High inflation expected as foreign reserves run dry in PNG

Commentary by  ‎Tiri Kuimbakul‎ 

I am sorry to be the bearer of bad and worrying news on this bright Sunday morning but the truth must be told regarding the current state of our economy.

Our foreign exchange levels are so low that the Bank of PNG has been rationing foreign currency by limiting how much people can send out. Many foreign suppliers are waiting to be paid for goods they have sold to PNG-based importers. The Central Bank's efforts to borrow foreign currency from the International Finance Corporation, which is the commercial arm of the World Bank, in order to relieve the large build up of import orders to the tune of some K2 billion, are rumoured to have been unsuccessful. The public should receive confirmation about this rumour in the coming week.

We can expect a blow out in the 2016 national budget deficit as a consequence of lower than expected income. The budgeted deficit was K2.1 billion. This hole was expected to be patched by the issuing of government bonds in international financial markets. This plan has been shelved because it has been judged to be an unviable proposition given the depressed state of the world economy, as well as the fact that PNG's credit rating has been downgraded. We can therefore expect a supplementary budget in the next sitting of Parliament which should result in major cuts across all areas.

The cashflow situation seems to be worsening despite assurances from the government to the contrary. Any funds as are coming in are being used to service debts and pay public servants, and service providers' bills are piling up.

Our foreign missions are said to be starved of funds. They are surviving on visa fees.

Our official national debt is around K20 billion. If we add the loans taken by state owned entities as well as unpaid commitments such as super fund contributions and outstanding bills owed to contractors and service providers, the actual figure is somewhere between K30 and K40 billion. At this rate, PNG has gone past the legal Deficit to GDP ratio of 35%.

An increasing number of people have become jobless as companies try to survive in the new economy, adding to the already high unemployment level. Some companies are actually reported to be about to close down altogether.

Prices of goods and services are set to escalate. Life is going to get tough before it gets better.

The underlying reason for the predicament is not low world commodity prices as our leaders would have us believe; it is actually mismanagement coupled with corruption. We have simply borrowed too much and squandered as well as stolen from ourselves in our greed and selfishness.

I don't want to sound like I am making a political statement here but as someone who is a keen observer of economic management and its ramifications on living standards, I don't think the present coalition government deserves another term.

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