The Economy in PNG

Posted by on Jul 4, 2016

I wanted to get an update to everyone on the state of the economy in PNG.  The big issue in the last update was the possibility of PNG being declared bankrupt and the resulting decline of critical resources needed to operate in PNG.  The deadline for the USB loan payback was June 13th and that deadline has come and gone with no “announcement” of bankruptcy.  Sometimes no news is good news however in this case there are lots of issues not being reported.

At the current moment the PNG government secured a 1.5 Billion Kina loan to help them cover their budget shortfall for 2016.  The loan was approved on July 1st and I am sure the funds are already being used in the areas where the government is behind.  Lord willing this loan will help to delay economic issues currently in PNG, however from what I have been reading it is simply a band-aid to the larger issue of low gross national profit from various commodities (oil, timber, gold, nickel, etc.).

One week before the loan was announced I had the opportunity to chat with two business Managers in Madang.  My first contact said they are shutting down operations for a key location in their business.  They have also had several expat managers leave the company for reasons not made known to me.  They are short on funds due to the drop in commodity prices for natural resources.

I also spoke with the Business Manager for a local grocery store.  They regularly import goods from New Zealand as well as Australia to be sold in the store.  When the goods are purchased the invoices have to be paid in the currency of the supplier (AUD, NZD).  When he makes the wire transfer from Kina to the bank account of the supplier this creates an issue.  The Bank of PNG only has so much foreign currency on hand.  When the PNG bank converts his Kina to AUD or NZD (which they have to have on hand) then they send the wire.  Because the PNG Banks don’t have enough foreign currency they are putting limits on businesses and the amount of money they can wire per month.

So whats the result?  Strained relationships with suppliers and  reducing the amount of goods being imported.  It also has a long term effect with reducing the amount of employees needed to run the store because there is not as much to sell or manage.  The same rings true for the commodities company I mentioned.  They will probably be cutting more staff very soon.

There have also been several reports from local news that Ward and District Council Members have not been paid (some since 2014).  Matt Dodd informed me that the Doctor in Mareroro went to Madang recently to collect his paycheck from the government only to find that he had no pay.  As more government workers are left with no pay it creates the catalyst for more unrest, public protests and crime.

Topping it of is the lack of confidence in the current prime minister (Peter Oneill).  He will not submit himself to a corruption investigation nor resign as a result of the student protests in Port Moresby.  Most recently there were 10 students injured after local Police opened fire on a peaceful protest.  The unrest in Port Moresby has only continued to escalate resulting in arson of buildings on the Port Moresby university campus.  The unrest has also made it to Mt. Haugen, Goroka, Lae and Madang (in small cases).

I am looking forward to the result of the loan on the foreign exchange shortage as well as back-payed budget items of the PNG government.  Lord willing it will give the economy a needed boost to get through the current issues.  A final concern is a probable devaluing of the Kina to make the most recent loan more profitable for the Kina over the duration of the note.  From what I have read economists are recommending a devaluing in the range of 40-50% from it’s current value.  If this doing happen it will create unreasonable inflation for the people of PNG.  Since we are still operating with the US Dollar we will be cushioned by the inflation but it has the potential to create more unrest.

Praise the Lord he is in control of all such things.  He providentially brings about what he desires on this earth and there is no one or nothing that subverts his will.  He is using this economic issue to bring himself more glory.  The result should be hopeful optimism for us, regardless of the outcome!  Please be praying for the economy in PNG and the people of PNG living in the shadow of a government that has not managed finances well.

One Comment

  1. Thank you, Jeremy, for this very thorough economic update. Praying for you guys!