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Forex caution

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THE Asian Development Bank has warned that the shortage of foreign exchange in the country is expected to delay or halt construction projects and deprive supermarkets and shops of imported food items.
Ed Faber, the bank’s relationship manager, trade finance programme, said export businesses such as the tuna factory which could not buy cans, or coffee producers who were not able to buy processing machinery, were being affected too. In a report “A catalyst for foreign currency growth in PNG” released yesterday, Faber said trade finance could be part of the solution.
He said there was “a notable anxiety” among many local businesses during a recent business forum on the common problem they were facing.
“Such concern is replicated across the business community in PNG, where businesses have to queue for several weeks before they can source from banks the hard currency they need to purchase goods from overseas,” he said.
“Banks meanwhile juggle clients’ orders, and go cap in hand to the Central Bank asking for release of additional foreign currency into the system, is it available.
“PNG has been suffering from a notable shortage in foreign currency reserves ever since commodity prices took a downturn.”
Faber said natural gas was the country’s main export, contributing close to 30 per cent of total export revenues.
“Some of PNG’s other key exports – coffee, cocoa, gold, lumber, fish and palm oil – have seen similar trends,” he said.
“The declining value of exports has subsequently depressed export revenues, and sharply reduced the amount of foreign currency coming into the system.
“Consequently, when importers can’t source the foreign currency they need to purchase goods from abroad, construction projects get halted or delayed.
“Shelves in supermarkets and in shops become empty, as key imported goods simply don’t make it into the country. Export businesses are also severely affected.”
He said trade finance, while not the panacea, could be part of the solution.
“Take for example canned tuna and frozen fish, both of which are key export-driven businesses with significant growth potential.
“One company we spoke to in Lae sells about US$100 million (K314.6 million) per year to overseas markets. But its growth is hampered because of lack of access to foreign currency and to trade finance.
“In PNG, ADB is working with a local bank to offer trade finance solutions that include financial assistance through hard currency loans to businesses for trade.
“Such assistance speeds up the process of sourcing foreign currency for exporters, and raises foreign exchange liquidity.”
He said PNG was a market with huge potential.
The Government recently announced it would inject US$46 million (K142.6 million) into the foreign exchange market to ease the shortage problem. A statement from the Bank of PNG and the International Revenue Commission said there would be a further US$54 mil (K167.4 mil) released into the market early this month as part of the two-phase intervention by BPNG. The Institute of National Affairs which recently undertook a survey of business across the country said preliminary results, showed that the shortage of foreign exchange was the main impediment to business and investment.

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