And while Papua New Guinea’s major exports are projected to perform below par causing exchange rates to drop, with an expected further depreciation of the kina coupled with strong domestic demand, there will be a further pressure on inflation this year.
So there needs to be a tight fiscal and monetary policy at least for the first six months to reduce inflation by 4.2 percent — from 11.2 percent in December quarter last year — to 7 percent, as inflation is expected to continue to rise this year.
BPNG Gov. Wilson Kamit said this in a monetary policy statement published yesterday in which he noted that growth in gross domestic product would be domestically driven by mining and construction projects and increased government spending.
“A fast draw down of our trust account funds will pose big significant problems for liquidity management, given the capacity constraints in effective implementation of projects funded by these trust accounts,” he said.
Kamit said total liquidity of banking system increased by 7.7 percent to 4,956.4 million kina between December 2007 and December last year due to an increase in net government expenditure.
Prices rose last year mainly due to higher international food and fuel prices generated by strong domestic demand.
