Fiscal consolidation needed to correct finance imbalance

A Chief Economist with the ANZ Bank says a program of fiscal consolidation is needed to correct PNG’s financial imbalances and foreign exchange difficulties.

Cameron Bagrie, ANZ’s New Zealand Chief Economist says in spite of the pressures on the Kina, there are some positive economic signs with forecasts that the Kina will continue to ease until mid-2018.

In an interview with Business Advantage PNG, Bagrie said PNG’s current account has gone from being in a deficit of over 50 per cent of GDP in 2012, to a surplus now.

He adds there is more stability in commodity prices, which has eased pressure on the currency in the short term.

“It is notable that the kina has traded in a narrow range now for a number of months and shown stability,” said Bagrie.

This however has not translated into lifting foreign reserves or tax revenue, which contributes to foreign exchange shortages and a backlog of exchange requests.

This is further compounded by ‘a reluctance of exporters to purchase beyond bare minimums’ on expectations of further declines in the currency.

According to ANZ forecasts, the kina is projected to decline against the US dollar before recovering in mid-2018.

Bagrie says to rectify the financial imbalances it is necessary to pay attention to small, but important, details.

‘You have to have your regulatory framework right with regard to attracting capital and retaining capital. You name it, there is a big list of what needs to get done.’

‘What drives good economic outcomes is good micro-economics. It is about driving the right behaviour with good policy.

Picture credit: Business Advantage PNG

Cedric Patjole