World Bank says external borrowing should address FX woes

THE World Bank says external borrowing should help address outstanding and incoming orders for foreign currency while limiting a required adjustment in the exchange rate.
The bank, in its recently released PNG Economic Update, said the government introduced a fiscal stimulus programme this year aimed at supporting domestic demand by investing in physical infrastructure for better connectivity by roads, ports and telecommunications.
“The Government would also continue addressing budget arrears accumulated by the previous administration,” it said.
“These policies would lead to higher budget financing needs to be covered from domestic and external sources.
“However, in the absence of fiscal buffers – since the sovereign wealth fund remains nonoperational – the anticipated fiscal expansion and increased net borrowing may undermine fiscal and debt sustainability.” It said keeping the Kina overvalued could maintain or increase the FX backlog, or lead to a drawdown of international reserves.
It also noted that to improve macro-fiscal sustainability, it is important that the authorities resume fiscal consolidation and begin addressing the overvaluation of the Kina more decisively.
Meanwhile, according to the update, PNG’s human capital index of 0.38 is below the regional average for East Asia and the Pacific (0.61) and is comparable to regional average of sub-Saharan Africa (0.40). The bank commented that quality of a country’s human capital stock is determined by health, knowledge and skills of its people.