Modernisation of Central Banking Act

This year, PNG paid nearly K900 million to Credit Suisse for an international loan borrowed by the previous government.

“We are borrowing, paying off expensive debt with much cheaper international financing, such as the zero percent interest rate on the no conditions IMF loan received in June,” said Treasurer Ian Ling-Stuckey.

“One issue with the substantial increase in international financing is that much of it is expected to arrive in December – possibly up to K2.5 billion of it. So we are facing a major cash management challenge of cash arriving late but having to continue paying for our health, education and justice systems.

“A two-stage solution is planned.

“First, the Marape-Steven government will establish a thorough review on how to modernise the Central Banking Act.

“We will work with local and international experts, and the IMF, to ensure that our Act is modernised to better match international best practice. This review is to be completed within 6 months.

“It will be an open, transparent review, guided with the intent of modernising and strengthening the central bank, certainly not with undermining its independence. For example, in preliminary discussions with the IMF, it has been highlighted that the vast majority of countries around the world have either their Central Bank boards or a Monetary Policy Committee make the decisions on monetary policy. PNG is very unusual in having all of this responsibility allocated only to the Governor.

“Second, changes are being made to the Central Bank Act to deal with temporary cash advances to government. Not printing money!

“PNG’s temporary advance arrangements are very low relative to other countries. Changes will be made to allow for a higher Temporary Advance Facility based on 12 percent of average recurrent revenue and grant financing over the last 3 years. This will assist with our within year cash management arrangements.

“This is within international standards which vary from 5 to 15 percent and will still be subject to agreement from the central bank that the temporary advances are consistent with independent monetary policy settings,” continued Ling-Stuckey.

“There is no change in the section of the Act that prohibits BPNG from making direct funding to the budget deficit.

“This is a responsible stance, and a long way from the probably illegal pressure put on BPNG by the former government in forcing it into what was then known as the ‘slack arrangement’ of providing direct budget deficit financing.”

Press release