CIMC AGRICULTURE SECTORAL COMMITTEE IMPACT OF FOREIGN EXCHANGE ON - - PowerPoint PPT Presentation

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 Construction Wholesale & Retail Administrative Support Real Estate Other

IN 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 Construction Whole 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 Transport and Communicati

• n

Building and Construction Hotels and Restaurants Real Estate, Renting & Business Services

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, Fisheries Financial, Business & Other services

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 Oil Copra Oil Copra Tea Coffee Cocoa

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

• rders, 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