Be careful with devaluating Kina

Letters

WHILE there are much debate on the devaluation of Kina the public needs justification.
The National’s opinion poll shows that 81.2 per cent go against it while the remaining 18.5 want devaluation.
Devaluation is the monetary decisions by the Government through the Central Bank to devalue kina at a fixed interest rate.
By having a weaker currency, certain economic policies employed by the Government can be achieved.
It will boost exports; exports will become cheaper and more competitive and reduce the problems with foreign exchange.
Businesses industries have to trade more efficient and faster due to surplus of exchanges reserves at the Central Bank.
It will also shrink trade and reduce the costs associated with the Government’s repayments of debts.
Devaluation of kina will force international investors willing to hold Government on debt to be scared and readjust their repayment schedules at low interest rates.
Also, the problems of kina imbalances against important trading partners will be reduced, bringing in more reserves.
However, the negative effects of devaluation will give rise to inflation.
Imports will become more expensive and the cost of goods and services will be more expensive.
Firms may have less incentives to cut costs in doing business, low output and problems of cash flow in public sector.
Since we are experiencing a decline in the economy by one per cent or a reduction of K2.1billion in household consumption by families, we will be hit hard.
The Government needs to reconsider this before devaluation since we are low in extractive industries sales with revenue of 0.9 per cent for oil and gas unlike in 2014 when it was at 10 per cent.
The Government has to be careful before recession hits us badly.

Morris Samuga
Waigani

One thought on “Be careful with devaluating Kina

  • Thank you Morris. I don’t understand the impacts of devaluing of our Kina could be until I read your letter. I also did not check the the boxes for Opinion Poll but now I did. I don’t want our Kina to be devaluated.

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