Kina value slides more

Main Stories, National

The National, Friday October 18th, 2013


THE value of the Papua New Guinea kina will continue to weaken for a least another eight months, affecting the Government, businesses and individuals, a senior economist says.

Institute of National Affairs executive director Paul Barker forecasts that the turnaround is expected when the sale of the liquefied natural gas begins in the second half of next year.

The major downside of the weakening kina on the Government is that it will have to pay extra to settle offshore debts.

The kina has been weakening against foreign currencies since July. Barker said the “falling kina” was hurting some industries and those on fixed incomes.

Treasurer Don Polye was out of the country yesterday but a spokesman said the Government was doing all it could to address the issue of “the weakening kina”.

He said the Bank of PNG dealt with monetary policy and would be in a better position to make a comment.

Questions sent to Bank of PNG were not answered.

Barker said: “It raises the costs of international capital to businesses and the Government. So the cost of servicing loans in US dollars or Chinese rembini goes up, requiring the Government to reduce other expenditure or raise debt levels with a range of repercussion on the budget and economy.”

He said it would affect low-income earners (wages or in the informal economy) who spent most of their money already on food and other basics and had little else to boost income “to keep pace”.

“Certainly now is not the time for pushing the already poor urban dwellers further against the wall with tough measures like bans on betel nuts selling because that’s almost a recipe for encouraging worse activities (crime).

“The businesses that suffer are those that cannot readily pass on the costs of higher imported inputs.”

Barker said until the LNG project went into production, much of the revenue would go to paying off debts.

But he said there were some who would benefit from the weakening kina.

“Other industries such as agricultural exporters and import replacing industries (such as food producers) will generally benefit from a lower kina, albeit that some may have high import costs of feed for livestock etc. 

“As export crops are largely priced in US dollars, having a lower kina to the dollar will provide PNG farmers with improved incomes and manufacturers and tourism operators generally benefit from a lower kina. It makes them more internationally competitive, and makes it more attractive for tourists to choose PNG.”

However, he said when the prices dropped, production of many of the commodities declined.

“It’s inevitable, and perhaps made worse by large outflows for imports by government and purchase of overseas goods and services, and that is likely to continue until commodity prices recover (whenever that is),” Barker said.