By DALE LUMA
KINA Bank says devaluating the PNG currency will increase inflation and hurt the economy’s ability to grow new sectors
Chief executive officer Greg Pawson told The National any devaluation of the Kina would also affect PNG’s market competitiveness and eventually exporters who might see short-term gain from it.
The PNG Business Council this week suggested that monetary policy makers should consider trading the Kina at the market value and devalue it to make exports more price-competitive.
It said it would help businesses during the Covid-19 period.
“Kina Bank questions the validity of a devaluation of the currency,” Pawson said.
“Although, on the face of it, exports become more competitive, whether that leads to direct and substantive increases in volumes and revenue, or leads to a speedier diversification of PNG’s export industries and revenue base, is questionable.
“What is relatively certain is inflation will increase, placing pressure on interest rates, both of which may negatively impact other sectors of the economy.
“This may damage the ability to grow new sectors of the economy, as well as raise the domestic cost base. This could ultimately impact on PNG’s competitiveness, including those export industries that may see a short-term devaluation benefit.
“Offshore debt servicing will become relatively more expensive adding to the fiscal deficit, which will require further funding solutions.
“Import substitution may become more compelling in the face of rising import prices, but the capacity of PNG to move the dial on this is constrained by ongoing issues such as infrastructure constraints and low productivity.
“There is no short-term solution delivered to these issues by a devaluation.
“These issues need medium to long term solutions which are a focus of government, such as Connect PNG, and that ultimately improve the competitiveness and productivity of PNG.”
Pawson said devaluation was a complex issue that would have multiple impacts “outside of what may be only a short-term fillip to some existing export industries which are largely already doing well.”
By DALE LUMA