Bank reluctant to release forex


THE Bank of Papua New Guinea (BPNG) holds significant stock of foreign exchange to support the market, but is reluctant to see its reserves unduly diminish, says economist Paul Barker.
Barker, the executive director of the Institute of National Affairs, was responding to concerns raised by businesses over the shortage of foreign exchange which continued to be an impediment to business and investment in the country.
Barker acknowledged that the Central Bank released stocks every now and then to the market but it was still reluctant to see its reserves unduly diminished.
And together with the commercial banks, it applies a system of rationing the release of foreign exchange, prioritising urgent payments, for example for fuel, food and debt servicing.
“But there remains a major backlog of payments and orders due to be concluded,” he said.
“The Central Bank has also sought to sustain the Kina at levels that economists and many in the market say remain artificially high, partly to restrain imported inflationary effects, pushing up living costs.
“However, the Kina has been steadily slipping against the US dollar and most other currencies, largely driven by the imbalance in exchange flows, including partly owing to market sentiment that kina is likely to fall further.
“Limited available foreign exchange and restraint on access to forex, including realisation by foreign investors that they may not be able to remit dividends to parent companies and shareholders or pay for offshore costs, has probably contributed to discouraging new investment, major restoration or upgrades.
“Many economists have argued for freeing up the foreign exchange market to allow readier flow of transactions, but also to let the Kina find its true market value, drive away speculative behaviour that has discouraged financial inflows back to Kina, improve competitiveness, incomes and prospects for various export earnings and import replacement businesses including farmers across PNG, and hopefully provides the basis for more confidence for investment and development in PNG.”
The PNG Manufacturers Council chief executive officer Chey Scovell said last week that the restricted supply of foreign exchange had continued to constrain, or in some cases halt, operations for businesses.