Liquidity conditions have emerged as a major source of risk for the PNG economy, as the central bank governor reveals he spent US$570.9 million (K1.48 billion) to support the kina last year.

Bank of PNG’s Loi Bakani

An ANZ Bank report reveals businesses regard ‘competition’ as their major threat, but a number of corporates noted competition for US dollars has made their business operations ‘increasingly difficult’.

When asked about the direction of the kina, the majority of business respondents expected it to fall 2.7% against the USD over the next 12 months, although ‘we note that there is a fairly large tail (a fifth of respondents) that expects -10% or more deprecation over the next 12 months,’ say the report’s authors.

The Bank of PNG intervened in the foreign exchange market with US$570.9 million (K1.48 billion) during the past year.

Firms had a difficult start to 2015, with the first quarter ‘sombre’, but conditions are expected to improve over the next quarter, year and five years, respondents told the ANZ.

Meanwhile central bank Governor, Loi Bakani, says the Bank of PNG spent US$570.9 million (K1.48 billion) during the past year, because of the shortage of foreign currency in the market.

‘This is one of the areas (shortage of foreign currency) that we see quite as concerning to us. That’s why we’ve taken measures last June on the trading band and this year again on the March 5 on the directives,’ he told last week’s Port Moresby Chamber of Commerce and Industry meeting, when delivering his March Monetary statement.

‘… we note that there is a fairly large tail (a fifth of respondents) that expects -10% or more deprecation over the next 12 months’.

He said the kina had depreciated by 9.3 per cent since bank introduced the trading band last June.

‘Again, this is a reflection of high economic growth that we experienced and that led to high import demand and of course, on the other side, low foreign exchange inflows.’

He said the imbalance had continued and was worsened by foreign banks conducting unauthorised banking business in the country.

Loi Bakani will be delivering his March Monetary statement to members of the Lae Chamber of Commerce and Industry on Thursday, 9 April.