of this amount more than k4 billion was deposited with the commercial banks, while the rest was deposited at the bank of papua new guinea. the budget deficits in 2008 and 2009, coupled with the fast draw downs of funds from the trust accounts, resulted in the balances declining to below k1 billion in august 2010. to those of us dealing with the sovereign wealth fund ( swf ) there was an opportunity to commence it during the recent mineral boom. establishing a swf to manage large windfall revenues from high commodity prices is talked about for some years. the decision to park the surplus revenue in trust accounts was not a good solution. i have no doubt that a swf would have managed the surpluses in a much better way. as a consequence, we now have one more bad experience of the management of excess revenue from mineral resources, on top of the mineral resources stabilization fund. the recovery in commodity prices in 2009 and 2010 might entail a further opportunity to establish the swf earlier than the production stage of the lng project in 2014. the monetary aspects of the developments in the period were very large inflows of foreign exchange as mineral and petroleum taxes. these flows increased the foreign exchange reserves from around us $ 500 million in 2005 to a historical high of above us $ 2. 8 billion in august 2010. the bank of papua new guinea paid the government kina for the tax receipts it received in foreign currency. through this process the infusion of liquidity into the financial system increased. the government instead of re - depositing the kina in trust accounts with the bank of papua new guinea, decided to deposit most of it with the commercial banks, at a very substantial cost to the government and the people of papua new guinea. to avoid the huge amount of liquidity from impacting on the exchange rate and inflation, the central bank had to defuse it by issuing central bank bills ( cbb ). the amount of cbb ’ s outstanding as of today exceeds k4 billion. in the previous years the cbb ’ s were issued at a relatively high interest rate of 6 percent to 8 percent, but this has declined in 2010 to below 3 percent, mainly due to excess liquidity in the financial system. this way the commercial banks managed to arbitrage between the government trust accounts and the cbb ’ s, and earn a relatively high income on those deposits. i am very pleased that the minister for finance and treasury the honourable mr. peter o ’

december 2002 was us $ 340. 0 million, sufficient for around 4. 6 months of total and 6. 6 months of non - mineral import cover. the balance of payments for 2003 is projected to show a further deterioration in the overall balance reflecting a deficit in the capital account and narrow surplus in the current account. the projected surplus in the current account is attributed to increases in production and prices for the major agricultural and mineral exports. the declining trend in the current account surplus, which commenced in 2000, is a worry and reflects the decline in non - mineral sector exports and higher imports. fiscal operations of the government the 2002 supplementary budget introduced in august 2002 aimed to achieve a deficit of 3. 4 percent of nominal gdp, but is now estimated to be higher due to payment of unbudgeted expenditures relating to the national elections and general goods and services. with no draw down in exceptional or program financing during 2002, the government relied on new issues of domestic debt to finance the budget deficit and net external loan repayments. the 2003 national budget, aims to consolidate the fiscal adjustments introduced in the 2002 supplementary budget and restore it to a sustainable fiscal position. the adjustments would assist in achieving macroeconomic stability and provide the conditions necessary for sustainable economic growth. the budget deficit is projected at 2. 0 percent of gdp with reductions to 1. 0 percent of gdp in the medium term. to achieve a sustainable budget deficit, a financing gap is required to be filled from external sources. exchange rate during 2002, the depreciation of the exchange rate was influenced by the following factors : high government expenditure ; persistent current account deficit in the non - mineral balance of payments, due to sustained import demand mainly fuelled by fiscal expansion, low export receipts from the agriculture sector and high net overseas remittances by individuals and companies ; increased forward transactions by importers ; uncertainties created by the delay in the announcement of government macroeconomic policies, and disruption to the mineral projects ; increase in reserve money as a result of net maturity of treasury bills by the non - bank public ; downgrading of png ’ s credit rating by an international ratings firm ; and negative real interest rates, which contributed to the high net remittances overseas. since december 2002, the exchange rate has generally stabilized and is steadily appreciating due to inflows of export receipts and supported by low import demand. inflation the upward trend in the rate of inflation that began in 2001 continued into the june and september quarters of 2002