
By Allan Bird
Why is the Kina depreciating so rapidly?
PM Marape in his response to the concerns raised by our ordinary people affected by rising cost of living due to the effects of the depreciating Kina and inflation leaves much to be desired.
The biggest contributor to inflation and the depreciation of the Kina in the last 5 years is the fiscal behaviour of the national government.
We have been boasting about consecutive record government budgets and we never speak of undisciplined Government expenditure funded from printing money. If a record budget does not strengthen the economy then its size does not matter.
By increasing the money supply within the local economy without the backing of a strong economy the Government has essentially oversupplied Kina thereby rendering it worthless. This is the net effect of printing money. Printing money only works in large diverse economies. Our economy is too resources reliant and susceptible to external shocks.
Whats happening is that all costs are going up and government is unwilling or unable to increase wages to off set inflation. Inflation is running at around 5% a year, so adjusting wages upwards every year is unsustainable without a corresponding increase in productivity. Also giving free handouts to the people is not a smart longterm solution.
Meanwhile, the Central Bank is struggling to control the rapid decline in the value of the Kina so that it can contain runaway inflation.
The PM is telling everyone that we have to wait for the big mining and oil and gas extraction to commence operating inorder for the people to get some relief. Are we back to short term pain for long term gain again?
If we had cut back government spending on wasteful projects by an additional billion kina a year, that would have meant K5b less in printed money.
If we had allowed Porgera to operate, that would have meant an additional $6b in FX we would not have had to borrow. Not to mention it’s multiplier effect on other businesses. That’s what the PNG economy is experiencing.
Unfortunately our Government has borrowed K32 billion in 5 years. This number equals all borrowings by all Governments since 1975. Our total official debt is K64 billion and half of that was borrowed in the last 5 years.
PMJM tells us GDP grew by K30b since he took office. Well debt grew by K32b in the same period. This does not include other debts currently sitting off the books.
The fix is simple but it will require strong political will to do it. We must first live within our means. Stop looking for ways to borrow money to fund all kinds of low return initiatives Good government is about spending for the collective interest, not on narrow political interests.
Second, we must rescind the decision to create elite capture mechanisms like KPHL. Bring in the Sovereign Wealth Structure and start putting real money into it and keep it in the Central Bank to provide stability and back stopping for the Kina. Whats the point of boasting about K12b in FX Reserves when your total debt is K64 billion and half of that is foreign denominated loans?
Given our lack of economic diversification, we are susceptible to external shocks and this can significantly affect the currency flows into our economy.
We must manage our economy with prudence and not expect some windfall revenue in the future to rescue us. This practice of gambing on future revenue by borrowing and expending today on projects with dubious returns is exactly why we are in trouble now.
PNG needs to tighten its expenditure and exercise fiscal restraint. We need leaders who understand the problem and have the courage to deal with it.
Our people cannot absorb any more pain. It seems only the cocoa growers are exempt from the struggle for now but every other PNGan is feeling the pinch.



