The value of kina is expected to fall as much as 10 per cent over the coming year, after stabilising for the last two months, according to lead Pacific economist at ANZ Bank Daniel Wilson.
As Business Advantage PNG reported early October last year, the September quarter of 2013 saw the kina fall sharply in value, largely due to lower exports and sustained imports. In spite of recent rallies, Wilson says he expects the kina to fall a further 8 to 10 per cent by the end of 2014, bringing it closer to its long-term average of US$0.37. Singapore-based Wilson told Business Advantage PNG he was expecting “strong GDP growth figures over the next two years, largely driven by income from LNG production. “However, whether a significant proportion of these foreign currency earnings enter into the market is yet to be determined.” Wilson says he’s concerned that the six-to-nine month time gap between the start of the LNG production and when the income from LNG sales begins may mean PNG continues to have a high current account deficit during 2014. In 2013, a high current account deficit of 20% was driven by declines in key commodity prices (30% for gold), disruption of output at the Ok Tedi mine, naturally declining energy and soft commodity exports, amid sustained import demand for both goods and services. Coupled with easing foreign direct investment, it led to ‘a natural disequilibrium’ of demand for the Kina and depreciation pressure, Wilson says. “Further out, if LNG exports do bring significant foreign currency flows onshore,” Wilson says, “the Bank of Papua New Guinea will likely closely monitor the kina to avoid the ‘Dutch Disease’, which is a decline in manufacturing competitiveness as a result of strong currency appreciation due to income from natural resources.” In its September Quarterly Economic Bulletin, released in December, the Bank’s Governor Loi Bakani reported the kina had stabilised at US$0.413 cents in December, after the bank intervened, spending US$140 million (K352 million) to ensure a measured fall during the September quarter. “Consequently, the central bank’s intervention in the foreign exchange market has eased and international reserve level has stabilised at around US$2.8 billion (K7.04 billion), which is sufficient for around eight months of total and 13 months of non-mineral import cover,” he said. – pacnews Comments are closed.
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