Uncertainty clogs forex flow

PAPUA New Guinea (PNG)’s financial services industry has been facing a shortage of currency in the last five years, according to a financial institution insider.
The insider told The National that the current forex (FX) shortage is largely driven by heightened uncertainty in the market and record low levels of business confidence.
“This is in part largely a result from delayed resource projects and lack of clarity provided by the government,” the insider said.
Compounding the hugely stressed FX, the insider said, were significant weakened cocoa and coffee yields due to heavy rains, poor infrastructure and low prices dogging the global supply.
Another crop, oil palm, is also experiencing increased competition from substitute seed oils, resulting in weak global prices.
The overall result is reduced FX flowing into PNG and FX liquidity shortages.
The insider said FX inflows in the market had been very slow with the current FX market liquidity the thinnest ever encountered in the past year.
The insider added: “We do understand that the financial authorities and the Government are following up and working to ease the FX stress. We are trying to source currency to assist payments but preference is given to imports rather than service payments.”
The insider could not commit when its financial institution would get notable currency inflows to assist foreign payments or transactions.
Another concern raised is that the Kina is not a freely traded currency and, therefore, the exchange rate is not being determined by the market, but rather by the Central Bank (BPNG).
A commentator who did not wish to be named pointed out that such controls by BPNG “is a double-edge sword”.
“Companies will more likely leave their money overseas, partly to help make payments as well as the uncertainty over the Kina. This will not augur well for PNG.”