Papua New Guinea’s major banks tell Business Advantage PNG they are now seeing a dramatic fall in foreign exchange backlogs. What’s driving this improved forex availability – and is a permanent solution to this critical business impediment at hand?

The major banks in Port Moresby (pictured) are reporting a dramatic fall in forex backlogs. Credit: BAI

In welcome news for Papua New Guinea’s businesses, the country’s troublesome foreign exchange backlogs have fallen significantly in recent months.

As confirmed in the minutes of the Bank of Papua New Guinea’s March Monetary Policy Committee meeting, this year has seen a “gradual easing” in market conditions, and, in early May, the forex backlog was even “temporarily removed”, according to ANZ’s May Pacific FX Insight.

Patrick Wright, Treasurer at Westpac PNG, tells Business Advantage PNG that his bank has also seen its order book approach zero in the past month.

“Given the significant reduction, we have seen on occasion essential orders being filled the same day they are received and vetted under exchange control guidelines,” Wright says.

“High prices for PNG’s key commodity exports are delivering a windfall gain to national income.”

Rohan George, Group General Manager – Treasury & Markets at BSP Financial Group, tells Business Advantage PNG that current time to forex order execution is “less than seven days”.

Outstanding forex market orders averaged K169 million in May and stood at K101 million at time of writing, according to George – a significant drop from the average of K570 million between February and April.

However, he warns that “we have been in this situation before,” explaining that forex backlogs had fallen to similar levels on four other occasions since 2022 before bouncing back up.

Exports drive inflows

The banks’ treasury experts give much of the credit for the reduced backlogs to a huge influx of foreign currency into PNG on the back of high prices and increased volumes for coffee, cocoa and gold.

Forex inflows totaled K5.4 billion in April and May, and are forecast to be K8.2 billion in the June Quarter, a fifth consecutive record quarter, according to BSP.

The increase in forex inflows from exports and investment (shown in light green) is reducing reliance on central bank forex intervention (shown in dark green). Only 10.8 per cent of foreign currency supply is now coming from the Bank of PNG, compared with 25.5 per cent in Q4 of 2023. Credit: BSP

“Exporters are doing very well out of the price spikes we are seeing,” Kishti Sen, International Economist at ANZ, tells Business Advantage PNG, “and they’re converting their foreign currency into kina to pay their local suppliers, workers and contractors.”

Wright and George both agree that exports are making a difference, but they also note that business are currently spending less on imports and consequently need less forex to pay for them.

“A move towards forex equilibrium and PGK convertibility is becoming more of a reality.”

“Inflationary pressures on a depreciating kina, as well as a softer retail and wholesale sector, have seen reduced demand and supply for imported products, resulting in order books not being replenished to the same levels,” observes Wright.

Meanwhile, George points to “a flat domestic economy, our retail customers citing reduced demand at higher prices; reduced oil imports due to a 25 per cent fall in global oil prices; and uncertainty placing new orders due to supply chain and tariff uncertainty.”

Is the forex crisis over?

PNG’s foreign exchange shortages date back to the end of the PNG LNG construction phase in 2014, with forex ranking as the biggest impediment in eight of the last 10 editions of the annual Business Advantage PNG/Westpac PNG 100 CEO Survey.

Given the dramatic improvement in 2025, could this crisis finally be coming to an end?

The experts aren’t quite ready to call it, with BSP’s George noting that a pullback in commodity prices, particularly gold, remains a major risk to forex supply.

Rohan George. Credit: BSP

“The other big risk is exporter operational disruptions, for example: weather, environment, shipping, security, safety and chain supply issues that could disrupt the current alignment of positive exporter trading conditions,” he says.

Risks remain on the demand side too, with George expecting foreign currency orders to increase in the second half of the year due to what he predicts will be greater global certainty, favourable seasonal factors, and progress on new projects such as the upgrade of Kimbe Port in West New Britain.

“As the economy and global environment improves in the second half, Bank of Papua New Guinea [BPNG] intervention will again act to buffer the ongoing structural supply-demand imbalance,” predicts George.

However, Wright observes that “a move towards forex equilibrium and PGK convertibility is becoming more of a reality.”

Kishti Sen is also not ready to declare an end to the crisis, but he says these recent developments should provide confidence that the problem will be solved once Papua LNG and other large resources, infrastructure and energy projects reach final investment decisions.

“When you see these projects start, the capital being brought into the country via the commercial banks will balance the market, and actually there will be excess demand for kina, which will start pushing the kina higher,” he tells Business Advantage PNG.

“Right now, the commodity prices are doing exactly what that foreign direct investment will do.”