Leonard Wilson Kamit: Papua New Guinea - current economic conditions
Speech by Mr Leonard Wilson Kamit, CBE, Governor and Chairman of the Board of the Bank of
Papua New Guinea, to the West New Britain Provincial Community on the occasion of the Bank Board
meeting, Kimbe, 24 September 2004.
* * *
1. Introduction
Officials and business leaders of the West New Britain community, Police Commissioner Mr. Sam
Inguba and your senior officers, Secretary for the Department of Petroleum and Energy, Mr. Joseph
Gabut, distinguished guests, ladies and gentlemen.
I speak on behalf of the Board of the Central Bank when I say that it is a pleasure for us to be here this
evening to meet with you, the representatives of the private, public and civic sectors of the province.
Let me introduce to you members of the Board of our Central Bank. Besides myself and the Deputy
Governor Mr Benny Popoitai, the members of the Board (ex-officio) who are appointed in accordance
with Section 27 of the CBA (2000), which specifies representation by various industry and community
organisations are:
Mr. Michael Mayberry, MBE, President of the PNG Chamber of Commerce
Mr. John Mahuk, President of the PNG Trade Union Congress
Mr. Patrick Kolta, President of the PNG Institute of Accountants
Reverend Samson Lowa, President of the PNG Council of Churches
Vacant - Deputy Governor, Policy and Regulations
Vacant - Chairman of the Securities Commission
Vacant - Minister's appointee
Two other Board members appointed by the Minister for Finance and Treasury are;
Mr. Kostas Constantinou
Mr. Robert Igara
As most of you know, the Bank of Papua New Guinea has only one office in Port Moresby. We do not
have branches in the other centers. As such, the only time we have the opportunity to visit provincial
centres is through our business liaison visits, visits to provincial-based savings and loan societies,
special project visits (e.g. commodity surveys), through special invitations to talk or make
presentations at conferences, and through Board meetings such as today. In the last six years, we
have had the opportunity to address conferences/meetings in Mount Hagen, Kavieng, Kokopo, Goroka
and Lae without the Board, and with the full Board in Lae, Alotau, Kavieng, Wewak and Goroka.
Today is our sixth such meeting outside of Port Moresby.
We have covered all the regions of Papua New Guinea - Highlands, Islands, Southern and Momase in
our visitation. The Central Bank is a national institution that belongs to the people of PNG. And so we
will continue to go out to them in this fashion. These visits provide an opportunity for Board members
and senior Bank officials to meet with community leaders and our business liaison contacts and also to
undertake some educational presentations such as the one we had for Kimbe Secondary School year
11 and 12 yesterday. The visits also enable the Central Bank to do business (spend some funds) in
the localities. Please do not over charge us - we are a business just like you and we are also expected
to make profits and pay dividends to our only shareholder, the Government.
Over these years in which the Board has met in Port Moresby and around the country, we have seen
the economy turned around from a depressed state. From two years ago, the economy has recovered
and there is confidence in the market, though much of the fundamentals still have to be continuously
nurtured, including transportation and other physical infrastructure. We therefore have to remain
vigilant. There is no room at all for complacency.
2. Current economic conditions
The Central Bank has just released the June 2004 Quarterly Economic Bulletin, which was reported in
the media on Wednesday 22nd September 2004, so I shall not dwell too much into these
developments. Data available to the Central Bank indicates that the economy continues to improve in
2004. In brief:
•
Domestic economic conditions: Economic activity continued to improve in the first half of
2004, led by the export sector with higher production and prices of most mineral and
non-mineral commodities.
•
Inflation: The annual inflation rate continues to trend downwards in 2004, to 1.9 percent to
June 2004 from 19.0 percent in June 2003. This reflected the positive impact of the stability
in the exchange rate and fiscal restraint by the Government. For the remainder of 2004, we
expect this declining trend to continue, if current stability in macroeconomic conditions,
particularly exchange rate continues.
•
Exchange rate: The positive developments in the foreign exchange market since the
second half of 2003 with stable inflows from both the mineral and agricultural sectors has
resulted in the appreciation of the kina. The exchange rate appreciated from US$ 0.3080 at
the end of March 2004 to US$ 0.3120 in September. The Australian dollar appreciated from
A$ 0.4057 at end March 2004 to A$ 0.4462 on 20 September 2004.
• Balance of payments (BOP): The improved inflows of export receipts reflect higher prices
and volumes by the non-mineral sector, which is an encouraging sign that growers and
exporters are responding positively to the improvements in commodity prices. The Central
Bank has also increased its gross foreign exchange reserves to a historical level of
K1,992 (US$ 623) million on 31 August 2004, sufficient for total and nonmineral import
covers of 5.6 and 7.5 months, respectively.
•
Fiscal operations: The National Government's commitment to the 2004 budgetary
framework resulted in it achieving a budget surplus of K219.6 million in the seven months to
July 2004. This improvement was due to higher tax and dividend receipts, and lower interest
cost on domestic debt. The prudent fiscal management resulted in a net retirement of
K72.6 million in Treasury bills, the front loading of counter part funding for development
projects, and allowed the restructuring of domestic debt from short to long term.
•
Domestic interest rates: Consistent with the easing stance of monetary policy since the
second half of 2003, interest rates continued to trend downwards. The 28 days Treasury bill
rate declined from 7.00 percent at the end of June 2004 to 4.50 percent this week, while the
commercial banks indicator lending rates (ILR s) have also trended downwards to reach a
range of between 11.75 and 12.75 percent by the 1st of October 2004. With the annual
inflation rate at 1.9 percent, the returns on Treasury bills are still positive and portfolio
investors are encouraged to retain funds onshore rather than take unnecessary exchange
rate risks by investing offshore.
• Lending: Lending by the commercial banks continued to decline, in spite of the high liquidity
levels in the banking system and the low interest rate environment. The Central Bank has
encouraged the commercial banks to pass on the benefits of the low interest rates to their
customers. In addition, the Bank removed the restrictions on kina lending by licensed
financial institutions to Non-Resident companies as part of the review on Foreign Exchange
Control Regulations and to encourage lending by the banks. I am encouraged by recent
comments that there are very viable projects commercial banks are now viewing.
Given the high level of liquidity in the banking system and to smoothen the sharp decline in interest
rates, the Tap facility was closed in May 2004 and the maturing volumes were shifted to the weekly
auction. In addition, the minimum amount at the auction was increased from K100,000 to K500,000.
Recent media commentaries have suggested that the Central Bank's actions are adversely affecting
small investors. However, these actions are consistent with the Bank's objective of price stability and
aim to encourage the development of the secondary market for Government securities, thereby
promoting a vibrant financial market and system. Small investors can purchase treasury bills from fund
managers, stock brokers (Capital Stock brokers and Kina Securities) and other finance houses with
amounts of K10,000.
3. The Central Bank
The financial reforms since 2000 have involved changes to the various Acts, which the Bank of PNG
operates under. Besides the commercial banks, finance companies, and savings and loan societies,
we now oversee the life insurance companies, superannuation funds, and the micro credit schemes.
The Central Bank also encourages the establishment of savings and loan societies to provide
complementary financial services to those provided by the banks, finance companies and the existing
Savings and Loan societies. This is one important mechanism of ensuring financial services reach our
people in the outside centers and rural communities. As at the end of June 2004, there were
twenty-one (21) active savings and loan societies. There are now three types of saving and loan
societies: employer-based societies such as Teachers and Elcom; provincial-based societies like the
East New Britain Savings and Loan society; and superannuation-based societies for their members.
Provincial-based societies are flavoured in a fashion that membership is open to those living in the
province and those who are from the province but are living or working outside the province. The
workers outside the province who contribute to such societies find it beneficial when they go home for
holidays and need to obtain financial resources.
The Central Bank stands ready to assist those willing and able to establish their savings and loan
society, providing advice and ensuring sound management practices, and systems support.
May I publicly warn against the fast-money schemes or pyramid schemes. We have clamped down on
the operators of these schemes. The Central Bank continues to work with the law enforcing agencies
to stamp up these illegal schemes, which have created financial problems for many of our people. I
acknowledge and am most thankful for the assistance from the Police in this aspect. We have also
taken out advertisements listing the licensed financial institutions and warning the public on the illegal
schemes. The Central Bank can only do so much - we need the public's support - your support and
the support from the media - to help us stop and prosecute the operators of these schemes. The
recent snide remarks from the media and the public do not augur for the efforts of all concerned
persons to stamp out this form of robbery from the public.
4. Acknowledgements
May I take this opportunity to thank the business houses and community in Kimbe and the West New
Britain province for your support in participating in the business and employment s urveys conducted
by the Bank.
Your continued support in providing us with up-to-date information will enhance the accuracy and
quality of our reports and forecasting for the formulation of monetary policy. The input together with
that from other sources is compiled into the Quarterly Economic Bulletin and other Bank publications
that are sought from within PNG and abroad.
The surveys are useful in enabling the Central Bank to keep abreast of developments in the real
economy. The result of the surveys enables us at the Central Bank to design monetary policy, and
importantly, provides another source of information for the Government to compile its estimate of
Gross Domestic Product (GDP).
Whilst we can obtain information from headquarters, there is spec ial input from actually going out into
the regional centres and obtaining 'on the spot' information. At present, a total of 496 companies are
included in the survey sample covering six regions and eight industries. Of these, 14 companies that
are headquartered in Kimbe and Bialla participate in our survey, while others are covered by their
head offices in Port Moresby, Lae or Kokopo. I look forward to your continued cooperation in providing
the required information in the surveys.
Let me at this point indicate some of the West New Britain province's contribution to the country's
balance of payments performance. Based on various commodity reports, over the three years
between 2000 and 2003, West New Britain province exported on average 61 percent of PNG's palm
oil volumes or earned 59 percent of palm oil export revenue, an average of 23 percent of PNG's
volumes of logs or 22 percent of export revenue from logs, and on average 1.5 percent of total cocoa
volumes or 1.5 percent of cocoa export revenue.
It is important that producers and exporters continue to make use of this 'window of opportunity', with
better commodity prices and stable economic conditions. This will ensure sustainability of the current
improved macroeconomic environment.
The Board and staff are looking forward to the visit to the palm oil factory tomorrow to obtain first hand
information on its operations.
The Central Bank would like to see the West New Britain Savings and Loan Society operating,
enabling the people of this province to benefit from other financial services. This will involve the
support and commitment of the provincial authorities.
As part of the Central Bank's educational efforts, besides giving talks to high school students, we also
distribute books to high schools in those centres the Board visits. On behalf of the Board, I am
presenting to the provincial education authorities some textbooks to the value of K1,000 for each high
school in the West New Britain province.
On behalf of the Board, the Deputy Governor, the management and staff of the Central Bank, I would
like to once again thank the Provincial authorities, the Chamber of Commerce, and the management
and staff of the Kimbe Bay Hotel, Liamo Reef Resort and Walindi Resort for making our stay here in
Kimbe a pleasant one.
Thank you and God bless.