Falling Kina affecting PNG Business

Falling Kina affecting PNG Business. Getty Images

THE kina’s sharp fall over the past few months is causing concern among local manufacturers, Manufacturers Council of PNG chief executive Chey Scovell told the Business Advantage PNG website publication. 

Since July, the kina went from A$0.4855 (K1.10) to just A$0.4076 (K0.92) this week—a fall of 16%.

Over the same period, it fell 13.7% against the US dollar—from US$0.4438 (K1) to where it was trading at US$0.3830 (K0.869) yesterday evening.

The weaker kina makes imports more expensive, but can also make the country’s exports more price-competitive.

On the other hand, it also increases the cost of essential imported inputs for local manufacturers.

However, Central Bank Governor Loi Bakani said there was a silver lining to the fall in the kina’s value.

He said the fall reflected a higher import demand and lower export receipts.

But he expected a lower kina to have a “positive impact” on the price of PNG export commodities and was advising producers to “take advantage of this to increase their production volumes”.

ANZ Bank Asia-Pacific economist Daniel Wilson told the website that PNG’s current account deficit, recently revised up from K2.7 billion to just under K7 billion kina this financial year was “the fundamental driving force behind the depreciation”.

Wilson said the deficit is being driven by lower exports and sustained imports, which are putting pressure on PNG’s currency.

He said the deficit created a structural demand for foreign currency (to pay for imports) that outweighed the demand for local currency causing a drop in value.

Wilson said if the pattern persisted without additional foreign currency inflows through the financial/capital account being channelled through banks, there should be continued pressure on the kina to depreciate.

Bakani said in his latest Monetary Policy Statement, released this week that the “depreciation reflected a higher import demand and lower export receipts combined with lower foreign direct investment inflows as the construction phase of the PNG LNG project winds down”.

The weakening kina is putting some pressure on PNG’s inflation rate, predicted by the Bank of PNG to run at 5.5% for the full year and 6.5% next year.

Bakani also noted, that while the current account deficit was putting pressure on the kina, other factors, such as lower domestic demand and cheaper sources of imports, were putting downward pressure on inflation.

The National/PNG Today