High demand to import goods affecting forex shortage: Official

The National Business

THE recent shortage of foreign exchange shortage (forex) in the country is the result of the insufficient supply of foreign funds due to relatively underdeveloped manufacturing sector, an academic says.
University of PNG economics lecturer Kelly Samof said it was also due to the high demand to import manufacturing goods.
On Friday, he presented an overview of the forex issue and suggested possible solutions.
Samof said there were policies to deal with the shortage issue. He suggested that these policies must ensure that:

  •  THERE is a requirement for all State-owned enterprises and other business to remit all revenues back to PNG;
  • MAXIMISE concessional finance:
  • FOR the Government to demand upfront payments from resources projects to increase its take from the resource sector; and,
  • DEPRECIATE the real exchange rate.

Samof said PNG’s exchange rate has remained relatively unchanged since 2014 due to the supply-demand mismatch, while the Bank of PNG had been rationing the market’s access to foreign exchange to deal with the shortage, instead of allowing the exchange rate to depreciate.
“Forex markets provide an avenue for buying, selling and trading of foreign currencies,” he said.
“The decrease in supply is due to low Government take from the resource projects, a fall in terms of trade, expectation of depreciation, while backlog of forex orders, and high tendency to import by the private sector.”
Samof said the BPNG then began to ration forex which led to a large backlog of unmet orders and delays in accessing it and it is because BPNG only sells and does not buy.
Meanwhile, Samof said commercial banks could meet a few orders but most times needed to buy foreign currency from the BPNG.
BPNG has now increased its offer to about K351 million to the market monthly.