Papua New Guinea after the resource boom

This talk provides a survey of recent economic developments in Papua New Guinea’s (PNG) since the end of the resource boom in 2014. The specific focus of the discussion will be on the country’s exchange rate policy. Theory suggests that the real exchange rate (RER) should depreciate following the observed fall in commodity prices. In practice, however, the imposition of foreign exchange controls has led to a large backlog in foreign currency orders suggesting that the kina is significantly overvalued. A related paper estimating the extent to which PNG’s RER is currently misaligned will be discussed. The results of the paper suggest that the kina should depreciate by about 20 per cent. Otherwise PNG is likely to pay high economic costs as real overvaluation sustained through foreign exchange restrictions led to resource misallocation, lower economic growth, black markets, and ultimately a balance of payments crisis in many other developing countries in the past.

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