GOVERNOR’S SPEECH - BUSINESS BREAKFAST - MOUNT HAGEN
This morning marks my first public engagement since the passing of Sir Julius. His visionary leadership, in establishing the Bank of Papua New Guinea, and preparing for the introduction of the Kina and the toea, in 1973, laid the foundation for our country's economic sovereignty, well before we achieved political independence in 1975. In honour of Sir Julius’ enduring legacy, I ask you to join me in observing a minute of silence before we proceed with today's program. Thank You
Moglo Mokae, Morning Tru, and Good Morning Everyone.
I acknowledge the Honourable William Duma MP, and the Honourable Wai Rapa who are both with us this morning, also members of the Mount Hagen, and Western Highlands Business Community, Distinguished Guests, and Ladies and Gentlemen - Thank You for the opportunity to present to you this morning.
It is a privilege, for the Board of the Bank of Papua New Guinea to have its first meeting for 2025 here in Mount Hagen. It has long been the practice of the Bank to hold as many of its Board meetings as possible outside of Port Moresby.
This practice was interrupted during the Covid years, but it is something that I am keen to get back on track, as it is important for the Board to have an appreciation for the regional issues that affect our nation’s economy.
Let me begin this morning by highlighting the resilience of Papua New Guinea’s economy in 2024. We faced a number of significant challenges - as early as January last year - with the civil unrest in Port Moresby and Lae, power outages throughout the year, ongoing fuel supply issues and foreign exchange shortages.
Yet, despite these challenges, growth remained strong, with some advance estimates of GDP growth above 4.0%, driven by strong performances in mining and agriculture, and impressive growth in the services sector.
That said, I don’t want to play down the challenges faced by the economy during the year. The social and economic issues confronting us in 2024 have been with us for some time. They represent the long-standing difficulties faced by our people, and by businesses, and they contribute to the high cost of doing business in PNG. As we enter our 50th year as an independent nation, we need to address these challenges if we are to lay the foundation for sustained and inclusive economic growth.
A significant achievement I do want to highlight is the substantial improvement in the availability of foreign currency. Thanks to targeted policy measures, businesses have experienced a noticeable reduction in FX shortages, which is an important step in supporting economic activity and improving investor confidence.
While economic growth has been strong, price stability has been very well maintained. Headline inflation recorded a historic low of just 0.1%, year on year, for the 12 months to June 2024. However, core inflation - which more accurately reflects underlying price pressures - ranged between 3.2% and 5.5%.
Although these measures are historically low, the Central Bank is always vigilant in monitoring inflationary risks - particularly the core measures for inflation - which effectively capture the increasing costs of imported goods as the Kina continues to depreciate.
While access to foreign currency has improved, demand continues to outpace supply, and this will only change when we see increased levels of foreign investment.
The adjustment lower in the Kina, to align it closer to its market value is a critically important reform for the Bank of Papua New Guinea. The currency was held artificially high for too long, and it needs the flexibility to be able to respond more effectively to external shocks.
A good example of currencies responding like this to ‘external shocks’ was the recent imposition of tariffs announced by US policymakers where the increased costs of the tariffs to American businesses, in US Dollar terms, were largely offset by the strengthening of the US Dollar and its increased purchasing power against the Canadian Dollar, the Mexican Peso and the Chinese Renminbi.
The Bank continued with its significant reforms to the Monetary Policy Framework throughout 2024. We began to tighten Monetary Policy in March with incremental increases to the Kina Facility Rate (KFR) and the Cash Reserve Requirement (CRR) in the months following.
This tightening stance saw borrowing rates increase - primarily on Government debt - with increases in the yields on Treasury Bills and on Inscribed Stock.
Private sector borrowing costs however have not risen proportionally and the transmission of monetary policy - reflected in the relationship between adjustments in the KFR, the CRR and the resultant market rates - remains a focal point for the Bank - as are factors such as the excess of liquidity in the banking system - which is essential if we are to improve the effectiveness of monetary policy transmission.
The 2024 amendments to the Central Banking Act have been certified, with the most significant change being the establishment of a new Monetary Policy Committee, independent of the BPNG Board, and tasked with the responsibility for formulating Monetary Policy.
There is a maxim in life that ’delays are dangerous’ and that is certainly applicable here, and the three non-executive members to the Monetary Policy Committee need to be appointed urgently and without further delay.
While the Mining and Petroleum sectors are the primary contributors to PNG’s GDP, the vulnerability of our economy to downturns in this sector reinforces the need for us to diversify. Promoting a resilient, non-mineral sector of the economy, is important to reduce our over dependence on resource extraction, and to promote longer term and sustainable growth.
Agriculture is particularly important for regional growth. Coffee, here in Hagen - and in Goroka - has long been a major contributor to household incomes and to boosting foreign exchange. However, growth in bags of coffee exported have stalled, due to a lack support for plantations, a reluctance to embrace modern farming practices, and developing the infrastructure needed to allow for product to get to market easily.
Revitalising the coffee sector and other agricultural industries, will create jobs, drive productivity and boost export earnings. It’s not only coffee, the Western Highlands, has the potential to be the food bowl for Asia, and presents a significant opportunity for investment, that should be fully explored.
The services sector is also performing well - telecommunications, and financial services have always been strong - but tourism has shown substantial growth and offers significant potential. With PNG’s rich cultural, and natural diversity, tourism should be a priority for investment and promoting Papua New Guinea as a unique, and attractive, travel destination.
As we mark the 50th year of our independence, there is much to reflect on and there are some encouraging signs for 2025. We are more than half-way through the IMF Program and Papua New Guinea has performed remarkably well, meeting all of the structural benchmarks assigned to us to date.
Our 50th anniversary milestone also underscores the importance of maintaining our strong relationships with our trading partners and having the right policy framework for encouraging investment in PNG.
Notably, at the World Economic Forum in Davos, Total and Exxon expressed confidence in PNG's economy. Total have committed to between $200 million and $300 million to exploration activities in PNG's Central Province this year.
It is something we have been hearing about for a while now, Total and Exxon have both indicated they are actively targeting a Final Investment Decision for the Papua LNG project in 2025.
Global investors need to have confidence in our economy. As policy makers, we have used the time available to us in recent years to focus on some of the reforms needed to ensure our economy is well positioned for the next wave of investment.
I need to bring to your attention this morning however, to one very significant challenge facing us this year. The FATF, the Financial Action Task Force, the international body responsible for setting standards globally to combat money laundering and illicit financial activities, has placed Papua New Guinea on notice following their Mutual Evaluation Report completed in November 2024.
This report identified significant deficiencies in PNG's Anti-Money Laundering and Counter-Terrorist Financing (AML/CTF) framework, [pause] and PNG has until October 2025 to demonstrate substantial progress in addressing these issues to avoid being placed on the FATF's 'grey list'.
PNG’s National Coordinating Committee, comprising of 22 member agencies, faces a monumental task in implementing the necessary reforms and adequate resourcing and support for these agencies are essential if we are to meet the FATF's requirements before October.
Failure to make significant progress will result in PNG being 'grey listed' by the FATF, and this will have very severe implications for our economy, including:
- Grey listing may lead to the loss of correspondent banking relationships, as international banks may view transactions with PNG's financial institutions as higher risk. This can hinder cross border payments and international trade flows.
- Being publicly identified on the ‘grey list’ can result in negative economic and reputational consequences, affecting the financial sector and international financing.
To prevent these adverse outcomes, it is imperative for us to commit to strengthening our AML/CTF framework. This includes enhancing technical compliance with FATF Recommendations and improving our effectiveness ratings.
We need to recognise the urgency of this situation, and work together to implement the required reforms, safeguard our financial system and maintain international confidence in our economy.
In closing, Papua New Guinea is 50 years young this year – and 2025 is a year that will bring its opportunities - as well as its challenges.
The underlying strength in the economy in 2024 was impressive and is testament to our nation's resilience. To ensure sustained, long term and inclusive growth however, it is important that we address longstanding social and economic issues.
This would involve further reforms, and as the IMF Program has shown, we are capable of this when we put our mind to it. We need to diversify our economy beyond the mining and petroleum sectors, and capitalise on opportunities in agriculture, tourism, and in the services sector.
The Bank of Papua New Guinea remains committed to maintaining price stability, enhancing monetary policy effectiveness, promoting competition and supporting a stable financial system. The recent improvements in foreign currency availability, and the entry of three new banks into PNG’s banking sector are positive developments that will further support economic growth and investor confidence.
The potential grey listing from the FATF is a significant hurdle and one that will require everyone’s input - FASU, Provincial and local level governments, Customs, the Police, and the IRC. The BPNG will allocate every available resource we have to ensure we are not placed on the grey list and investors can have confidence in Papua New Guinea as an investment destination.
Thank You again for the opportunity to address you this morning and I look forward to taking some questions.