Changes to bank Act for growth

Changes to the Central Bank Act done recently focuses on growth, says Treasurer Ian Ling-Stuckey. He says the element of growth focuses on jobs in the non-resource sector. Speaking during the swearing in of the new Bank of PNG board members this week, the Treasurer outlined the difference between the Central Bank Act 2000 and the amended Act, Business Reporter DALE LUMA writes.

Amendments
There were four main changes done to the Act.
One highlights the element of growth which focuses on jobs in the non-resource sector.
It was the main difference between the original legislation and the amended one.
The changes raised some concerns that the additional objective would at times conflict with the role of the bank.
Detailed discussions were ongoing with the International Monetary Fund (IMF), something that as time went by, and with the advice of the new board and the acting governor, would be balanced out.
The second is to formulate financial regulation and standards and to ensure stability and development for the financial system.
The rationale behind that is we wanted to encourage more banking institutions into our country.
No changes were made to Part C of the regulation as which is to procure and promote a national and international payment systems.
The fourth part of the objective, and one of the main priorities was accepting the recommendation to provide efficient and responsive banking services to the government. This particular area included the number one issue faced by Government today, including the private sector which is the disbursement of cheques.

Concerns
All good governments welcome critical commentary so long as they are verified and there is rationale behind them.
Most of those commentaries were that as a result of those amendments, as a result have eroded the independence of the Central Bank and that certain amendments allowed the Government to print money.
One aspect that was causing concern was section nine of the Act.
The clause excluding the temporary advances available with subsections two and four, the central bank shall not grant advances to the Government in respect of/or for the purposes of funding a Government fiscal deficit.
Sub-section 8a was replaced by the new amendment.
It reads: “The Central Bank may in pursue of its objectives purchase and sell in the most economical way possible treasury bills or notes issued by the Government at market determined yields.”
Central Bank holdings of treasury bills, notes and securities excluding the outstanding temporary advance under section two may not exceed 25 per cent of revenue.
That includes foreign aid and loans and not including sale of assets average over the last three years, that’s new.
Section 8b reads: “After that date which payment of securities is die, the power of the bank to purchase further securities shall not be excisable until and until the outstanding financing has been paid.”
Coming back on the removal of the word government fiscal deficit, on the surface of it understandably creates concern but the recommendations to the government, a pragmatic and practical approach was taken in section nine of the Act.
We came up with two difficult years of managing our economy challenged by the Coronavirus (Covid-19).
You all familiar with the issues that we faced and quite clearly, any Government in any country will expect the Central Bank to step in and support us during this time.
I would have expected the Central Bank of Papua New Guinea to step in a little earlier but nevertheless, the bank was able to assist us in just about all our expectations and we are happy with that.

Section 9
If you look back (around 2014) at the amount of paper that were purchased by the bank, it went as high as K3.5 billion.
It culminated in 2016 reaching K4 billion, this of course raised concerns in Parliament at that time. When we saw this particular raising of money, we asked was this used to fund the Government’s fiscal deficit or other aspects of allowable monetary policy.
The reality is that it’s very difficult if not impossible to determine.
That’s a loophole in our legislation from those early days in the year 2000.
Seeing what took place from 2014 to 2016 with the printing of money as high as K4 billion, rather than leave it as it is with no ceiling, let’s put a ceiling to it.
That resulted in that particular clause where the central bank may hold treasury bills up to but not exceed 25 per cent of the previous three years’ revenue.

BPNG
Government is open to taking up any recommendation with regards to the amendments.
Good governance requires that any legislation which is in place for over a decade requires a review, hence the review and amendment of the CBA last year.
An independent advisory group (IAG) was put together which from its review, gave 31 recommendations which resulted in the amendment of the legislation.
It is understood a second phase of reviews will be conducted with a number of changes to come one of them including the establishment of a monetary committee.