Speech: PNG Resources and Energy Investment Conference in Sydney, Australia

a/g Governor Elizabeth Genia

 Speech, 13 December 2023
PNG Resources and Energy Investment Conference

Theme: Ready for the Boom? PNG Financial Services Sector

                                                                                                                                                                                                               

Daba namona, morning tru, good morning everyone.

I would like to recognize the traditional owners of the land on which we meet, the Gadigal people, and recognize their elders, past, present and emerging.

I extend this acknowledgement to all indigenous leaders here today, from Australia, Papua New Guinea and beyond.

I also thank the Chamber of Resources and Energy for your exceptional efforts in arranging this conference every year.

First, a quick review of our economy and its near-term direction.

The economy continued to recover from the negative growth seen during the COVID years in 2020 and 2021.

We had impressive growth in 2022 with a 5.2 percent increase in GDP driven by rising LNG revenue and higher gold and copper prices.

But most commodity prices eased this year, and, despite increases in copper and gold, our economy has slowed and growth is expected to be around 2.7 percent this year.

We expect growth to rebound in 2024 with Porgera recommencing and the start of other key projects.

Inflation has remained low this year after peaking above six percent in the third quarter of 2022.

Headline inflation increased to 2.2 percent in the twelve months to September this year, up from 1.4 percent in the year to June.

With increased growth in 2024, we expect inflation to trend higher and this is something the Bank is keeping a close eye on.

Access to foreign exchange is, of course, a concern for all of you, and has been challenging since 2015.

We know that you have spent years struggling to access foreign exchange, and we are trying to help you as best we can.

As you know, key resource projects have been closed, reduced and delayed, and this has severely impacted our access to currency.

This year saw record interventions from the Bank of Papua New Guinea, totaling in excess of 1.5 billion US dollars.

This is our highest ever intervention program.

As a number of you have observed over the last few days, 2024 will see an improvement in inflows from the resource and energy sectors, and we appreciate your further investment in the growth of these industries.

The Bank will continue to support the market, although we will need to reduce this from 2023 levels.

But we must also prepare our economy structurally to reduce the reliance on extractive sectors for foreign exchange.

We know that the resources sector runs in cycles, and we must not allow a foreign exchange shock to damage our economy again.

This will be a major focus for the Bank as we get the policy settings right for the government’s growth agenda through to the end of the decade and beyond.

In early 2024 the kina is likely to ease.

We are not sure how much it will ease, but it needs to reflect the dynamics of supply and demand.

We will monitor the currency very carefully, assessing it at different levels and at key cross-rates, including the Kina-Aussie cross-rate.

Another important issue that may not be so obvious to the public as our foreign exchange interventions, but which is still significant, has been adjustments we have made to our monetary policy framework.

We have been working closely with the IMF on this, and we jointly undertook a thorough review of the effectiveness of the transmission of monetary policy through the financial system.

One of the main barriers to the effective transmission of monetary policy has been the excess of deposits, or excess liquidity, in the banking system.

Excess liquidity has long been a problem in Papua New Guinea, and has resulted in monetary policy failing to be transmitted through the financial system.

If the Central Bank cannot sufficiently influence the cost of money – or the cost of loans and deposits – then our monetary policy framework is hindered in its ability to ensure price stability, much less keep it under control.

“Central Bank speak” aside, interest rates have been very attractive, so the commercial banks have been content to leave funds on deposit, with little commercial incentive for them to accept the perceived risk of providing loans.

To counter this situation, in August this year we introduced a fixed rate, 7-day Central Bank Bill auction with no pre-determined limit on a bid amount, in an effort to absorb some of the excess liquidity.

While there are some structural issues we need to address on the concentration of excess deposits and where they are held, the 7-day Bill auction is, so far, working as we expected.

In a further step to improve monetary policy transmission, the Bank recently introduced the opportunity for Superannuation funds to bid for Central Bank bills, expanding the market and increasing competition.

And we will shortly be introducing a Central Securities Depository portal, which will enable the commercial banks and other investors to trade intra-day and overnight.

This is an important initiative for the Bank and one which will again broaden our market and increase competition.

Over the last year, the Bank has undertaken a significant envisioning exercise to help us prepare PNG’s financial system for a digital, globally integrated future.

That future is not far off. And PNG needs a modern, responsive and inclusive financial system.

One that serves and supports all our citizens, from cities to the remotest villages.

To do this, we need to increase competition and diversify the financial services offered to our people.

We want to see more competition in our financial sector, and I am pleased to note there are now several financial institutions upgrading their licenses to provide full banking services.

Some are close to launching operations as commercial banks, while others are approved in principle with further criteria to be met before the final decision is made.

We are also keen to see new participants in our financial sector, and I note the Bank of China opened a representative office in Port Moresby earlier this year with a view to engaging with the business community and assessing the merits of opening a branch network.

As the third largest economy in the Pacific, it is important that we have a strong, reputable financial system, and having international banks like Bank of China establishing in PNG is a strong positive signal.

We are also watching our international partners to see how they are innovating in services, and particularly cross-border transactions.

I know this is a critical issue for many of you in this room.

And as I noted earlier, foreign exchange is one of the biggest barriers our businesses face right now.

We are watching our largest partners, Singapore and Australia, to see how they are responding to the many challenges of cross-border transactions.

Faster, cheaper, more transparent and more inclusive cross-border payment services could deliver enormous benefit to our citizens and support inclusive economic growth, diversified international trade and financial inclusion.

We are assessing a number of technologies including Central Bank Digital Currencies, which partners like Singapore and Japan are piloting for their potential in cross-border payments.

A key priority for us is the role digital transformation can play in financial inclusion, and particularly banking in remote areas.

And I would like to spend a few minutes discussing this today, in broader terms than I normally do.

You have heard in other presentations about the challenges brought by PNG’s beautiful but often rugged terrain.

Infrastructure – roads, bridges, power, telecommunications – and essential social services are lacking in all but the main urban centres.

To build a strong and stable PNG, we must bring everyone on the journey.

And this means financial inclusion is essential for the stability and growth of our economy.

An inclusive society allows for the individual to participate fully in all aspects of life, reflecting the value that is placed on equality and on fairness, and is a testament to the fact that inclusiveness makes us all stronger.

We are measured by how we treat our most vulnerable, and when you look around the world, wherever you see a thriving community, you will find inclusiveness at its core.

Digitisation is the key to expanding financial inclusion, particularly in remote areas.

One of the most significant challenges to expanding financial inclusion is identity, and this along with remoteness stops much of our population from participating in the formal economy.

We recently introduced a card-based identity document, Digizen ID,  who is partnering with MiBank to create digital identities in remote areas without internet connectivity.

Technologies like this will contribute significantly to financial inclusion.

Digizen is a graduate of our Regulatory Sandbox, which aims to identity and assist innovative technologies that increase financial inclusion to successfully enter PNG.

I am pleased to say that a new product, pinBox, has commenced in the Sandbox, in partnership with Nasfund.

pinBox provides a solution for micropensions, micro-superannuation and microinsurance to individuals and SMEs outside the formal system.

This means that all Papua New Guineans will have an option to save for their retirement through reputable and high-quality products, no matter where they are located or what their incomes are.

We are now welcoming and assessing other solutions that serve our citizens that have limited or no access to the formal financial sector.

We are also looking at how we can reduce fees and charges to our citizens.

We recognize that cost is a major barrier to financial inclusion and that more needs to be done to lower the cost of transactions, particularly as the world moves away from cash transactions.

Greater transparency in fees and charges is critical to this.

As many of you know, the Bank of Papua New Guinea provides a number of platforms that allow more efficient transactions within our financial system.

These include KATS, the Kina Automated Transfer System, and REPS, the Retail Electronic Payments System, that our commercial banks use to automate transfers between them.

The provision of these systems has dramatically reduced the cost to these banks of providing this service, and has likewise improved speed and reliability of domestic transactions for the consumer.

We are now actively looking at ways we can work with the commercial banks to reduce the cost of these transactions, particularly where BPNG is providing the digital infrastructure at minimal cost to the user.

Transparency will be a critical part of this, as will improved technologies.

We are making an effort to learn from our partners, particularly those who are highly digitally advanced like Singapore, to bring the best of tried, tested and verified solutions to our market.

This will prepare us for the coming boom – and help support you as you bring growth and prosperity to Papua New Guinea.

Are we ready for the boom? Yes, certainly.

But more importantly the Central Bank is focused on the appropriate policy settings being in place to ensure PNG is best positioned for long-term growth, whatever the future may hold.

The Bank is looking forward with an ambitious agenda.

But eda ina nega – it’s our time.

I look to you all as partners on this journey – the lagatoi of digital innovation has sailed, and we must all be part of its journey.

Bank of Papua New Guinea is preparing to support you on this journey, and to ensure that all our citizens have the opportunity to share in the prosperity of the coming boom.

I thank you for your time today.