China, weaker US$ shore up major exports

Business, Main Stories

The National – Wednesday, December 22, 2010

THE continued high demand from China and the weaker US dollar pushed PNG’s major exports upwards in recent months, according to the third quarter report from the Bank of PNG released last Friday shows.
BPNG governor Loi Bakani said with the search by investors for hard investment assets in the face of low interest rates and quantitative easing by central banks had  underpinned higher commodity prices.
The US dollar prices for all the major exports including gold, copper, oil, coffee, palm oil, and cocoa have increased, although the stronger kina against the US dollar will partially offset the gain from the higher US dollar prices.
With this, export receipts will increase.
Economic indicators available to the bank show that the economy continues to grow but at a slower pace this quarter.
While the value of most export commodities increased as a result of high international prices, there was a decline in the volume of many of the mineral and agriculture, forestry and fisheries exports.
The September consumer price index saw the rate of inflation easing, compared to the previous quarter.
But underlying inflationary pressure still persisted and was associated with increased domestic activity and demand from the construction phase of the PNG LNG project.
With the LNG project and the associated increase in demands on domestic resources, some sectors such as the construction and transportation are stretched to near-full capacity.
Thus, the government has to be selective and prioritise new construction and maintenance projects, and concentrate its efforts on maintaining and improving the current infrastructure that have deteriorated to an unusable state in some areas. 
Economic indicators available to the bank show that the economy continues to grow but at a slower pace this third quarter.
Bakani said that a higher than budgeted revenue from increased tax revenue, as a result of high export commodity prices, led the government to pass a supplementary budget for this year last November for an additional appropriation of K653.3 million.
BPNG is concerned that if this leads to increased spending in the last two months of the year, it will add to the already high liquidity level in the banking system, which would cause inflation to occur. 
Bakani said if these additional funds were deposited in trust accounts with commercial banks, they would have the same effect of increase in the level of liquidity.