As far as business is concerned, Papua New Guinea’s foreign exchange challenges are far from over. That’s according to an exclusive Business Advantage PNG poll, which indicates the majority of businesses are still experiencing significant delays in meeting their foreign currency needs.

Credit: Pixabay

Since June 2014, there have been significant delays in obtaining foreign exchange within PNG as the country’s central bank, the Bank of Papua New Guinea, has sought to manage currency outflows.

While initiatives such as last year’s inaugural US$500 billion sovereign bond and smaller concessional loans from the World Bank and Asian Development Bank have improved matters somewhat—together with improved foreign currency receipts from commodity exports—there is still a backlog of foreign currency orders.

In his March 2019 Monetary Policy Statement, Bank of PNG Governor Loi Bakani stated that the backlog had fallen dramatically in size, from K1,739.3 million in December 2017 to K445.4 million at the end of 2018, and to K320.1 million in February 2019.

While matters have clearly improved, in an online Business Advantage PNG poll, conducted last week:

• 40 per cent of respondents said they were still waiting six weeks or more to have their foreign currency orders met.
• a further 33 per cent said they were waiting between three and six weeks.
• Only 4 per cent said they were now getting foreign currency as and when they needed it.
• The remainder (22 per cent) said they were waiting up to three weeks for currency orders, although matters were improving.

The reduced availability can be partly attributed to the enormous capital requirement for the construction of the US$19 billion ExxonMobil-led PNG LNG project, which commenced production in April 2014. The project remains the largest single investment ever made in PNG.

While the PNG LNG project is now generating significant foreign exchange, most of this has so far been used to pay off the international borrowings that were required to fund the project’s construction and have therefore not been available to reduce the backlog.

That trend does not seem to be improving. According to the Bank of PNG’s Quarterly Economic Bulletin in 2018 there were higher net financial outflows ‘reflecting equity withdrawals and build-up in offshore foreign currency account balances of mining, oil and LNG companies covered under the Project Development Agreements.’

Typically, businesses in PNG need to acquire foreign exchange to pay for the imported products, services and raw materials they need to conduct business.

There is an additional requirement for foreign-owned businesses to purchase foreign exchange in order to repatriate dividends from profits made by their PNG-based businesses. Business Advantage PNG understands that many foreign-owned businesses in PNG have been waiting years to repatriate dividends.

Earlier this year, Governor Bakani indicated that reducing the backlog was a priority ahead of repatriation of dividends.

‘We will focus on clearing dividend payments once import orders reach normalcy,’ he told Business Advantage PNG.