Group on effect of trading bands

THE difficulty in sourcing foreign currency has been a problem for PNG following the imposition in 2014 of foreign currency trading bands to stabilise the value of the kina.
A statement from the Oxford Business Group said the decision contributed to the excess demand for foreign currency and led to a delay in the processing times of foreign exchange orders.
“This has constrained investment activity and pushed up inflation by increasing the cost of imports and slowing the pace at which payments can be made to overseas suppliers.”
It said another factor contributing to the foreign currency shortfall was the high level of fiscal outflow caused by the debt-servicing requirements of major projects such as PNG LNG and other extractive industry developments.
It allowed project concession holders to park revenue offshore to pay for overseas borrowings and write off depreciation on allowable capital expenditure of energy projects.
The statement said the situation could change in the future “with the Government conducting a review of both the tax policy and the offshore holding concessions arrangements that are granted to major economic developments”. The group said the shortage of foreign exchange liquidity in PNG’s economy “appears to be easing, with increased currency inflows helping to meet the needs of both importers and the financial sector”.
However, it may be some time before the imbalance is fully rectified.