0.2850. Rohan George, BSP Group General Manager – Treasury, said, “The US Dollar rallied against most currencies, as higher than expected economic and employment growth created inflationary concerns and fueled speculation that the US Federal Reserve would tighten monetary policy earlier than markets had initially expected.” Business liquidity dwindled in the first quarter of 2021, with market volatility down 8.3% in March and 5.2 per cent for the quarter. Despite strengthening signs in the global economy, George predicted that foreign exchange market turnover would remain sluggish in April and May, with decreased foreign exchange inflows in April. This follows the two-week closing of the OTML COVID-19 phase alignment and Barrick's lack of foreign currency supply to the industry. He predicts an uptick in half-yearly and end-of-quarter flows next month, as well as a reduction in pending foreign exchange order bottleneck problems. “To manage reduced FX liquidity, businesses should place FX orders (with correct paperwork), as soon as possible, ensuring orders are cash-backed while awaiting execution, and that tax clearance certificates are current and reflect the expected FX order execution time.” BSP Group CEO Robin Fleming agreed, saying, “The Government’s commitment to recommission operations of Porgera mine is a positive move that will also bring foreign exchange into the country and boost local and domestic economic activity.”
PNG Business News - April 12, 2021
Kina Depreciates Against All Major Currencies - Except the Yen
According to the Bank of PNG (BPNG), the average regular kina exchange rate has depreciated against all major currencies except the Japanese yen as of March 8. The kina depreciated by 8.1 per cent against the Australian dollar, 7.5 per cent against the British pound sterling, 2.8 per cent against the Euro, and 0.9 per cent against the US dollar, according to BPNG's quarterly economic bulletin for the September 2020 quarter. It appreciated by 1.3 per cent against the Japanese yen. BPNG Governor Loi Bakani said the country's foreign exchange reserves were K9.5 billion (US$2.7 billion) at the end of December. “As of March 5, 2021, the level of foreign exchange reserves decreased to K8.46 billion (US$2.41 billion), reflecting debt service payments for the Government and intervention by the Central Bank in the foreign exchange market,” he said. Meanwhile, the global economy shows signs of improvement in the December quarter of last year, according to reports. However, the second phase of the Covid-19 pandemic, which included a new virus, began to hit major economies, delaying recovery. “As a result, most countries have not completely opened up their borders to the movement of people,” he said. “The development and trial of Covid-19 vaccines that continued into the last quarter of 2020 provided some level of confidence for the global market and the world economy. In its January world economic outlook (WEO) update, the International Monetary Fund, projected the world economy to contract by 3.5 per cent in 2020 from its earlier projection of a decline of 4.4 per cent in the October WEO. For 2021, recovery has been upgraded with a growth rate of 5.5 per cent, reflecting the trial and introduction of Covid-19 vaccines.”
PNG Business News - March 22, 2021
Fleming: Trade is Important for Forex
The availability of foreign currency is crucial for promoting trade and enabling companies to continue importing goods for consumer consumption. It's also essential for investors to know that returns on capital investments can be repatriated if and when enough foreign currency is available in the country, according to Bank South Pacific CEO Robin Fleming. When asked if there is a continuing foreign currency shortage in the country, he said that while foreign currency issues are likely to continue for another two to three years, the prospects for a rebalancing of foreign currency supply and demand are optimistic once construction work on the Papua LNG begins. “Businesses have conditioned themselves to not being able to access foreign currency in a timely manner.,” he said. “But in doing so they have in certain instances forgone growth opportunities and put aside larger investments that would have assisted grow their business.” While reflecting on the rise in COVID-19 cases, Fleming noted that many companies will be worried about the growing number of positive cases. In response to a query about the BSP status, he claimed that their regional businesses have had to deal with the effects of COVID in each of their countries, with travel restrictions affecting their tourist-related industries. In what he described as a difficult year, he said most people did reasonably well. “Our focus in 2021 is to bring our new banking system online in Vanuatu and PNG in 2021 and other countries thereafter,” Fleming said.
PNG Business News - March 11, 2021
Puma Energy Concerned About Shortage of Forex
Puma Energy PNG Ltd is concerned about a shortage of foreign currency (forex) to import crude oil in a timely manner, according to country manager and director Hulala Tokome. The business paid for its crude supplies when forex was available on the market, he said. Tokome added that the availability of forex had influenced the crude oil purchase schedule, also commenting on oil prices, citing Platts as a source. According to Tokome, oil prices for February have been steadily rising. Platts is a source of benchmark price assessments in the physical energy markets and a provider of energy and metal knowledge. “Hence, we will have an increase in prices for March as the Independent Consumer and Competition Commission (ICCC) pricing structure is based on Mean of Platts (MOP) Singapore prices for the prior month,” Tokome said. “There is a one month lag on pricing effect. “All eyes will be on the Opec (Organisation of petroleum exporting countries) meeting. Their decision to increase crude oil production or not will determine which direction prices will go. There is strong market optimism around global demand returning on the back of vaccine rollouts.” Many countries have begun to announce plans to phase out lockdowns, he said, and the warmer weather could help support demand. “With this, prices should continue to trend upwards,” Tokome said. Brent rates are currently at US$64/bbl (K220.95/barrel of oil), according to Tokome.
PNG Business News - March 11, 2021
PNG Receives 1KB Loan From JICA
In support of the 2021 budgets and to boost the pandemic response, the government has secured a K1 billion loan from the Japan International Cooperation Agency (Jica). The funds will be used to support regional health centres. Jica will disburse about K988 million to help the national budget with an interest rate of 0.1 per cent per annual and four-year grace period which benefits the economy. According to Treasury Minster Ian Ling-Stuckey, “Subsequently, the PNG government reached out for international support and we thank you (Japan) for responding. Today, we are here to execute a loan agreement that was part of the 2020 financing plan but due to some delays, it was brought forward to this year. There is a process to follow to ensure the loan agreement is consistent with PNG’s Loan Assistance Act of 1971. As the minister responsible, after the signing of this particular agreement, the borrowing will become effective.” He added, “The loan will support our budget for 2021. This loan continues the Marape government’s policy of replacing expensive commercial loans with good, cheap concessional financing. Last year, based on the financing plan, we raised K5.379 billion in concessional financing and I am proud to say that the total cost of those loans averages about 1.5 per cent and certainly no more than two per cent. That demonstrates our commitment to continue seeking support for concessional financing. Clearly, the strategy here is to pursue a revenue strategy because during the last 15 months under the COVID-19 conditions, the Marape government is focused.”
PNG Business News - February 17, 2021
PNG Market Adapting to Contactless Transactions
The PNG market has adapted to 64 per cent Visa contactless transactions. This is significantly higher than other markets in the Asia-Pacific region such as Hong Kong, the Philippines, Malaysia, and Taiwan. According to Bank South Pacific’s digital general manager, Nuni Kulu, this is a magnificent start for the BSP digital payment system with an adoption rate over a four-year period for the PNG market, as compared with other markets such as Singapore, Australia, and New Zealand - which normally takes eight years. “As more goods and services are purchased using various electronic mediums, we transition away from the dependency to use cash or cheques. Digital payments using cards on channels such as ATMs and EFTPoS have been in our markets for over three decades and our banked customers still dependent on these traditional payment channels to carry out their everyday transactions,” she said. “We, however, are seeing a rise in alternate payments, alternative payment methods are bringing new ways for customers to transfer funds online using electronic funds transfer (EFT) for payments in a secure and password-protected manner. The customer is carrying out payments and banking on their readily accessible mobile devices. The accessibility to the simplest phones or ‘one bang’, is driving a connected population who are now gravitating to this style of payment. The increasing adoption of mobile phone devices in the Pacific is supported by the improving expansion of telecommunication networks and we are seeing a direct correlation with an increase in mobile banking transactions.”He added, “As for the current unbanked who are still accustomed to using cash, it is the role of all financial institutions to drive financial inclusion and offer relevant banking solutions to encourage our population to deposit value through the use of digital solutions. As reported in the media, the impact of COVID-19 on our economy resulted in an increased budget deficit from K4.6 billion to K6.6 billion by the PNG Government. Although the pandemic has been a disruption globally, it has also acted as a catalyst in changing the way we do business by accelerating alternative contactless digital payments, driving existing digital banking solutions and alleviating geographical dependencies on service reach for the business sector. Ultimately, humanity is shifting toward connection by devices for news, weather, food, clothes, music and banking.”
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.”
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.
PNG Business News - February 04, 2021
Barker Says Forex is Very Tight
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.”
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.”
PNG Business News - January 04, 2021
Forex May Slow Down in 2021
Foreign exchange inflows may be lower in 2021.This is according to the bank of South Pacific, that said that this is due to the delay in an agreement between Barrick Niugini and the government on the Porgera gold mine. Chief executive officer Robin Fleming said that there were several factors that would impact the availability of foreign exchange this year, including the delay in resolving dialogue on the Porgera mine. “Resolution of the discussions between the Government and Barrick on the Porgera mine is important from a foreign exchange availability perspective with annual inflows associated with working capital for the mine having been significant,” he said. “Delays in reaching an agreement will see foreign exchange inflows being lower in 2021 than was the case in 2020.”Last April 24, 2020, the government said that it would not renew the special mining lease of BNL. Fleming also said that the prices of oil continue to impact benefits directed to the government and other PNG LNG liquefied natural gas) stakeholders and an increase in costs above US$50 (K172.22) per barrel will have some advantage for PNG.“Ok Tedi has been a great success story and as a wholly-owned PNG company, they continue to provide support for the foreign exchange markets and with their upgraded capacity and operating efficiency they should continue to support the foreign exchange market,” he said.Fleming added that the project of Papua LNG with operator Total is a key factor for the positive outcome in 2021 - as well as the availability of vaccines for COVID-19. He said that businesses may not continue until the availability of these vaccines as areas such as Tonga, Fiji, Samoa, Vanuatu rely heavily on tourism. “In PNG, the hotel sector had been experiencing oversupply towards the end of 2019 and this was made worse by international travel restrictions, hence, again the importance of a vaccine and resumption of more regular travel, which will benefit our airlines,” he said. “As business demand increases, employment increases and with a lag factor, government goods tax and services and tax revenue increases.”
PNG Business News - December 09, 2020
Baker: Availability of Foreign Currency Still A Challenge
The availability of foreign currency in PNG is still very challenging.This, according to ANZ PNG managing director Mark Baker, who said this was because the market was still imbalanced. He added that this demand for foreign exchange was outrunning supply which came mainly from the commodity exporters of Papua New Guinea. “This is a structural imbalance and will only correct itself in the near term with an influx of foreign direct investment (FDI),” Baker said. “The main source of FDI would be from the major resource projects which are still under negotiation between the government and the project sponsors. Other sectors of the economy that generate foreign exchange, such as agriculture, are currently still too small to bridge the foreign exchange gap. In the longer term, the solution is the development of a broader-based economy where the sources of foreign currency are more varied. The development of a broader-based economy requires infrastructure investment, in particular roads to facilitate an effective supply chain and power to facilitate a cost-effective local manufacturing sector.”On the suggested increase by banks of taxes, Baker said that it is important to have wide and detailed consultations - including the banks themselves. He said that banks in PNG have the most diligent taxpayers and their operations are funded by public and private sectors. “As with any such measures, there is the potential for unforeseen outcomes and proposed changes like these needs to be very carefully thought through,” Baker said.
PNG Business News - October 07, 2020
Business Industry: Devaluing Kina Not An Option
When the Business Council proposed two options for the Bank of PNG to move forward - trading at its market value and devaluing kina - the business space suddenly put its foot down. They claim that smaller businesses are more worried than ever and are asking the government to establish a policy framework that can help them. According to Executive Director Douveri Henao, PNG is experiencing difficult times and during this health crisis, there is a need to make the kina attractive to the world for the country's exports. “Largely because the whole world has literally come to a point where they’re not trading in noble conditions and our Kina should also not be trading in noble conditions,” he said in a statement. That’s one of the reasons why we’re also encouraging the monetary policymakers to consider these two options.”Mr Hanao added that all economies around the world are currently making monetary adjustments whether devaluing their currencies or quantitative easing but still, the idea is to make the currency more tradable, effective, and attractive. “That’s where we see the opportunity is presenting itself to revisit the trading of the kina in these very difficult and different times where it should be of consideration,” he said. In a previous interview with the Central Bank Governor Loi Bakani, he maintained that devaluing kina doesn’t work with the country and this is a prescription for a well-developed economy. He added that while the kina has been depreciating at a slow pace, the currency can still move forward - it is just that PNG has a one-sided market. He added that when a depreciation happens, reforms or other changes in the economy should transpire. He said that the Bank of PNG was in discussions with the Australian Treasury to involve market experts from Australia to aid the PNG to improve the domestic interbank market for a price-setting mechanism which works better than the current one.