Treasurer Ian Ling-Stuckey has affirmed that the Government is not planning to include any specific figures into the August policy roadmap in terms of the prospects of the kina.
“There has been much speculation on the value of the Kina. What are the current views internationally and domestically?
“How do we measure the value of the Kina?
“These are all important questions that are being considered by the Marape-Rosso Government as it prepares a roadmap for foreign exchange and monetary policy reforms by August.
“However, until we get some more numbers on winners and losers from any changes, we are not planning to include any specific figures into the August policy roadmap” stated the Treasurer.
“We know that the IMF considers the Kina is overvalued. But we also know that this estimate goes up and down and varies through time. For example, the IMF, using their “EBA-lite REER model”, estimated the Kina was over-valued by 11% in 2020. By 2021, this figure had dropped to only 2.4%. By 2022, the estimate for over-valuation had increased to 13.4%.
He said the IMF is re-estimating the figure currently. In all likelihood, this over-valuation estimate will fall, driven significantly by the fall in the US dollar against other currencies over the last nine months.
The latest ANZ estimate is for a small depreciation of 4.5% this year against the US dollar. Nothing like the 20% being talked about by the Opposition.
“However, the ANZ estimates that the inflow of foreign currency flows from the investment stage of the Papua LNG project will then lead to an appreciation during 2024. Indeed, the ANZ estimates that the Kina will be worth more by the end of 2024 than it is currently!
“Of course, there are other views, such as Westpac seeing devaluations of about 4% both this year as well as next, so down to 0.2757 by end of 2023 and then 0.2640 by end of 2024. They then expect to see a resource led recovery in the Kina in the second half of 2025.
“The key point is that it is extremely difficult to determine the value of the Kina relative to other currencies. The shortages of foreign exchange point towards an over-valuation. However, there is no agreement on the level of over-valuation.
“This lack of certainty about the size of any over-valuation, as well as uncertainty on the numbers of winners and losers, means that a responsible government will be cautious as it considers any adjustments.”
He said the Government is taking its time, seeking advice and wanting clearer numbers on winners and losers.
“However, once the foreign exchange regime is chosen by the Government, and as requested by the business sector, and consistent with the Mekere reforms, we have an independent central bank that will actually make the specific decisions on levels.