Forex shortage an issue: Barker
The shortage of foreign exchange remains a major issue for businesses in Papua New Guinea, economist and Institute of National Affairs executive director Paul Barker says.
Responding to queries, Barker noted that the backlog of foreign exchange demand was reduced last year.
However, he said with the full onset of the coronavirus pandemic this year, global demand for a wide range of commodities and services slumped with the notable exception of gold, and to a more modest extent coffee and cocoa.
“Once again, the balance of demand for foreign exchange was exceeding the receipts,” he said.
“Especially with the perceptions of overvaluation discouraging remittances, and the continued constraint on new investment, in the face of investment uncertainty, fuelled by the Covid-19, prospective changes in business and investment laws, and apparent lack of progress over other major prospective resource projects.”
Barker explained that during the past decade, however, with the fall of most commodity prices, except gold, the high cost of imports and debt servicing, notably associated with the PNG LNG infrastructure construction, plus the growing cost of overseas public borrowing for the Government’s Budget deficit and equity acquisitions, there was a negative balance of payments most years from 2012 from 2014, despite a strong positive trade balance from 2014.
He added that this saw a progressive decline of PNG’s foreign exchange reserves and efforts by the Bank of PNG (BPNG) to conserve the reserves and sustain value of the kina, partly to restrain imported inflation, but also presumably to prevent debt servicing costs escalating.
“With an imbalance of foreign exchange earnings and demand for foreign exchange, which would normally be addressed by a market driven adjustment, the Central Bank has sought to manage the process, by restraining foreign exchange transactions, and prioritising categories of payments and requiring others to be deferred, at least until more forex is available.”
Major business houses such as Brian Bell, City Pharmacy and Paradise Foods mentioned that the lack of foreign exchange reserves over the years had been an impediment to growth.