Acting Governor Ms Elizabeth Genia’s Speech at Business Investment Forum in Brisbane on 10th August 2023.
Hadorai namona, avinun tru, good afternoon,
First, let me acknowledge the traditional custodians of the land on which we meet, the Turrbal [pronounced Turrubal] people, and recognize their elders, past, present and emerging.
Let me also recognize our Board Chairman, Mr. David Toua, who is working with the Board to drive the change and reform, the Bank needs to be able to meet its mandates in a rapidly changing future.
I also acknowledge other dignitaries in the room.
Thank you all for attending this session, and thankyou to Business Advantage for the opportunity to speak at this year’s Investment Forum.
Today I will share with you some of the critical challenges facing the bank, and the work we are doing internally, with the Government and with the business community, to position ourselves for a rapidly changing, data-driven future.
I will start by re-emphasising the Bank’s pre-eminent role in setting monetary policy, and regulating for financial system growth and stability.
These remain our core functions, and ones we take seriously.
But, like many prudent and forward-thinking central banks around the world, we are increasingly addressing factors that influence our core functions.
Like the increasing impact of climate change on the economy and how that may affect participants in the financial system.
The growing use of digital money and digital assets, and how they will transform the way people use, move and store money in coming years.
And our responsibility to our nation, and to the international community as a good global citizen, to take a strong position in the international war on cyber-crime, terrorism financing and money laundering, while enabling legitimate cross-border trade.
This responsibility is critical to PNG if it is to be seen internationally as a promising business and investment destination.
We need to demonstrate very clearly that legitimate investors and business developers can have confidence in the integrity of the PNG financial system.
Our Financial Analysis and Supervision Unit, FASU, is largely engaged in anti-money laundering/counter terrorism financing activities.
While operationally independent, FASU is part of the administrative responsibilities of the Bank of Papua New Guinea.
FASU is key to ensuring PNG’s financial system has integrity and retains the confidence of our finance system partners around the world, and we take our responsibilities here very seriously.
Which means sometimes we may impact activities of the business community – I’ll return to this later.
You know well that the last few years have been challenging times for the PNG economy, for businesses, and for the community.
In 2018, after nine consecutive years of positive GDP growth, our GDP growth moved into negative territory.
The global crisis caused by COVID-19 further damaged our economy.
This is the situation we faced as we began our review of the Central Banking Act in 2021.
The Mekere Government’s overhaul of the financial sector was incredibly important.
He introduced the Central Banking Act in 2000, and made the Bank an entity able to set policy independent of the Government of the day.
The Central Banking Act served us well for many years.
Our world is changing rapidly, and we as Central Bankers must respond to those changes.
In May 2021, our Treasurer, Hon Ian Ling-Stuckey, decided, rightly, that the time had come for the Central Bank Act to be reviewed.
The review was our opportunity to revise and reset, to introduce greater transparency and accountability, to become more stakeholder focused, and to strengthen and modernise our Bank’s functions to be ready for a data-driven future.
In their review, the Independent Advisory Group (IAG) recognised three key considerations for the Bank moving forward:
- That international best practice had changed, and that the Bank of Papua New Guinea needed to change with it;
- That the experience of the last twenty years showed that we needed to take account of Papua New Guinea’s unique circumstances and economic structure; and
- That a holistic view was required given the Bank’s role in setting monetary policy, exchange rate policy, government financing and banking, and financial regulation.
The recommendations of the Phase 1 report aimed to:
- Create greater independence from, but greater information sharing with, our Government;
- Greater administrative oversight by the Board of the Central Bank;
- Limits to the terms of executives and board members; and
- Stronger financing activities.
Importantly, our core objectives have been updated.
No longer is price stability the only driver of the Bank’s policy decisions.
Our objectives are now:
- to formulate and implement monetary policy with a view to achieving and maintaining price stability and promoting employment and economic growth, especially of the non-mineral non-petroleum sector;
This is the most important change following the recommendations from the Review.
Bank of PNG’s objectives when formulating Monetary Policy are now broader than solely maintaining price stability.
The important addition here is also the reference to the non-mineral, non-petroleum sector.
When we talk about this, we are predominantly talking about rural PNG.
This is a key concern for the Bank, not only when formulating monetary policy and considering inflationary pressure on village life, but when considering the vast majority of our population who remain unbanked.
- to formulate financial regulation and prudential standards to ensure stability of the financial system in Papua New Guinea;
Our second objective speaks to both ensuring the stability of the financial system and promoting its development.
Protecting the integrity and the stability of the financial system is paramount if we are to further develop our financial sector and prepare it for the decades ahead.
- to promote an efficient national and international payments system; and
- to provide efficient and responsive banking services to the Government.
This four-objective approach encourages us to consider how our actions affect employment and economic growth, and bring the greatest benefit to our economy and our communities.
The changes send a clear message that the Bank of Papua New Guinea is not only ‘open for business’, but ‘open to business’.
Which gives a strong indication that the Bank is likely to look favourably on the efforts of reputable investors and give guidance where proposed activities will facilitate jobs growth and economic development.
We are still working to meet the recommendation about increasing the Board’s level of administrative oversight.
Four Board positions remain vacant. This places undue stress on the existing Board.
One of these positions is for a Deputy Governor, but we currently have only vacancies at that level.
It is our priority, from a Board and management perspective, to fill all key positions permanently as soon as possible to ensure our governance meets national and international standards.
The Independent Advisory Group (IAG) review of the Central Banking Act now continues in its second phase, focusing on our monetary policy settings and other technical activities.
Its findings will be delivered shortly, and we are committed to implementing recommendations approved by the Board by December 31, 2023.
To do this well, and to respond to current and emerging challenges, it has been vital that we develop a more strategic approach to our operations, our growth and our future direction.
Strategy 2050 is Bank’s first long-term strategy that sets our direction and supports the Government’s vision for the development of Papua New Guinea.
It is informed by and responds to our Phase 1 review, the Government’s Vision 2050, the Medium Term Development Strategy IV, our engagement with the IMF and other key partners, and importantly to our business and community in PNG.
The Government’s new Medium Term Development Plan IV sets the goal to grow the economy to 200 billion kina by 2030.
The Bank of Papua New Guinea will play a critical role in the realization of this goal, and our Strategy 2050 creates the framework for action.
To develop the BPNG Strategy 2050 we consulted with multiple external stakeholders ranging from commercial banks, provincial administrators, government departments (Treasury), business houses, and international partners to gauge their views and inform our strategic thinking and planning.
Under the BPNG Strategy 2050, we will run five-year strategic plan cycles to deliver our long-term vision.
BPNG will play a critical role in enabling the social and economic transformation of Papua New Guinea.
A stable and functional financial system that has the confidence of investors will spur investment, both domestic and international, including in non-extractive sectors.
Price stability and a sound financial system will enable efficient trade and commerce.
Our monetary policy settings will create the conditions where business activity is supported and promoted.
In this way, BPNG will help to create conditions that support inclusive economic growth.
Inclusive growth will yield benefits such as employment opportunities, market competition, innovation, and consumer choice.
One area the Bank can directly influence is the expansion and diversification of the financial sector, which provides competitive access to financial products and services for all PNG citizens.
We want to see our citizens have access to quality connected services that suit their needs and incomes, even in remote and rural locations.
This is an ambitious agenda, but one in which we have the support of our Government, our Board and our partners.
One of these partners is, of course, the International Monetary Fund, or IMF.
A lot of rumours, misinformation and unnecessary panic exists about the role the IMF plays in setting Government policy, and I am of course concerned about misunderstandings about the role it plays with the Bank’s policy settings.
I will start by assuring you that the Bank, with the support of the Government, maintains its independence to set monetary policy under the direction of the Board.
As I have stated, and as the Treasurer has stated, there will be no devaluation of the kina.
What we do know, and you as a business community know this well, is that the rationing of foreign exchange, and its absorption almost completely by the largest of our businesses, cannot continue.
We know our currency is misaligned with market forces, which has led to the rationing.
We as an independent Central Bank must carefully balance the needs and wants of ALL of our stakeholders.
They include the Government; the international business community; the large business community; the small business community; microbusinesses, employees, students and grassroots communities.
All have differing costs and benefits when it comes to the value of the currency.
Some are more interested in how much they receive when they spend their funds offshore.
Some are more interested in how many kina they can get selling into international markets.
Some are more interested in the cost of imported goods.
Some just need access to foreign currency to survive, at whatever price.
We understand very clearly that a hard, sharp devaluation is in no-one’s interest.
The Bank, under my stewardship, has taken a thoughtful and prudent approach to the necessary adjustments needed to realign the kina supply with demand.
Any further adjustments will be undertaken with care, consultation and transparency, and with the full intention of minimizing the impact on any disadvantaged group.
We have worked with the IMF to develop a roadmap to a more market clearing exchange rate regime and a more effective monetary policy framework.
On the subject of currency, I will provide you with a short update on issues surrounding the Bank’s management of foreign exchange allocations.
As you are all aware, we continue to be concerned about the level of funds held offshore and the impact that has on our access to foreign exchange.
We as a nation want to be able to provide more foreign exchange to our small companies, particularly our small PNG national-led companies that often lose access in preference to big international companies.
We want our domestic companies to thrive, and for our wealth to be held onshore.
Last year, these concerns led to an unfortunate situation where the Bank disagreed with one stakeholder about the terms and conditions of the operational agreement on their foreign currency accounts.
That led to an independent special purpose audit review whose findings were handed down in September 2022.
The review raised a number of points that required further assessment, and a second phase review began in November 2022.
This review has been completed and we await the final report.
There has been a level of misreporting on this issue, and understandably there is sensitivity, but we are committed to finding permanent solutions to this challenge.
And we know this impacted very negatively on you, the business community, and our communities throughout Papua New Guinea.
When I took over as acting Governor in early 2023, after close consultation with the Board, we sought to de-escalate the situation by introducing a three-month moratorium period to give everyone space to step back, take a breath, and find a positive way to resolve our challenges.
We continue to work with key stakeholders, including the recently announced Government taskforce, to find a workable solution that creates the best outcomes for you, the business community, and our nation.
We cannot, any of us, continue the way we have over the last 18 months.
Our commitment to you, as a regulator, is absolute.
But this issue is broader than simply one of foreign exchange.
We need to consider the structure and nature of our industry base, the way we manage imports and … of our foreign investment.
It is important to stress that the responsibility to do this rests with a number of key stakeholders, not simply the Bank.
We all know diversification is part of the solution to many of our nation’s challenges.
Our market is growing, and diversification is increasingly possible.
To this end, we are working proactively to diversify the financial system and the providers you rely on to facilitate your business.
We know transaction costs are high, and that service has been patchy this year.
We know PNG lags behind many countries in the provision of now common financial services including digital wallets, digital identity, and access to international payment platforms.
We have engaged IFC, a part of the World Bank Group, to develop guidelines to help PNG’s non-bank financial institutions transition to successful commercial banks.
As you will know, licensed financial institutions including TISA and Credit Corp. have applied to upgrade their operations to hold a banking licence.
A number of others have expressed interest.
This is a significant step in creating competitive markets and providing better services to businesses and investors.
We are also examining ways to introduce increased competition in banking to low-income households.
We are looking at ways to provide appropriate level services to this large part of the economy, and in particular digital services.
To do this, we need to work with microfinance providers to upgrade their systems and become part of our Retail Electronic Payments System.
This will be done during Phase Two of its implementation.
This means your employees on low incomes can be paid into microfinance bank accounts where products exist that are better suited to the needs of these workers.
As we approach the Bank’s 50th Anniversary on the 1st of November, we can see the road we have travelled and are looking at the highway to come.
We know that if we are to support PNG’s transition to a modern, effective economy, we need to do things differently.
The Bank of Papua New Guinea must be trusted, modern, and progressive.
The Bank and its Board are working tirelessly to provide the settings for our financial system to increase investment and trade for the benefit of our businesses and our citizens.
We will do this with greater transparency, communication and consultation with the business community.
We are committed to working with you to create a prosperous and successful future for the next generation of Papua New Guineans.
I thank you for this very welcome opportunity to discuss the challenges we face today, the changes we are implementing to modernise the Bank, and the strategic direction we are setting to support PNGs future economy.
Thank you once again for joining me today as we took this small peak behind the curtain at BPNG’s role in guiding you to the extent we can, through this challenging environment and on to the opportunites ahead.
Thank you tru and gud pela avinun.