Papua New Guinea foreign exchange backlog among commercial banks has increased to more than K1 billion (US$255 million) in the past six months, an investment forum has been told.
Edwin Shankar, ANZ Bank institutional banking director, told the forum in Lae attended by Australian and Papua New Guinea representatives, that a structural shift in the market would happen in 2026, when major resource projects such as the Papua liquefied natural gas (LNG) would come on line.
He said limited foreign direct investment next year meant that outstanding “sell kina” orders would linger at current levels next year.
In the meantime, he said the Kina against the United States dollar would continue to depreciate until next year, which had created inflationary pressure with prices of staple food, mostly imported.
Shankar also noted that the currency depreciation was not attracting foreign currency or suppressed import demand enough to reduce the foreign currency deficit.
“The Kina depreciation has come about as a result of the International Monetary Fund loan given to the Central Bank in March 2023,” he said.
One of the conditions of that loan was depreciating the Kina which has not resulted in the turnaround on back log and not decreased the demand for foreign exchange (forex).
“But one thing that is good though is that when you analyse it, the level of reserves in the central bank is quite significant,” Shankar said. “It is intervening in the market to address some of the backlog, where we have about US$100 million (about K397 million) per month given to commercial banks, who in turn give to their clients.”
Shankar said a permanent solution to a balanced forex needed to coincide with increased foreign direct capital.
He noted that at the end of last year, PNG’s reserves stood at US$4 million (about K16 million) – enough to cover nine months of imports, an access buffer of five months which translates to US$2 million (about K8 million).
“We think given the reserves, Bank of PNG has the capacity to increase its liquidity intervention by US$50 million (about K199 million) to be about US$150 million (about K596 million) per month,” he said.
Shankar said over the next two years, while awaiting Papua LNG, the central bank could step up some of their interventions. “It’s not a solution to the forex problem but it will help the situation,” he said.