Interview

In what ways does the 2018 national budget support plans for economic development?

BAKANI: The 2018 budget plans for a deficit of K1.99bn ($621m), equivalent to 2.5% of GDP. The government intends to raise 81% of financing of the deficit from external sources, and it is very likely these efforts to support expansionary fiscal policy will be successful.

This is a stark change from previous years, when the focus was mainly on domestic financing. This structure meant that shortfalls of domestic financiers affected capital expenditure on development projects. In contrast, external financing will boost liquidity in the foreign exchange market, and the government can use this to relieve its short-term domestic debt. Furthermore, the bank will continue to sterilise liquidity generated from the arrangement by on-selling government securities to the public and issuing central bank bills to banks.

The budget also aims to support agriculture, as well as small and medium-sized enterprises, which should reduce the country’s dependence on imports. Public sector efforts to diversify the export base and promote inclusive growth by focusing on non-minerals sectors – such as agriculture and tourism – are anticipated to broaden revenue streams and contribute to sustainable economic growth, thus shifting the economy away from its high dependence on the minerals sector.

To what extent can technology be employed to promote financial inclusion?

BAKANI: Low population density and the difficult terrain are major obstacles preventing financial institutions from reaching rural areas, which is where the majority of Papua New Guinean citizens live. Financial technology and digital financial services, such as mobile banking, provide viable solutions to this problem.

As of 2018 all commercial banks and some microbanks use mobile banking to reach rural areas through a network of retail agents. People who once had to travel for hours to a financial institution can now visit a nearby agent to conduct banking services. The entrance of formal services helped increase the number of domestic bank accounts to more than 3m. Some microbanks have also entered into partnerships with commercial banks to provide debit cards compatible with bank ATMs. These innovations have reduced cash-handling risks while automatically recording transactions, thus building the credibility of clients for future facilities.

While the entire range of activities to be made possible by blockchain is unclear at this stage, the technology can be used to issue identity cards accepted by banks, which would be a major step towards financial inclusion. BPNG conducted a successful pilot programme of identity cards in a rural setting and continues to conduct research into blockchain.

How will commodity price changes and APEC 2018 affect wealth creation and the kina?

BAKANI: Inflows into the foreign exchange market improved in 2017 following the pickup in prices of some export commodities, and this is expected to continue in 2018. Improvements in the external sector have caused BPNG to project real GDP growth of close to 3% for the year, higher than the 2.4% forecast in the 2018 national budget. However, a significant portion of export receipts from mineral companies are kept in offshore foreign-currency accounts negotiated under project development agreements. Given the foreign exchange shortage seen from mid-2012, this creates some challenges. BPNG will continue to assist the foreign exchange market when necessary.

APEC 2018 is expected to positively affect the economy in the near and longer term, as it should increase business activities, production and employment. The hosting of APEC 2018 will also raise the global profile of PNG, promoting it as an investment and tourism destination. Higher levels of public spending to support the APEC events are likely to cause some near-term inflationary pressures, but these are set to be short lived.