Bank of PNG Governor Ms Genia Issues Monetary Policy Statement for 2023

On March 31st, 2023, Acting Governor of the Bank of Papua New Guinea (PNG), Ms. Elizabeth Genia, released the bank’s Monetary Policy Statement for the year. The statement outlines the bank’s objectives, the objectives of monetary policy, and provides an executive summary of the current economic situation in PNG.

According to the statement, the objectives of the Central Bank of PNG, as per Section 7 of the Central Banking Act 2000, are to formulate and implement monetary policy with a view to achieving and maintaining price stability and promoting employment and economic growth, particularly in the non-mineral and non-petroleum sectors. The bank also aims to formulate financial regulation and prudential standards to ensure the stability and development of the financial system in PNG, promote an efficient national and international payments system, and provide efficient and responsive banking services to the Government.

The objectives of monetary policy in PNG are to achieve and maintain price stability while promoting employment and economic growth, especially in the non-mineral sector. The bank aims to find a balance between economic growth and employment creation in the non-mineral sector and tolerable levels of inflation, interest, and exchange rates.

According to the executive summary, PNG’s economy recovered strongly in 2022, thanks to the lifting of COVID-19 restrictions, high international prices and production of export commodities, and increased government spending. The Bank of PNG expects this growth to continue into 2023 driven by increased activity in the non-mineral sector, supported by the government’s expansionary fiscal policy and growth in the mineral sector.

However, the external sector is projected to weaken in 2023 mainly due to a decline in commodity prices resulting from a slowdown in the global economy. The bank projects the overall Balance of Payments to be in deficit, driven by a deficit in the capital and financial account, more than offsetting a surplus in the current account. Gross foreign reserves are projected to decline in 2023, reflecting the net intervention by the Bank of PNG into the domestic foreign exchange market and servicing of government foreign debt.

The Consumer Price Index for the September quarter of 2022 showed an annual headline inflation outcome of 6.3 percent reflecting the feed-through of high imported inflation. The Bank forecasts annual domestic inflation to be around 5.5 percent for 2023. The recent CPI publication by the National Statistical Office showed that the annual headline inflation was 3.4 percent in the December quarter of 2022.

To counter inflationary pressures, over the six months to March 2023, the Bank of PNG continued its tightening stance of monetary policy by further increasing the Kina Facility Rate to 3.50 percent in January 2023. While global inflation is expected to slow, the bank expects domestic price pressures to ease but remain elevated in 2023 and moderate in the medium term.

The Government of PNG continues to pursue an expansionary fiscal policy through its 2023 National Budget, projecting a record expenditure of K24,566.9 million and total revenue of K19,582.0 million, giving a deficit of K4,984.9 million. The deficit will be financed mainly from external sources.

The Bank of PNG’s Monetary Policy Statement for 2023 provides insight into the country’s economic situation and the central bank’s objectives and strategies to maintain price stability, promote employment and economic growth, and ensure the stability and development of the financial system.

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