Bank of Papua New Guinea
Presentation at the
CIMC AGRICULTURE SECTORAL COMMITTEE
“IMPACT OF FOREIGN EXCHANGE ON AGRICULTURE EXPORTS AND IMPORTS”
by
Gae Kauzi
~17th 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)
18.4%
9.8%
16.6%
6.4%8.0%
7.2%
5.9%
27.7%
Agriculture, Forestry &Fisheries
Mining
Oil & Gas
ConstructionWholesale &Retail
Administrative Support
Real Estate
OtherIN 2017 (EST)
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
20.3%
16.4%
3.8%9.8%11.8%
7.5%
6.5%
23.9%
Other
Agriculture, Forestry & Fisheries
Mining
Oil &Gas
ConstructionWhole
Adminsitrative Support
Real
IN 2014
Bank of Papua New Guinea
Lending by sector including to Agriculture
K’ Million
0.0
200.0
400.0
600.0
800.0
1,000.0
1,200.0
1,400.0
1,600.0
1,800.0
2,000.0
2010 2011 2012 2013 2014 2015 2016 2017
Agriculture
TransportandCommunicationBuilding andConstruction
Hotels andRestaurants
Real Estate,Renting &BusinessServices
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
-30.0
-20.0
-10.0
0.0
10.0
20.0
30.0
40.0
50.0
60.0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Retail
Wholesale
Manufacturing
Construction
Transportation
Agriculture, Forestry,FisheriesFinancial, Business & Otherservices
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
-
500.0
1,000.0
1,500.0
2,000.0
2,500.0
3,000.0
3,500.0
2010 2011 2012 2013 2014 2015 2016 2017
Tea
Palm Oil
Copra Oil
Copra
Tea
Coffee
Cocoa
Bank of Papua New Guinea
Agricultural Exports, Non-Agricultural and Total Exports
K’ Million
-
5,000.0
10,000.0
15,000.0
20,000.0
25,000.0
30,000.0
35,000.0
2010 2011 2012 2013 2014 2015 2016 2017
Agriculture Exports
Non-Agriculture Exports
Total Exports
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
-
50.0
100.0
150.0
200.0
250.0
300.0
350.0
400.0
2012 2013 2014 2015 2016 2017
Rubber Palm OilCopra Oil CopraTea CoffeeCocoa
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
• 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
0%
10%
20%
30%
40%
50%
60%
2013 2014 2015 2016 2017 2018
Livestock Cocoa Coffee Copra Oilpalm
Rubber Sugar Tea Vanilla
SUPPLY OF FOREIGN EXCHANGE FROM THE AGRICULTURE SECTOR
Bank of Papua New Guinea
• 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
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
2012 2013 2014 2015 2016 2017 2018
Livestock Cocoa Coffee Copra Oilpalm
Rubber Sugar Tea Vanilla
DEMAND FOR FOREIGN EXCHANGE FROM THE AGRICULTURE SECTOR
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
