Kina value on track: IMF

By ZARA KANU LEBO
and NATHAN WOTI
INFLATION has been at a historical low despite the adjustment in the Kina, says International Monetary Fund Resident Representative Sohrab Rafiq.
“To begin to deal with FX shortages, the Kina has begun to adjust under the new crawling peg exchange rate regime.
“so, if you look at headline inflation and import price inflation, both have been at historical lows, which is also a testament to the BPNG’s prudent macro management under the new governor,” Rafiq said.
He said the front-page headlines carried in both dailies quoting an ANZ Bank report were an incorrect reading of the economic situation.
“The Kina has been overvalued since 2014.
“so, what is happening now under the crawling peg regime is that the exchange rate is realigning to better reflect its true market level.
“By this, the Kina is adjusting slowly to become reflective of the market value.
“This is necessary to help alleviate the FX shortages, which have burdened a huge cost on PNG’s economy since 2014.
“The overvaluation has meant less investment, less non-resource exports, fewer jobs and an overall smaller economy than it should be.
“A correct reading of the situation is important, and it’s a credit to the Government that they are seriously trying to tackle FX shortages in a progressive and sustainable manner,” he said.
According to Rafiq, the country’s growth is projected to be higher this year after the restarting of the Porgera gold mine operation, which should produce more FX inflows.
He said the exchange rate had adjusted downwards against only the US dollar but, against the other broader currencies, the Kina had appreciated.
“So, on a trade-weighted basis, the Kina had not depreciated.
“When you look at bilateral rates, the focus is on the Kina against the US dollar.
“But, you also have to look at what the exchange rate has done on a trade-weighted basis, and that includes looking at where the Kina has gone against the Australian dollar, the USD, the Japanese Yen, China’s RMB and so on.
“Once you look at a broad basket of currencies, which is a more accurate way of looking at the exchange rate, it shows that the Kina has strengthened and not depreciated.
“The IMF-supported programme is also helping to deal with the FX backlog, as the amount of FX going into the market each month since the programme started has jumped from 60 million to under 125 million.
“So BPNG is putting a lot more FX into the market and, if you look at the FX backlog of essential import-related goods, that backlog is now extremely small.
“When you are undertaking reforms like this, you want to do it progressively as you’d rather walk to the right solution rather than run to the wrong one.
“Reforms are taking place and they are being done gradually so that the business community can adjust, and it’s not going to be a shock to the economy.
“It is to the Government’s credit that they want to tackle these long-standing structural issues.
“The other advantage of the Kina adjusting is that, depending on which survey you are looking at, there are seven million people in this country dependent upon the agriculture sector.
“Because of the adjustment in the Kina, they will immediately see a boost to their income from selling their export proceeds in US dollars.
“They will be getting more Kina for their exports, so it will be an immediate income boost to these people, especially with cocoa prices as they are now, and therefore, it will help millions of people.
“There are to my mind no examples of countries in the Asia region that developed with an overvalued exchange rate and FX shortages,” he said.