Solution for forex crisis needed

The National Letters

THERE is a perceived crisis in the supply of foreign exchange from exports to meet the growing demand for it to pay for imports of goods and services from abroad.
This crisis is the self-inflicted problem Papua New Guinea is now experiencing from years of economic mismanagement.
The solution to the crisis is for PNG to immediately adopt a production sharing arrangement (PSA) regime for the extractive resource sector (mineral, petroleum and gas), and forestry and fisheries sectors.
Below are the benefits of PNG adopting a PSA regime.

  • REVENUE will be received upfront, based on production or revenue from sales. The Government does not have to wait until financial accounts of tax payers are finalised to conduct its tax assessments and to collect tax revenues. Foreign exchange inflows will be guaranteed, when revenues are received upfront;
  • PNG can establish a well-funded sovereign wealth fund (SWF) from up-front revenues and foreign exchange. This need is well overdue in PNG;
  • TAX administration in PNG will be significantly simplified. This will enable the Government to expand the scope of tax audits widely and collect more tax and non-tax revenues; and,
  • THE Government will eliminate guarantee and credit risk associated with the financing of large-scale resource projects. The Government will no longer borrow or secure funding to fund its interest in a project. The Government will have full control and ownership of the resource projects, as well as on production and export and the resource.

This is consistent with the National Goals and Directive Principles and Section 25 of the National Constitution.
Adoption and implementation of the regime must be anchored on an effective governance framework for fiscal policy and monetary policy, with the objective of achieving social and economic development in PNG. This is fundamentally critical, because a PSA regime will generate so much revenue upfront for the Government.
PNG cannot afford any more wasteful and ineffective fiscal and budget policies including wasteful public spending, which it has been implemented since independence with very poor development outcomes.

Concerned Economist