The proceeds from sovereign bond issue and concessional drawdowns have increased the international reserves to around US$2.5bn at the end of 2018.
Rohan George, Group General Manager Treasury, stated: “Much needed relief was given to the market through the conversion of sovereign bond and concessional loan drawdowns. The number of outstanding foreign currency orders significantly reduced by 50 percent in the second half of 2018, and have declined by 70 percent over the past 12 months.”
The Bank of PNG (BPNG) continued to assist in supplying foreign currency to meet some of the outstanding ‘sell-kina’ orders in the foreign exchange market. BSP expects foreign reserves to be around K6.6bn [US$2.0bn] at the end of 2019, sufficient for 6 months of total import cover and 11 months of non-mineral cover.
Headline inflation increased to 4.8 percent in the September quarter of 2018, compared to 4.5 percent in the June quarter.
According to the 2019 Budget, inflation is projected to increase to around 5.4 percent in 2019. The report noted that, fuel price declined on average has fallen in January 2019, according to Independent Consumer & Competition Commission [ICCC] announcement. The fall was mainly attributed to the decrease in IPP and the domestic sea freight rates for the first quarter of 2019.
On the global economy, storm clouds are brewing as international trade and investment have softened and trade tensions remain elevated. The World Bank expects growth to slow to 2.9 percent in 2019 from 3 percent in 2018. Although, a truce was reached between the US and China in December 18, trade policy uncertainty remains elevated and continues to weigh on confidence.
Commodity prices declined over the year, as indicated by World Bank indices. The Energy Price Index declined by 23 percent over the December quarter and by 7 percent over the 12-months to December 2018.
Average crude oil prices fell by 28 percent and 12 percent to US$53.96/bbl over the December quarter and 2018 respectively.
BSP notes that, commodity prices at the end of 2018 were lower than expected, hence will negatively impact on commodity producing countries, such as PNG.