Domestic banking System can finance 2015 budget deficit

Governor of Bank of Papua New Guinea (BPNG)  says the domestic banking system has the capacity to finance the 2015 budget deficit. 

He pointed out that total liquidity in the system is K8.9 billion.

Bakani said the liquidity was held in different forms of instruments, including cash and securities issued by the Government and BPNG.

“The Bank of PNG has K1 billion in Central Bank Bills that are held by licensed financial institutions. The level of liquidity in the financial system is more than adequate to finance the budget deficit and available for borrowing by the public,” Bakani said.

Regarding the exchange tax, he stressed that the regime remained a floating exchange rate regime.

He clarified that it was not a pegged exchange rate as some commentators and sectors of the business community have portrayed in relation to the introduction of the exchange rate trading band.  

“The only changes effected by the introduction of the exchange rate trading band, is to reduce the exorbitantly high margins of foreign exchange trading by the authorised dealers to 75 basis points, above and below the interbank market rate.

“It has nothing to do with the exchange rate regime.  

“This change provides a transparent direction to price foreign exchange inflows above the interbank rate, and below for outward payments.”

Bakani said since the introduction of the trading band last June, the kina had depreciated by 6.6 per cent from US$0.4130 (K1.07) to US$0.3855 (K1). This indicated that the foreign exchange interbank market is functioning as in a floating exchange rate regime.   

“There have been inflows of foreign currency but they were not sufficient to meet the high demand. 

“The Bank of PNG has and will continue to act responsibly and ensure an orderly movement in the kina exchange rate,” he said.

PNG Today /The National