The Governor of the Bank of Papua New Guinea says his recent directives on dealing in the kina are not meant to frighten or scare the market, but to help address the imbalance in the foreign exchange market and restore order.

Bank of PNG’s Loi Bakani

Delivering his March Monetary statement at an overflowing business breakfast in Port Moresby this morning, Governor Loi Bakani admitted lower oil and other commodity prices would be challenging for the central bank and for the government.

Bakani predicted that this year’s GDP would continue to rise, mirroring 2014’s 8.4%, as it would reflect a full year’s production from the LNG project.

He told the Port Moresby Chamber of Commerce and Industry breakfast meeting that global growth was lower than expected, but along with global inflation, would pick up in 2015.

He said that PNG’s high economic growth has led to high import demand, which has subsequently led to the depreciation of the Kina.

Deficit challenge

This, he said, would pose a challenge for both the Bank of PNG and the PNG Government to maintain budgets and deficits given the projected revenue shortfalls.

He also said:

• The balance of payments is projected to be in surplus in 2015 due to higher holdings of foreign exchange by BPNG;
• It will be a challenge to maintain the deficit of K2.3 billion in 2015;
• Public debt will decrease;
• PNG should maintain existing projects, ‘complete what we’ve already started and put in place policies targeting the agriculture sector’.

Kina

Governor Bakani said foreign banks trading in the kina without a licence is ‘undesirable’, adding that last year, the volume of Kina transacted by Vostro accounts (Kina accounts held overseas) was approximately 50% of the turnover in the domestic foreign exchange market.

He said large kina payments are not being reported to the Bank of PNG by foreign banks, breaching central banking regulation.

Bakani admitted it never occurred to officials that foreign banks would take advantage of the situation and trade in the Kina.

But he said new regulations to be implemented by the Bank of PNG will help reduce the number of unauthorised transactions.

Audits will be conducted on both onshore and offshore foreign currency accounts and that pending findings of these audits, a ban will be imposed on the opening of new accounts.

Close accounts

He said unauthorised holders of offshore foreign currency accounts for trade purposes will have two months to close these accounts and convert the funds to Kina.

He says there is now a three-month repatriation requirement for offshore accounts approved by BPNG.

The balances in these accounts can only be used for payment of their foreign liabilities and any surplus repatriated to PNG and deposited into their domestic accounts. He pointed out breaching the regulations could incur a fine of K100,000, confiscation of funds, or jail.

Governor Bakani ended by reiterating that these directives were for the greater good of Papua New Guinea.