Governor Genia’s speech to the Lae Business Community

Post-Board Meeting Cocktail Function

Lae, Morobe Province

8 August 2024

Speech: Ms Elizabeth Genia, AAICD

Governor

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Good evening Distinguished Guests, Members of the Lae business community, the Board of the Bank of Papua New Guinea, our BPNG Colleagues, Ladies and Gentlemen.

Our Board Chair, David Toua OBE, and I extend a warm welcome to our special guests, the Honourable Luther Wenge MP, the Governor of Morobe Province, and Mr John Byrne, the President of the Lae Chamber of Commerce. Thank you for taking time out of your busy schedules to join us this evening.

I also acknowledge the Ahi people as the traditional landowners of Lae, Morobe Province and we pay respect to their Elders, past and present.

That respect also extends to acknowledging the importance Lae has played in the history of Papua New Guinea.

Lae is the hub of the Morobe Province, Gateway to the Highlands, Momase and New Guinea Islands – it is the engine room of our economy.

Closely connected to grass roots Papua New Guineans, particularly those involved in the agricultural sector, and indeed, those connected with the alluvial gold industry.

With all these natural advantages, BPNG has long recognised that Lae is an ideal centre from which to operate currency operations.

Many of you will have interacted with the Bank of Papua New Guinea’s Cash Distribution Centre, which was operated by Bank South Pacific (BSP) through an agency agreement with BPNG. That centre closed in 2011, but was re-opened in November 2015.

As BPNG strengthened its commitment to reach the unbanked population of Papua New Guinea through its drive to achieve financial inclusion, the idea of having a purpose-designed and built facility located closer to the wider rural population gathered momentum.

It made a great deal of sense for BPNG to select Lae as the site of the Bank’s first facility outside of Port Moresby. We were all thrilled to share in the excitement of the official opening of the state-of-the-art Lae Currency Processing Facility in March 2019.

Now our Lae operations employ around 70 staff in skilled operations, fulfilling the job creation vision articulated by the then Deputy Prime Minister, Charles Abel at the Facilities’ official opening.

At the time of the launch back in 2019, Mr Abel also pointed to the positive impact of having closer access to Central Banking services in the country, which would bring developments that would boost economic activities in the region.

Let’s turn to those economic activities and see how BPNG is delivering on them.

BPNG’s operations are governed by the Central Banking Act, which sets out four objectives. One of these objectives requires the Bank “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 and non-petroleum sector”.

The key issue here is that this objective requires BPNG to focus on broad-based growth, not just growth associated with mining. This fits in well with the Bank’s long-term commitment to financial inclusion, which aims to provide access to financial services for all Papua New Guineans, regardless of where they live.

Now a national strategic policy, administered by the Centre for Excellence in Financial Inclusion, CEFI, financial inclusion has expanded to provide support, services and guidance to the SME community, as well as to individuals.

In my role as Chair of CEFI, I am delighted with the progress that is being made to build a strong and thriving SME economy, which is a vital ingredient for creating broad-based economic growth for our nation.

It is gratifying to see members of the SME business community here with us this evening.

In the context of financial inclusion and the need to expand financial services to businesses and individuals, particularly to those outside the major centres, BPNG has been encouraging new entrants to the banking sector for some years.

Just this week we marked a historic event, when BPNG issued commercial banking licenses to two financial institutions on the same day, both of whom had successfully met the demanding conditions of the assessment process.

PNG now has two new banks, TISA Bank Limited and CreditBank PNG.

BPNG is confident that increasing competition in the banking sector will bring valuable benefits to customers. We expect to see more product choices, better customer service, innovations in service delivery, as well as more competitive fees across the sector.

And for the PNG economy as a whole, having a more diverse selection of well-resourced and committed participants in the banking sector helps us build a strong and vibrant financial system, which is to the benefit of all.

I would like to touch on some of the year’s significant global and local issues that have affected the PNG economy, and the action BPNG has taken to manage their economic impact.

The civil unrest in Port Moresby, Lae and other centres around PNG at the beginning of the year was deeply distressing. Aside from the tragic human cost, in financial terms they resulted in significant economic losses and the loss of jobs and services vital to our communities.

The intangible damage was also a significant cost to PNG society, with the high levels of uncertainty and fear for personal safety, also resulting in a dramatic loss of business confidence, and a significant impact on investment.

In Lae, a quick response by your leadership ensured that problems were minimised. I congratulate you and your leaders on the actions taken to protect Lae and your business houses.

Even so, the impact across the nation caused the entire PNG economy to suffer a significant setback, resulting from both direct costs associated with the immediate damage, and from the knock-on effects, such as shortages of essential goods.

Our immediate response was to lower interest rates with the KFR lowered to 2.0% early this year. Building inflationary pressures however has led to the BPNG responding by tightening monetary policy towards the end of the second quarter of 2024.

Right now underlying inflation remains high and we are keeping a careful eye on both national and international developments.

There is some good news however.

The prices of some of our key export commodities are at record levels. Coffee prices are the highest they have been since 2022 and cocoa has hit its highest price in a decade.

The outlook for agricultural commodities over the next 18 months is positive and we hope to see volume increases to take advantage of this.

Now we come to the issue of foreign exchange, naturally a key concern for those of you who are engaged in import activities.

As you know, the PNG Kina has been held artificially high for over a decade, forcing currency rationing and severely inhibiting access to foreign exchange.

One of the final straws was the closing of Porgera’s operations, which created an untenable position.

In 2023 we began a focused program to return the Kina to a convertible trading currency.

This process has been slow because we have been very cautious, reflecting our deep understanding of the impact that currency movements have on both exporters and importers. Our aim has been to balance the interests of all parties, within the resources available to us.

In 2023 BPNG more than doubled the amount of foreign exchange in the market. It was still not enough to meet demand.

Part of the Bank’s response has been to adjust our currency, carefully and slowly.

Prudently.

Taking measured steps to minimise disruption to PNG businesses.

Allowing time for businesses to adapt to new circumstances.

The Bank closely monitors the need for currency adjustments, through regular and frequent assessments. We acknowledge the importance of our role in managing the competing needs of all businesses in the PNG economy.

BPNG continues to intervene in the foreign exchange market to alleviate demand pressures, with caution and a careful eye on the balance between the benefit, and the cost of our actions.

Outstanding forex orders remain at a monthly average of around 1point 2 billion kina. However, the time-lag in meeting orders has dropped substantially to around 4 weeks and I trust you are seeing these improvements in your engagement with your commercial banks.

While we’re talking about improvements, I want to touch briefly on government finances.

The total level of government debt is currently 57 billion kina. Around 31 billion is domestic debt and 26 billion is external. This total represents 50 point 5 percent of GDP.

Let’s put that into perspective. Fiji’s debt is around 83 percent of GDP.

Our National Government has reined in spending. This quarter it is around one billion kina lower than this time last year.

In the six months to June 2024 the Government recorded a surplus of 246 point 5 million kina. This is a huge improvement over the deficit of 2 point 8 billion for the same period last year.

There is no denying that PNG is going through a challenging time. However, we do believe that things are getting back on track.

You can be assured that the Board, the Executive, Management and Staff of the Bank of Papua New Guinea will be working hard to achieve our statutory objectives, “for the advantage of the people of Papua New Guinea”.

Thank you for joining us this evening. We see it as an excellent opportunity for representatives from BPNG and private industry to engage in discussions on issues that are vitally important to the local area, as well as to all Papua New Guineans.

Tenkiu bada herea. Good evening.