Govt to ease rise of kina against US$

National, Normal

THE Government is already considering strategies to mitigate the potential for a significant appreciation of the kina, especially against the US dollar to stagnate growth and lower employment in PNG.
Deloitte in its “Budget alert on long term fiscal issues highlighted that in its 2010 Budget analysis the Government envisaged these might be risk factors as regards both the ExxonMobil-led PNG LNG project and a general boom in resource commodity prices for PNG exports.
This was known as the “Dutch Disease” due to experiences encountered by the Netherlands in the 1960s and 1970s, according to the 2010 Budget papers.
Deloitte stated that the conclusion of Treasury and Government was that this occurrence needed not necessarily be adverse for PNG, if managed properly.
Key strategies in such a management plan are identified as:
* Spending tax and dividend proceeds from such windfall circumstances wisely and smoothly over time;
* Boosting internal productivity by concurrently investing in public infrastructure and education; and
* The possible establishment of a “sovereign wealth fund” to act as stabilisation device for the kina
Such funds, according to Deloitte, typically involve offshore investment, in foreign currencies and are managed separately from the country’s official foreign exchange reserves.
“If managed well, they can deliver regular income streams to Government and be viable well after the conclusion of the project(s) or economic boom from which the investment capital initially arose.
“This type of fund however, requires strong corporate governance and financial accountability frameworks.”
It stated that it must have sound and responsible investment policies and be properly integrated with the Government’s economic and fiscal policies.