May 19, 2016

Shortage of foreign currency hits Business houses in PNG

Papua New Guinea is in critical situation with foreign reserves depleted. This has affected business community in the country  are suffering the effects of severely depleted foreign exchange levels, says Opposition Leader Sam Basil.

Mr Basil said there was a multi-billion kina backlog in payments owing to overseas suppliers.

“Overseas suppliers also cannot afford to offer sustained credits to PNG firms,” he said.

Noting statements from the president of the Lae Chamber of Commerce and Industry Allan McLay, Mr Basil said businesses are closing down and going to overseas while employment is decreasing.

“Lae has been the manufacturing centre of PNG,” he said.

But he said PNG-made goods may cease to be supplied across the country unless overseas payments are cleared to pay for the goods.

Meanwhile, the reason why the cash flow in Papua New Guinea is low is due to the poor performance in revenue generation in the various sectors since 2015.
According to the Director of the PNG Institute of National Affairs Mr. Paul Barker, this is due to the world commodity price drop in natural resources like oil and gas along with the borrowings that the PNG government made over the years.
“Revenue is well down in 2015 and 2016 and we have been having budget deficit since 2012 because the government has been borrowing from domestic financial markets, particularly banks.”
In addition to this is the continuing drop in commodity price that see company tax, including the mining and oil tax revenue go well down from the earlier level.
“The government cash flow situation is not paying much revenue and the level of economic activity is low,” Barker said.
This then resulted in a tight budget situation which was made worse by delays in reducing expenditure last year.
“The government continued to spend in the first half of 2015 as if the price was a lot higher, but in the second half of the year they cut back expenditure heavily