For many Papua New Guinea businesses, access to foreign currency has been one of the country’s most persistent commercial challenges. Importers have often faced lengthy delays paying overseas suppliers, while manufacturers, retailers and project developers have struggled to secure the foreign exchange needed to purchase equipment, raw materials and inventory.
During June, however, there were growing signs that reforms led by the Bank of Papua New Guinea and supported by the International Monetary Fund were beginning to improve conditions.
The Bank of Papua New Guinea left the Kina Facility Rate unchanged at 5.0 per cent during its June Monetary Policy Committee meeting, while continuing its managed exchange rate adjustment. The central bank said the gradual depreciation of the kina and associated policy measures were helping improve the supply of foreign currency to the market without creating unnecessary volatility. It reported that foreign exchange turnover had increased and waiting times for many transactions had shortened compared with previous years.
These developments have been reinforced by Papua New Guinea’s IMF-supported reform programme. The IMF’s June approval of approximately US$163 million in additional financing recognised progress in macroeconomic reforms, including measures aimed at strengthening the foreign exchange market, improving fiscal management and restoring investor confidence. Reuters reported that the IMF considered continued exchange rate reform essential to reducing market distortions and improving access to foreign currency for the private sector.
Westpac’s June PNG Economic Update also noted encouraging progress. While demand for foreign exchange continues to exceed supply, the bank said market liquidity has improved and businesses are beginning to experience shorter delays in accessing overseas payments. This has particular importance for companies dependent on imported machinery, construction materials, fuel, pharmaceuticals and consumer goods.
Business groups have long argued that improved foreign exchange availability is one of the single most important reforms needed to stimulate private sector investment. Easier access to overseas payments reduces uncertainty, improves cash flow and strengthens relationships with international suppliers, while making Papua New Guinea a more attractive destination for foreign investors.
Although challenges remain and full market normalisation is expected to take time, the June policy developments suggest that Papua New Guinea’s long-running foreign exchange constraints are beginning to ease. For the country’s business community, that may prove to be one of the most important economic developments of the year.
