Enlightenment needed on foreign exchange reserve

Letters, Normal

The National, Wednesday October 9th, 2013

 CAN we have some public announcement on the country’s foreign exchange reserves?

When Michael Somare was in government, he loved making public statements regularly about the growing foreign exchange reserves and we used to get regular updates. 

But now, it is not the case anymore. 

From a layman’s perspective, sufficient foreign reserves mean a strong, bold and growing economy that has few worries. 

That usually means the kina, too, is strong. 

It is  a sign of prudent fiscal measures.

I am not well-versed with such practices and might have erred in my statement, but I believe that foreign exchange reserves act as collateral when we experience deficits in PNG’s current account and goes toward propping up the kina when this deficit increases. 

Otherwise, low foreign exchange reserves means that we will be unable to stem the slide of the kina to unmanageable levels. 

The end result is, we might have to go for some rescue packages from IMF and World Bank or wait for ages for big projects to come online so we can repay the loans and have nothing left for ourselves. We will not be saving for a rainy day (foreign exchange reserves).

Currently, more money is going out due to high demand for imports and less money is coming in for imports, so the kina has been sliding since July (Bank of PNG).

The reason we might go for rescue packages is because all state assets are currently locked in as collateral to major loan deals that the government is involved in.

Hence, somebody please enlighten us especially on the state of our foreign exchange reserves. 

Is it that essential? 

Or is it just a formality in the whole process?


Mangi Mosbi

Port Moresby