Bank of Papua New Guinea Presentation at the CIMC AGRICULTURE SECTORAL COMMITTEE “IMPACT OF FOREIGN EXCHANGE ON AGRICULTURE EXPORTS AND IMPORTS” by Gae Kauzi ~ 17 th July 2018 Crown Plaze Hotel, Port Moresby
Bank of Papua New Guinea Outline of presentation 1. Contribution of Agriculture sector to GDP 2. Lending to Agriculture sector 3. Balance of Payments 4. Agriculture Exports & Imports 5. Foreign Exchange Market Developments
Bank of Papua New Guinea 1. CONTRIBUTION OF AGRICULTURE SECTOR (% OF GDP) Agriculture sector is growing very slowly in value terms But agricultures sector contribution to total GDP has declined The Agriculture sector needs an effective policy response to diversify the economy.
Bank of Papua New Guinea CONTRIBUTION OF AGRICULTURE SECTOR (% OF GDP) IN 2014 IN 2017 (EST) Agriculture, Agriculture, Forestry & Other Other Forestry & Fisheries Fisheries 18.4% 20.3% 23.9% 27.7% 9.8% Mining Real 6.5% 5.9% Real 16.4% Estate 16.6% Mining 7.2% 7.5% 8.0% 6.4% Oil & Gas Administrative 11.8% Support Adminsitrative 9.8% 3.8% Support Oil & Wholesale & Construction Gas Retail Whole Construction Agriculture share alone would be smaller, exacerbated by the decline in contributions from coffee, cocoa, copra and copra oil sub sectors. The decline is due to change in ownership structure from plantation to smallholding. Also, lack of support in extension services provided by the Government to the smaller holders resulting in the shrinking share of agriculture sector’s contribution to GDP Other sectors share of 27.7 percent comprised of other sectors contributions that are grouped together
Bank of Papua New Guinea Lending by sector including to Agriculture K’ Million 2,000.0 Agriculture 1,800.0 1,600.0 Transport and 1,400.0 Communicati on 1,200.0 Building and Construction 1,000.0 800.0 Hotels and Restaurants 600.0 400.0 Real Estate, Renting & 200.0 Business Services 0.0 2010 2011 2012 2013 2014 2015 2016 2017 Lending to the Agriculture sector over the years to support production is dismal due to the risks associated with collateral issues. This stems from shift in ownership structure from Plantation to smallholding and reflected through a drop in foreign exchange earnings as well.
Bank of Papua New Guinea EMPLOYMENT RATE BY INDUSTRY WITH AGRICULTURE INCLUDED TOGETHER AS AGRICULTURE, FORESTRY AND FISHERIES SECTOR 60.0 Retail 50.0 Wholesale 40.0 Manufacturing 30.0 Construction Transportation 20.0 Agriculture, Forestry, 10.0 Fisheries Financial, Business & Other 0.0 services -10.0 -20.0 -30.0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Bank of Papua New Guinea BALANCE OF PAYMENTS • LARGE CURRENT ACCOUNT SURPLUS IS NOT TRANSLATING INTO INCREASED FX INFLOWS INTO THE FOREIGN EXCHANGE MARKET • FUNDS ARE HELD IN OVERSEAS FOREIGN CURRENCY ACCOUNTS UNDER PROJECT DEVELOPMENT AGREEMENTS
Bank of Papua New Guinea Total Agricultural Export and by Commodity - K’ Million 3,500.0 3,000.0 Tea Palm Oil 2,500.0 Copra Oil 2,000.0 Copra Tea 1,500.0 Coffee Cocoa 1,000.0 500.0 - 2010 2011 2012 2013 2014 2015 2016 2017
Bank of Papua New Guinea Agricultural Exports, Non-Agricultural and Total Exports K’ Million 35,000.0 Agriculture Exports 30,000.0 Non-Agriculture Exports Total Exports 25,000.0 20,000.0 15,000.0 10,000.0 5,000.0 - 2010 2011 2012 2013 2014 2015 2016 2017 Agriculture 13.4% 18.5% 13.7% 11.3% 8.8% 6.8% 8.5% 6.9% Non-Agriculture 86.6% 81.5% 86.3% 88.7% 91.2% 93.2% 91.5% 93.1%
Bank of Papua New Guinea Total Agricultural Import and by Commodity (subsector) K’ Million 400.0 Rubber Palm Oil 350.0 Copra Oil Copra Tea Coffee 300.0 Cocoa 250.0 200.0 150.0 100.0 50.0 - 2012 2013 2014 2015 2016 2017
Bank of Papua New Guinea EXCHANGE RATE • PGK Depreciated by 40 % since 2012 • Favourable exchange rate levels to encourage Agriculture Sector to increase production and exports
Bank of Papua New Guinea Foreign Exchange inflows have been consistent throughout these years Why is the Kina depreciating?
Bank of Papua New Guinea The net outflows have been met adequately and in some case more than enough by the BPNG’s interventions The interventions has achieve a gradual depreciation of the kina exchange rate consistent with the Bank’s price stability objective.
Bank of Papua New Guinea Excess Demand as measured by Outstanding Orders is not consistent with slowing economy. Some orders do not have Kina at the time of settlement, which suggests front loading of import orders, hence the persistent outstanding orders. Some of the large orders are Dividends.
Bank of Papua New Guinea AGRICULTURE FX INFLOWS vs. TOTAL FX INFLOWS Foreign exchange inflows from the Agriculture Sector is small Performance over the years have been steady
Bank of Papua New Guinea AGRICULTURE OUTFLOWS vs. TOTAL OUTFLOWS
Bank of Papua New Guinea SUPPLY OF FOREIGN EXCHANGE FROM THE AGRICULTURE SECTOR 60% 50% 40% 30% 20% 10% 0% 2013 2014 2015 2016 2017 2018 Livestock Cocoa Coffee Copra Oilpalm Rubber Sugar Tea Vanilla • Main export from the Agriculture sector is Oil Palm • Coffee continues to decline while vanilla export is not fully recorded due to most of trading over the PNG border
Bank of Papua New Guinea 90% DEMAND FOR FOREIGN EXCHANGE FROM THE AGRICULTURE SECTOR 80% 70% 60% 50% 40% 30% 20% 10% 0% 2012 2013 2014 2015 2016 2017 2018 Livestock Cocoa Coffee Copra Oilpalm Rubber Sugar Tea Vanilla • Big increase in demand for foreign exchange from livestock (feeds, etc) • Since 2017, there has been an increase in demand for foreign exchange from the Oil Palm… repayment of FC loan
Bank of Papua New Guinea Foreign Exchange Reserves • BPNG intervenes to support FX market and smooth the exchange rate movement • Current international reserves around US$1.7 billion (K5.5 billion) • Sufficient for approx 5.1months of total and 9.0 months of non-mineral import cover
Bank of Papua New Guinea • The gross foreign reserves have remained around US$1.7 billion for the last two years. • Decline is due to decline in mineral & dividend taxes and intervention to assist domestic foreign exchange market • As of end June 2018, it was US$ 1.730 (K5.6) billion • The current import covers at the end of March 2018 are: 5.8 months for total 8.9 months for non-mineral
Bank of Papua New Guinea CONCLUSION • The Government needs to diversify the economy by focusing on investments in the Agriculture sector. • The impact of the shortage in Foreign exchange is mainly on the livestock segment. • The current exchange rate is conducive to increase production in agriculture for exports. • Why Agriculture is important to the economy; • Source of foreign currency income • Source of employment • Source of revenue to the State • Food Security for the nation
Bank of Papua New Guinea Thank you
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