It’s time to devalue the kina, says Business Council

Welcome,

The Business Council of Papua New Guinea has presented its latest macroeconomic outlook, which outlines the risks faced by PNG’s economy and what business needs to recover from the COVID-19 downturn. A major recommendation is a devaluation of the country’s currency, the kina.

PNG Investment Bank of PNG

The Central Bank rejects claims it is propping up the kina. Source: BAI

The latest Macro Economic Outlook, 2020-2023 makes for tough reading. Using modelling provided by PricewaterhouseCoopers, it says ‘PNG is expected to experience a further decline in economic activity, with GDP [growth] dropping to around 1 percent in 2020’, in the most likely of three scenarios canvassed.

‘The key message is a stimulus needs to happen, but the stimulus needs to be very targeted’

However, this still compares favourably with recent forecasts by the World Bank (-1.5 per cent) and Asian Development Bank (-1.3 per cent).

Risks

Business Council of PNG

The Business Council of PNG’s Douveri Henao

The report, designed to communicate the concerns of PNG’s business community to government, outlines some of the major risks to the economy.

Apart from the COVID-19 pandemic, these concerns include: lower commodity prices and the closure of the Porgera gold mine, which could result in a K2.1 billion reduction in household consumption, according to the PwC modelling.

‘The big issue in these numbers and graphs is we are falling … We are in free fall on consumption, and there isn’t a correction in the market, or even a government strategy to plug that free fall,’ says Douveri Henao, Executive Director of the Business Council of PNG.

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Stimulus needed

The report also makes several recommendations: that the government pay its bills, and that economic stimulus focus on job protection. PwC’s projections suggested net job losses in a worst-case scenario of 25,000.

‘If it comes in the form of paying bills, if it comes in the form of construction projects … the key message is a stimulus needs to happen, but the stimulus needs to be very targeted,’ Henao tells Business Advantage PNG.

‘[It needs to be] unlike the stimulus in April, which was a black hole. It went into the market, but it didn’t connect and regenerate. That sort of fiscal strategy can’t be repeated.’

‘The one sector that’s remained resilient is import substitution in the agribusiness and industrial manufacturing sectors.’

The report also recommends the kina be devalued, to make PNG’s exports more price-competitive internationally, and increase the impact of the international aid and concessional loans currently being provided to the country.

‘The current global environment that we’re in right now, one day it’ll pick up again. But because we’re all in this lull, we should make those adjustments to make use of the opportunity,’ says Henao.

Not all gloom

Illimo’s dairy herd. Credit: IAI

Henao tells Business Advantage PNG the Council has also learned from PNG’s state of emergency period earlier this year.

‘Those that adjusted their ICT platforms were much more productive and functional this year, compared to other years, even when the lockdowns and the pandemic restrictions occurred.

‘The one sector that’s remained resilient is import substitution in the agribusiness and industrial manufacturing sectors.

‘Ilimo Dairy milk is a standout because the team there were revising the numbers on the exodus of expats, who were their main consumers. But, to their astonishment, demand actually picked up 30 per cent and they had to produce more. So, that’s a telling story; that the import substitution sectors performed strongly during this period.’

Regarding future management of the COVID-19 pandemic, the Council is arguing that the government should encourage business to self-regulate its mitigation measures, rather than go for more lockdowns, which have a negative impact on the economy.

‘When movement between provinces became more accessible, numbers dramatically improved,’ he says of the strict state of emergency travel restrictions. ‘Towards April, the entire financial banking sector had 25 per cent drops on merchant transactions, and it started picking up again when the state of emergency ended.’

Comments

  1. Do not listen to Deloitte, it is a Multinational Company and this kind of narrative will negatively influence the perspective of foreign investors and local businesses to invest in PNG and conduct business activities. We have some of the best economist in the country including academics, the government should call upon them to analyse this proposal and other options and give the their recommendations. Rather than excepting a suggestion from Deloitte – whose interest are they serving PNG or Multinational Corporations (i.e. Barrick). PNG should look to Tanzania, Rwanda other developing economies who successfully proved the World Bank, IMF wrong grew their GDP. We should really be trusting our own Economist rather than looking outside for saviors!!

  2. Lucy Bossard says

    I agree with all the counter-arguments made so far regarding Kina devaluation. What is the real motive especially during this crises situation? Who is going to be benefiting most in the long run? How is this sustainable? How about using this opportunity to do an inventory on our own natural resources and utilise our God-given talents to improvise, manufacture, engineer, develop, farm, grow, fish … the list goes on, until we recover? Rather than a quick fix “devalue the kina.” How is that going to help say 5 years from now?

  3. I honestly don’t think devaluing our currency is the answer to this, why don’t we create more jobs, encourage the growth of tourism and agriculture industries here. Stop looking for an easy way out and try to work harder and achieve our true worth.

  4. The Kina is already trading low against other major currencies..There is no more need of devaluing a already depleting Kina..What’s the rationale? Look at investing sustainable industry’s, agriculture for self sustaining and less imports, open up LNG and mining project negotiations stalled with immediate effect and open up Porgera immediately.

  5. James Barclay says

    No what ever the circumstances are we should not devalue the Kina for the third time. It was devalued twice in the 1990s.No not this time, l agree with what Mr Michael Makap is saying. We should take that approach.
    Prior to the devaluation i still remember the Kina was trading K1.00 was equal to $1.25 Aud was almost equivalent to the US dollar. To this day l still do not understand why they devalued it.
    Some of our current parliamentarians should know.
    Gulf governor Hon Chris Haiveta and New Ireland governor Rt. Hon Sir Julias Chan. We can not take the easy way out..

  6. David posing says

    Olsem na mipla tok longtaim, government should allow small village people to own export licenses and pay little for it and rich people pay heavy for export licenses so when we export gold directly outside the money coming in improve cash flow in times like this. Nau yupla looksave the population with spending power keep countries alive in crises not the few rich people and their companies.

  7. Michael Makap says

    We need to create wealth in our communities by diverting aid resources to our rural areas where 80% of the population live to harness sustainable socioeconomic opportunities. Government providing the seed capital to develop sustainable models with good governance around them where individuals or families are actively engaged in the production chain, whether its tourism or agriculture. Currently 20% of the population engaged in the formal sector trying to sustain the length and breadth of PNG is an immense pressure let alone the leakages that we see in the service delivery machinery. Good vision by Minister Duma injecting K200mn directly into the communities and the onus is on on each support and conduit system to channel these funds into the starving 80% of our people, engaging with them, finding out about opportunities that exist and creating a sustainable model, bringing markets closer to home and putting income in their hands. This wealth creation in our communities will go a long way to building a wealthy PNG.

  8. P..N Zukman says

    There can’t be another devaluation of the kina. We are well aware of the effects of the devaluation of 1990’s. The loss of kina’s power against the US dollar did more damage than its intended purpose. Another devaluation will be detrimental to the country’s economy.

    • Andrew Watson says

      Totally agree. Devaluation would create an even worse disaster when the percentage of imports in production costs in many sectors is so high.

  9. Vailea Ora says

    After 45 years on, you cannot afford to devalue the Kina. After independence, our currency was devalued to attract foreign investors which was acceptable since we lacked the expertise. It now 45 years passed and the definition of independence must be seen transformed in the human resource. Sadly that’s not the case when we compare costs by contrast.

    Further devaluation will mean, the employees hard earned superannuation funds will have no value during retirement payouts. Try some other avenues and leave the currency alone or else we will see money thrown on the streets because of its lose of value. In other countries, people are literally seen carrying bags of money around. These are the poor countries. Is this where we are heading too.

    • Steve Kwagiok says

      During the multi million kina APEC summit human resource was much talked about as being the most important resource by many wealthy and developed nations leaders.
      Many APEC leaders testify that unlike PNG with its wealth of natural resources as in an island of gold floating on oil and gas all they had was human resource and that they developed with all their capacity. And their well developed human resource bought about all the other developments and raise their level up. So to raise PNG up we must put our money into developing our most important resource human resource.

  10. What the government of PNG has to do is help the people directly so the expenditure goes from the bottom “UP”. This is how the Mexican government got over both crisis the Pandemic and the Economic slow down. They helped the people with direct payments without getting into borrowing to help BIG business like previous governments did. This time the government tried direct help to the people and it is working. People when out and purchase food and this help the “daily economy” which is the one most people are part of in PNG. Mexico has no new debt and the people are happy.

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