A gradual devaluation of the kina will be easier to absorb rather than a sudden one, PNG business houses have told Government.
The business houses acknowledged the analysis and recommendations by policy advisers that the Kina is overvalued and a devaluation in the range of 15 – 20 per cent is needed.
PNG Chamber of Commerce and Industry president Ian Tarutia said the members were aware of discussions and consideration of a devaluation of the Kina on the back of the recent International Monetary Fund (IMF) funding to PNG.
“We contend the advantages do not outweigh the negatives at this point in time and are not in favour of an immediate significant Kina devaluation,” he said.
Tarutia said any devaluation would affect the country in the following manner:
- EXPORT boost – Whilst we acknowledge devaluation increases farm gate commodity prices to PNG growers of coffee, palm oil, cocoa, copra and vanilla, the fact is we are price takers not price makers and when global demand falls, this affects pricing and the economics of our exports. For instance, coffee parchment selling from K7-K9 (US$1.96 – US$2.52) per kilogramme, price has recently fallen to almost K5 (US$1.40) per kilogramme. This world pricing outweighs any benefits of a devaluation.;
- IMPORT reduction – We acknowledge imports will become more expensive, which can influence consumers to buy locally produced goods. The fact is our local industries involved in manufacturing are reporting a decline by as much as 20 per cent production capacity. Cost of production has increased and no one is buying in volumes. Demand for locally made goods will not happen due to prevailing high unemployment and increased prices of goods and services which is already happening;
- INFLATION – We are already experiencing an increase in price of imported goods, including raw materials. Shelf prices for goods we estimate has gone up by 20 per cent. For many business houses, accessing limited foreign exchange is already challenging enough just to pay for goods or services. This will only be exacerbated with devaluation, having to pay more kina for the same quantum of forex. A lot of our business houses are scaling back on operations, cutting back expenses, including rightsizing staff levels just to remain in business.
- An expected and consequential outcome of increased inflation is lower consumer spend which impacts volumes, increased costs affecting margins, increased unemployment, heightened social issues including law and order problems; and,
- INVESTOR Confidence – Investors especially those heavily reliant on specialist equipment, capital goods and inputs for manufacturing industries will be hesitant to bring investment dollars while those already in country will consider continuing their operations. Already a few well-known companies in building, construction, fisheries sectors are scaling down and laying off workers at this time it is important to continue portraying Papua New Guinea as an attractive investment and tourism destination.
Tarutia said Nasfund, the superannuation fund for the private sector had reported an increase of default employers up to 28 percent from 19 percent as at 31 December, last year for non-payment of superannuation contributions for their workers.
“This is a clear indication of the economic hardship faced by business houses who have received little to no direct support from the Government over the last three years, particularly during the Coronavirus period,” he added.
“Notwithstanding the arguments for a devaluation, we reiterate our contention that an immediate devaluation will have an adverse effect on business and our citizens who are already doing it tough.
“Any consideration for the same must be sensitive to the current environment in which we all operate. “A gradual devaluation to coincide with opening of the Porgera Mine, Final Investment Decision stage of Papua Liquefied Natural Gas or Wafi-Golpu for instance may be a better option to mitigate the negative impacts we have highlighted above, said Tarutia.