Deal­ing with the for­eign ex­change prob­lem

PNG busi­nesses must have strate­gies to man­age the cur­rent short­age of for­eign ex­change, says Stephen Massa

Business Advantage Papua New Guinea - - Contents - Stephen Massa is the Man­ag­ing Part­ner of Den­tons’ Port Moresby of­fice.

Stephen Massa of law firm Den­tons out­lines some strate­gies to deal with for­eign ex­change short­ages.

The pres­sure of lim­ited for­eign cur­rency sup­ply in PNG has be­come part and par­cel of do­ing busi­ness in the coun­try. It af­fects any busi­ness that needs to pay off­shore sup­pli­ers of goods or ser­vices, or re­pay off­shore loans. It also af­fects for­eign-owned busi­nesses want­ing to re­mit prof­its.

It has cre­ated pres­sures but it is im­per­a­tive that busi­nesses avoid un­in­ten­tion­ally breach­ing PNG’S for­eign ex­change con­trols. All off­shore debts must be set­tled via an ac­tual out­flow of money through an au­tho­rised dealer and not sim­ply via an off­set­ting, no­tional or ac­count en­try ar­range­ment.


The Bank of Pa­pua New Guinea, PNG’S cen­tral bank, has tight­ened con­trol around for­eign cur­rency move­ment and ac­counts. For ex­am­ple, it has placed a stay on the open­ing of any new on­shore for­eign cur­rency ac­counts. It has also re­quired en­ti­ties with ex­ist­ing on­shore for­eign cur­rency ac­counts to reap­ply to the bank to keep those ac­counts open as for­eign cur­rency ac­counts.

If the bank is not sat­is­fied with an ap­pli­cant’s need to main­tain an on­shore for­eign cur­rency ac­count, de­posits in that ac­count are con­verted into kina.


Busi­nesses that have re­ceived the bank’s ap­proval to main­tain their on­shore for­eign cur­rency ac­count must com­ply with the bank’s con­di­tions. In gen­eral terms, this means that the ac­count should usu­ally be lim­ited to mak­ing or re­ceiv­ing for­eign cur­rency pay­ments under core com­mer­cial con­tracts nec­es­sary for that busi­ness to op­er­ate ef­fec­tively in PNG.

Many busi­nesses may be mo­ti­vated to look for cre­ative or in­no­va­tive ‘so­lu­tions’. For ex­am­ple: A busi­ness in need of for­eign cur­rency to pay an off­shore sup­plier might pro­pose to trans­fer an agreed amount of PGK to a busi­ness that has for­eign cur­rency and can pay the off­shore sup­plier on their be­half; or A busi­ness with an on­shore for­eign cur­rency de­posit might con­sider mak­ing a for­eign cur­rency loan to an off­shore en­tity in or­der to pro­tect their for­eign cur­rency de­posit against any fur­ther tight­en­ing or forced con­ver­sion into kina; or A busi­ness that is owed a for­eign cur­rency debt under an in­ter-com­pany loan from its off­shore par­ent en­tity might con­sider off­set­ting a div­i­dend or management fee owed to its par­ent in lieu of re­pay­ment of the loan.


All of the above sce­nar­ios would be a breach of PNG’S For­eign Ex­change Con­trol Reg­u­la­tions, which pro­hibit the sell­ing or ex­chang­ing of for­eign cur­rency (or trans­ac­tions that have the ef­fect of this) other than through the cen­tral bank or an au­tho­rised dealer.

The penal­ties for breach­ing the for­eign cur­rency con­trols can be se­vere and in­clude large fines, prison terms, and/or for­fei­ture of for­eign cur­rency or goods.

Busi­nesses will con­tinue to ex­pe­ri­ence the neg­a­tive im­pacts of a squeeze on the avail­abil­ity of for­eign cur­rency, but if they are able to ride out the short-term chal­lenges they should be well placed to ben­e­fit from the next sig­nif­i­cant growth phase.

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