“I congratulate our central bank, the Bank of Papua New Guinea, on the occasion of their 45th anniversary on 1 November. BPNG has a proud history and is filled with very professional officers whom I congratulate on this anniversary day. BPNG evolved from the PNG Division of the Reserve Bank of Australia in 1973, and was one of the key economic agencies to help guide PNG towards independence. The Central Bank Act was last changed in April 2000. Recent experiences of economic mismanagement in PNG indicate that a review of BPNG is now urgently required” stated the Shadow Minister for Treasury & Finance Ian Ling-Stuckey.
”BPNG has been failing in many of its major roles in recent years. For example, BPNG is failing in the management of our international currency. Foreign exchange shortages have become the most critical issue facing business according to 70% of CEOs. This only started to occur from decisions made in mid-2014 when the Governor decided to move the currency away from a freely convertible one. There are questions as to whether he even had the authority to do so under the Central Banking Act 2000. Even if he had the power, it was a decision that has crippled growth in this country.
“BPNG is also responsible for the financial system in PNG covering issues such as interest rates. PNG has some of the highest interest rate margins in the world. The huge gap between what depositors get in their savings accounts, and the costs of small businesses borrowing, is one of the largest margins in the region. This is also damaging growth in our country.
“The 2000 banking reforms, emerging from the late 1990s crisis, had several aims. In the language of BPNG itself in 2007, one of these was “the relationship between the Bank and the Government has been redefined to safeguard against excessive financing of budget deficits by the Central Bank”. Clearly, the Central Bank has once again started providing massive funding of irresponsible government budget deficits under the so-called ‘slack arrangement’. Latest figures indicate these were still at K2,912 million in March 2018 – nearly K3 billion of very questionable lending.
The main monetary policy mechanism is supposed to be the Kina Facility Rate. The current rate of 6.25% has not been changed for years. The economy has fallen into a deep recession in 2015, 2016 and 2018, yet the main monetary policy instrument stays unchanged. It stays unchanged even when lending to the private sector actually fell by 3.4% in 2017. There is a lack of actual monetary policy management.
Failed exchange rate management, failure to get enough competition to get interest rate margins down, failure to avoid excessive financing of budget deficits, failure to support growth – these are sufficient reasons to urgently review BPNG and the Central Banking Act 2000. The review should explore whether PNG’s central bank can both maintain monetary stability while also enhancing growth in our country. This review could be headed by noteworthy Papua New Guineans such as former Governor Wilson Kammit during whose decade of stewardship BPNG seemed to avoid current problems. In calling for this review, I fully respect the professionalism of the men and women of BPNG, and those that have served there over the last 45 years. But recent experiences indicate that it is time to modernise the bank and make it a champion for growth for the decades ahead rather than being a barrier to growth” said Mr Ling-Stuckey.
Shadow Minister for Treasury & Finance
31 October 2018
For earlier more detailed comments on BPNG, see the earlier Media Release following the September 2018 Monetary Policy Statement available here: http://www.opposition.gov.pg/2018/10/03/bpng-needs-to-do-more-to-lower-interest-rates/
The figure on the level of central bank financing for the deficit is available from column G of Table 2.1 of the BPNG Quarterly Economic Statistics series:
For references to the objectives of the CBA 2000 see BPNG “Money and Banking in Papua New Guinea” published in 2007 pp 152-3