Kina Must Be Further Depreciated: Smirk
The value of Kina needs to be further depreciated by the Bank of PNG in order to relieve pressure on the current foreign exchange market.
Westpac’s senior economist Justin Smirk told the business community in Port Moresby yesterday while giving his economic outlook during the Port Moresby Chamber of Commerce and Industry business breakfast.
Mr Smirk said the issue of foreign currency shortage will not go away anytime soon due to the fact that US dollar will remain stronger against all currencies all through to the middle of next year.
He said with much tension now surrounding the supply of US dollars and the issues of getting access to it does mean that the Central bank needs to edge their way on the Kina by keep lowering it and keep the pressure out of the system.
“We are talking about the environment where you could see the US dollar continue to rise to the first half of next year. US dollar will remain stronger against all currencies all through to middle of next year. There are two moves for the government to refinance its outstanding debts and central bank to allow Kina to keep depreciating,” he said.
Mr Smirk said given the modest level of inflation and softening of energy prices, there is scope for BPNG to allow for some depreciation to relieve some pressure in the FX market. He said when looking at the government’s debt to GDP, currently the government has been spending their options for financing using more offshore finance while trying to level its debt to GDP.
“Yes you do not want to go overly exposed to foreign debt while you have access to foreign exchange offshore.
But taking foreign exchange offshore does allow you to have more money to grow the economy. This means government need to bring in all SOE debts and outstanding commitments to boost debt to GDP ratio above the limit.
Once you pay off your outstanding liabilities you raise more funds and this doesn’t mean you change government debt, it stays exactly the same but what it does do is it release equity into the economy, investors get paid so they get their cash and they start investing in the country without changing any government activity in this space,” he said. Smirk said there are a lot of opportunities for further growth but the country is not there yet.
“Government should also ask foreigners to buy local bonds in PNG Kina… yes there is a currency risk involved but there are lots of wealthy people out there looking for high yielding assets and are looking forward,” he added.
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