Foreign currency shortage still a problem in PNG
2 October, 2018, 9:35 pm
PORT MORESBY, 02 OCTOBER 2018 (POST COURIER) – Developers of major resource projects keeping offshore accounts are not helping to ease the foreign exchange crisis faced in PNG.
As such the Bank of PNG has urged the government and its agencies to come up with better terms when negotiating project development agreements (PDAs) to avoid shortages of foreign currency receipts.
The bank’s stance is contained in its just released monetary policy statement for September which it also announced an improvement in foreign currency inflows but warning “there is still a backlog of sell Kina orders”.
“Total outstanding orders have declined from K2.2 billion (US$675 million) in March 2018 to K1.7 billion (US$522 million) at the end of August,” the bank said.
The bank said it would use the foreign currency inflows from external loans and mining and petroleum taxes to support the market and clear the backlog.
“In total PNG foreign exchange earnings should more than adequately cover all the demand for foreign exchange,” the bank said.
“This is not happening because various PDAs allow developers of various extractive industry projects to keep export receipts in foreign currency accounts offshore.
“This explains where the current account surplus does not translate to a significant increase in foreign exchange inflows, and why there continues to be a deficit in the financial and capital account.
“This raises the need for better coordination and consultation amongst all relevant State agencies and during project negotiation stage to come with better terms and conditions of PDAs for the country.”
The bank said it would help improve the negotiation capacity by liaising with the State agencies address the issues and concerns relating to revenue and foreign exchange.
“The government in providing concessions to the extractive industries has contributed to the challenges of raising revenue to fund its expansionary fiscal policy.”
The bank said to improve the fiscal position, the government should consider aligning expenditure with revenue and reduce its public debt from any windfall revenue.
The banks said while reforms under the MTSF2018-2022 are intended to better manage the government’s expenditure, effective spending in infrastructure, agriculture, forestry, fishery and SMEs were important.
“This is would help broaden revenue and export base of the economy and increase foreign exchange inflows to meet the increasing import demand,” the bank said.