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DPM Briefs World Bank

Press Release : Office of the Prime Minister

 

Deputy Prime Minister Briefs World Bank and IMF on Next Moves to Advance PNG Economy
Submarine Internet Cable and Concessional Funding for Restructuring Debt Discussed

Engagement with the World Bank and International Monetary Fund, that will stimulate positive economic development in the face of global challenges, has been advanced at meetings in Washington D.C. by the Deputy Prime Minister and Treasurer, Hon. Charles Abel MP.

Deputy Prime Minister Abel said the new submarine fibre optic communications cable project, that will deliver cheaper and faster Internet, and the provision of concessional financing for the restructuring of existing debt, will deliver positive economy stimulus for the economy.

“Papua New Guinea has a close working relationship with the World Bank and IMF, and the benefits of this engagement will become even more obvious to our people with the delivery of cheaper and faster Internet.

“Working with the World Bank, and also our partners in Australia, the new submarine communications cable will deliver greater Internet access for Papua New Guineans.

“The new communications cable will make the Internet we received on our computers and smart phones much faster, and with the increased supply we will see Internet data prices fall.

“Increased access to the Internet is essential if we are to advance Papua New Guinea’s economy and improve service delivery.

“The submarine cable has been the subject of much discussion in recent years, and now we are moving ahead so that it will be in place ahead of the APEC Summit.

“The time given to our country by the World Bank and IMF executive for meetings in Washington was tremendous.

“I took the opportunity to remind them of the particular circumstances of Papua New Guinea and the Pacific small island states.

“I said PNG has globally significant natural assets to build a new, responsible, sustainable economy that brings inclusive development to its people but also can support climate change mitigation globally.

“We are confronted with our immediate development challenges and are also on the frontline of the effects of climate change.”

The Deputy Prime Minister said discussions with the World Bank on restructuring existing debt with concessional funding will further simplify debt that has been established over recent decades, and reduce servicing costs.

“Papua New Guinea has never defaulted on a debt payment, and this is respected by global institutions such as the World Bank and the International Monetary Fund.

“We are in talks with the World Bank and IMF so that we can bring together a number of scattered debts and consolidate these under a single debt facility at a much more favourable interest rate.

“Debt consolidation will save public funds and retire outstanding loans quicker than had previously been possible.”

Deputy Prime Minister Abel was accompanied by Treasury Secretary, Dairi Vele, and the Governor for the Bank of Papua New Guinea, Loi Bakani.

As well as the main Plenary Sessions of the World Bank Meeting, the DPM participated on 3 panels, including a panel with the World Bank CEO, and the Finance Ministers for Indonesia and Serbia, on Asia and the Growing Middle Class and Inclusive Development.

The DPM also had 15 meetings including separate meetings with CEO of the World Bank, Kristalina Gregorieva, Asia Pacific Director, Victoria Kwakwa, and Australian Treasurer, Scott Morrison.

Raids In City

The National

By CLIFFORD FAIPARIK

A MAJOR government operation led by the Immigration Department has uncovered illegal activities conducted by some foreign-owned businesses in Port Moresby.

A team comprising officers from the PNG Customs, Labour Department, Investments Promotion Authority, National Capital District Commission, Bank of PNG and police inspected some businesses and questioned foreign workers yesterday.

The team confiscated two vehicles allegedly smuggled into the country in a container.
The officers also questioned 30 foreign workers for allegedly breaching their visa conditions and work permits.
Deputy Chief Immigration Officer, compliance and border division Dino Mas, who invited The National to accompany the officers yesterday, said each government agency was to check to see if the foreign-owned businesses and workers were complying with  PNG laws.

During a debriefing session after yesterday’s inspection, officers exchanged information and discussed what they had discovered.

PNG Customs Officers said they discovered two brand new vehicles, yet to be introduced to the country, hidden in a container.

“These model vehicles have not been introduced yet into PNG. Yet they are already here. We checked the payment documents and discovered that the owner paid only K8000 for each vehicle,” an officer said.
“We will check our overseas counterpart where the vehicle came from, how these vehicles were shipped out of their country.

“We also discovered large quality of undeclared cigarettes in a container in the same premises. These cigarettes were brought in without paying custom taxes.”
Bank of PNG officers, who requested anonymity, said some of these foreign companies had been avoiding paying taxes to the Internal Revenue Commission.

“Some of these companies are making up to K2 million profit annually. But they were declaring around K500 in tax return. So they are avoid paying taxes,” one officer said.
“Seeing their business operations from outside, it is very big. But when they provide business reports, they make it a very small operation.”
The officers said there were many smaller companies but linked to only three or four big companies.

“And they transfer all the money to one parent company and from there, they bank it in an overseas account.
“This is money laundering. We discovered large amount of cash in their premises and discovered that they don’t bank their money in our commercial banks.

“We encourage them to bank the money for security reasons.”
Labour officers requesting anonymity said they discovered that some companies were not paying superannuation for local staff. They also do not pay the minimum K3 an hour rate.
“Some of these foreign employees are doing jobs that locals can do like operating cash registers. But on their work permit they are managers.

“We also found out that there are too many managers for one job. Some of them come on dependent or tourist visas.  But they end up doing business.”
The Labour officers also discovered that some foreign workers were paid in cash so that their employer would avoid paying tax.

Swift Processing Time, Make Banks Compete

Source: PC Online

BY MATTHEW VARI

Chief executive officer of ANZ PNG, Mark Baker has told the Lands Department that it has the ability to create competition among banks in the housing market.

Mr Baker said this during a meeting between major banks and the Land Department in Port Moresby this week.

He said with effective processing times, prices come down on interest rates that aspiring home owners can benefit greatly from.

“If you can get this department to be the best government department, and we can rely on reliable transfer of land title then the banks then start competing with each other,” Mr Baker said.

“Right now because it is static and takes a long time, there is no pressure on us.”

“There are thousands of Papua New Guineans who want to own a home and you have this emerging middle class who want home ownership and they then demand reliable powers and utilities the things we all want.”

Mr Baker told the department it has the opportunity to showcase and drive change in the country, through its mandate.

Forex in Focus

The National

By GYNNIE KERO

THE Government has promised that the foreign exchange shortage problem will soon be addressed following negotiations with the World Bank and the Asian Development Bank.

The Bank of Papua New Guinea is also to lift its foreign exchange market intervention to K300 million ($US100m), according to Treasurer Charles Abel, who tabled the 2017 Supplementary Budget in Parliament yesterday.

O’Neill said the daily demands for foreign exchange in the country were being met through interventions by the Central Bank.

“It is the extraordinary payments like dividends in large amounts which is causing stress in the availability of forex,” he said.

“Some big firms with foreign operations are using profitability from PNG to fund their businesses overseas. That is also affecting our forex.

“We are getting support from ADB and the World Bank to meet the forex shortage. Negotiations have been finalised and facilities would be made available soon.”

O’Neill said the Government had brought onshore revenue from the country’s exports to meet the demand for foreign exchange.

East Sepik Governor Allan Bird raised the foreign exchange shortage problem in Parliament because of the adverse impact on businesses.

O’Neill, however, said some firms park their revenue offshore despite the number of exports. “Foreign exchange shortage is a monetary matter managed by the Central Bank — not Treasury or Government.”

State Adjusting to Economic Situation, says Fleming

The National

By MARK HAIHUIE

THE government’s sale of its shares in Oil Search shows that it is willing to adjust to the current economic situation, Bank South Pacific chief executive Robin Fleming says.

Fleming told The National that businesses would be anticipating similar undertakings by the government in the 2017 Supplementary Budget.

“The supplementary budget is important for business as it will be the first significant outcome of the government’s 100-day plan and an excellent signal to the business community of the specifics associated with the implementation of the plan,” Fleming said.

“Kumul Petroleum Holdings recently announced the sale of its Oil Search shares with the consequent exit of the UBS and JP Morgan-structured debt facilities.

“It indicates the government’s preparedness to make decisions that recognise current economic conditions.”
Fleming said the government could eliminate or defer commitments not critical to its long-term development plans.
“This is not to say that some of those longer-term developments are not important,” he said.

“But in the short-term, the focus should be on meeting any residual payment obligations from operational or development expenditure, where services have been provided or procurement completed.

“Payment and settlement of any such debt will provide cash flow for many businesses in PNG.”

Kina Overvalued And One Option Is To Have Dual Exchange Rate, Says Economist

Source: Business Advantage PNG

The kina is more than 20 per cent overvalued, according to economist Marcel Schroder, speaking to a joint University of Papua New Guinea/ANU event in Port Moresby. One option is to introduce a dual exchange rate for a limited time.

BA 1

‘When people talk about an over-valuation of the kina, it is really hard to know by how much,’ said Marcel Schroder, a lecturer in economics at the Development Policy Centre in the Australian National University (ANU).

‘We updated (our estimate) last year, 2016, and it is still about 22 per cent overvaluation.’

He said this year the estimated overvaluation of the kina will be increased.

Schroder acknowledged that, for an economy like PNG that lacks diversification, there are arguments against letting the currency fall.

‘There are (some) good reasons not to devalue. One is that it could be inflationary. It means that imports will be more expensive, especially when it comes to essential imports like rice and pharmaceuticals—poor people are already struggling. That is not a good outcome.’

Elastic

The question is whether the economy is ‘elastic’: able to rebound from the re-pricing of the currency. ‘In theory, when the exchange rate depreciates it stimulates exports,’ said Schroder.

‘Revenue from mining petroleum taxes, which peaked at K4 billion during the boom, has almost disappeared.’

‘But PNG has no [export] manufacturing, so what do we export? We are price takers when it comes to commodity prices.’

One option, according to the 2017 PNG Economic Survey, which was co-written by Schroder, ANU economists Rohan Fox and Stephen Howes, and UNPG economist Nelson Atip Nema, is to retain the current kina rate for essential imports and depreciate the kina by 20 per cent for all other transactions.

Schroder believes empirical evidence suggests that, over the medium term (typically two years), exports will be stimulated by devaluation.

‘It is easy to wait for the next commodity price hike, or LNG project. But it is a bit defeatist and the costs in the short run really damage the economy.’

Credit

BA 2

The ANU’s Marcel Schroder

Schroder claimed an overvalued exchange rate lowers economic growth, and investment in future projects ‘because businesses find it hard to find foreign exchange for crucial intermediate goods and capital goods.’

He said the shortage of foreign exchange is putting PNG businesses that purchase internationally under pressure. Many need to wait between eight and 16 weeks to have their foreign exchange orders processed.

‘That is quite a long time. Credit lines are usually between 14 and 30 days. So they are banking on the patience of overseas suppliers.’

Most PNG businesses have built ‘very good credit records in the past’, he said, so overseas suppliers are prepared to be patient.

‘They can continue with their operations but they miss out on many opportunities. Also, many businesses are multinationals.

‘Businesses are spending a lot of time trying to find foreign exchange.’

‘Being foreign companies, they would like to take at least part of their profits back home. They are not able to do this. This causes frustration.’

Schroder said businesses are spending a lot of time trying to find foreign exchange. Any cost is ‘passed on to consumers.’

BA 3

Improvements to Taxes and Infrastructure Crucial for Papua New Guinea SMEs, says Millennium Water MD

Source: Business Advantage PNG

Achilles Peni’s water treatment business was one out of 10 companies selected to participate in Papua New Guinea’s SME Advancement Program, led by the World Bank, the Government and Bank South Pacific PNG.

The company sells purified water from Port Moresby. It has long-term plans to build the first natural mineral and spring water facility in Papua New Guinea.

Peni, who is a water and wastewater treatment technologist with over 26 years experience, says the company will then be positioned to bottle water directly from the base of the Owen Stanley Range near the Kokoda Track.

Market

There is a large potential market. According to a study by Water Aid, Papua New Guinea has the world’s worst access to clean water. It found that 4.8 million people in the country do not have clean water.

The Water Aid study says access to clean drinking water and sanitation is an issue for over half of Papua New Guinea’s population. The annual rainy season is also often followed by drought, which adds to the difficulties.

‘One way to support local producers is to increase taxes on imported goods.’

Lae

Peni says the company’s Lae branch initially operated ‘very well’ but the economic downturn meant that it had to be closed down. He says he has been forced to adopt a defensive strategy.

‘Millennium Water is surviving, but the company isn’t thriving.’

Peni lists his greatest challenges as high freight costs, and the lax application of importation taxes. He says many local businesses struggle to get their products transported to the buyers in a reasonable timeframe.

One way to support local producers, he says, is to increase taxes on imported goods.

‘The Government must promote local products first by imposing an import duty tax. These actions will help create a level playing field.’

Peni says reducing freight costs and developing local infrastructure, especially rail and road, will also greatly aid PNG SMEs.

Contracts

Millennium Water has continued to be successful during the economic downturn by securing contracts with large companies, including PNG Power Limited and ExxonMobil.

‘Keeping the dispensers clean helps to maintain the light, sweet taste of the water.’

In addition, the company offers cleaning of its water dispensers free of charge, to attract and maintain its client base.

Keeping the dispensers clean helps to maintain the light, sweet taste of the water, which makes the product competitive, Peni explains.

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