Papua New Guinea government ministers and influential economic analysts have welcomed the recent fall in the value of the kina, saying it will boost demand for exports and help rural farmers.

Since January, 2013, the kina has fallen 12 cents against the US dollar from US$0.47 cents to US$ 0.35, according to Bank of South Pacific.

Asian Development Bank’s Country Economist for Papua New Guinea Aaron Batten says the recent kina devaluation needs to be seen in its historical context.

‘Between 2008 and 2011, the value of the kina was averaging around 0.33-0.40 American dollars,’ he told Business Advantage PNG.

‘And then, with the beginning of the LNG construction project ramp up, we saw a large appreciation emerging in the value of the kina, due to the large capital inflows associated with that project.

‘So what’s happened over the last few months is that as LNG project construction begins to wind down, capital inflows have slowed, and the value of the Kina is rebalancing back to more historically normal levels, in line with the underlying economic fundamentals of the country.

‘That will ultimately have a number of positive side effects for the country.

‘It will protect rural incomes, make exports more competitive and it will also be good for government revenues, because a lot of their contracts are denominated in US dollars.

‘It would be counter-productive for the central bank to try and prevent the Kina from rebalancing to its long-term sustainable level.’

Cushion

World Bank’s Country Economist for PNG and the Solomon Islands Tim Bulman agrees the kina depreciation is actually helpful for farmers and helps cushion the economy from the broader slow-down.

Treasurer Don Polye said in a statement last week the depreciation was normal in any economy and was no different in PNG. He predicted increased demand for PNG goods.

The ANZ’s ‘Pacific Quarterly’ this week notes the decline was ‘in line with economic fundamentals of a deteriorating current account, falling terms of trade and reduced capital inflows as the construction intensive phase of LNG projects has now passed.

‘As export receipts from that project come on line, the current account should stabilise and improve and most likely bring the Kina with it,’ say the report’s authors.