Bakani: Global economic recovery will benefit us

THE recovery in the world economy will have a positive effect on the Papua New Guinea’s external sector, according to Bank of Papua New Guinea (BPNG) governor Loi Bakani.
Bakani said there would be an increase in demand for exports which would translate to an increase in export prices and values.
Writing in the quarterly economic bulletin, he said   combined with the expected start of production at the Ramu nickel-cobalt project would add to an improvement in the country’s trade and current account.
Bakani said in April and May respectively, international prices of most of PNG’s major export commodities like gold, copper, crude oil, coffee, cocoa and copra, increased.
“This should encourage more production and export and assist further in improving the balance of payments position. 
“On the other hand, the construction work on the LNG project can lead to an increase in imports, which can offset the surplus in the current account.
“These LNG project imports will be financed through debt and equity in the capital account,” Bakani said.
In the foreign exchange market, the US dollar appreciated against all major currencies during the March quarter of this year, he said.
This partly reflected the strengthening of the US economy and improvement in its exports and capital inflow, which partly contributed to the debt problem in the Euro zone and budget deficit in the UK, according to Bakani.
The US dollar appreciated by 6.3% against the euro, 4.5% against the pound sterling, 1.1 % against the yen and 0.6 % against the Australian dollar.
Earlier in the second quarter, Bakani said the kina was under downward pressure with a lot of import orders, hence depreciated to US$0.3520.
In the last three weeks, there has been an increase in exports proceeds flowing into the domestic foreign exchange market, resulting in an increase in demand for kina, he said.
Consequently, the kina has appreciated against the US dollar to US$0.3590 as of June 29.
Combined with the depreciation of the Australian dollar against the US dollar, the kina has appreciated against the Aussier to around US$0.42 to date, Bakani said.
The level of gross foreign exchange reserves increased from US$2,372 million (K6,803 million) at the end of March 2010 to US$2,566.80 (K7,032.40) million as of July 1.
However, Bakani said economic indicators available to BPNG point to a slow down in the pace of growth in domestic economic activity in the first quarter of this year.
He stressed that a decline in the total level of employment in the private sector, a deficit in the balance of payments and slower growth in commercial bank credit extended to the private sector were indicative of the slow down in overall economic activity.