Chapter

PAPUA NEW GUINEA

Author(s):
International Monetary Fund. Monetary and Capital Markets Department
Published Date:
September 2000
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Status Under IMF Articles of Agreement
Article VIIIDate of acceptance: December 4, 1975.
Exchange Arrangement
CurrencyThe currency of Papua New Guinea is the Papua New Guinea kina.
Exchange rate structureUnitary.
Classification
Independently floatingThe exchange rate of the kina is determined freely in the inter bank market in which authorized banks participate with the Bank of Papua New Guinea (BPNG) acting as broker. The commercial banks, the only authorized foreign exchange dealers, publish rates for all current transactions with their customers within a maximum spread between the buying and selling rates of 2%.
Exchange taxNo.
Exchange subsidyNo.
Forward exchange marketExporters and importers are free to take out forward cover with the commercial banks at market-determined rates. Each commercial bank is subject to a prudential limit on its uncovered forward position.
Official cover of forward operationsAt its discretion, the BPNG may intervene in the forward exchange market.
Arrangements for Payments and Receipts
Prescription of currency requirementsContractual commitments to persons residing outside Papua New Guinea and expressed in a foreign currency must be paid in foreign currency. Export proceeds may be received in any foreign currency.
Payment arrangementsNo.
Administration of controlForeign exchange control is administered by the BPNG under the Central Banking Act. Overall policy is determined by the government with the advice of the BPNG. The BPNG has delegated considerable powers to the commercial banks operating in Papua New Guinea, which have been appointed authorized dealers in foreign exchange.
International security restrictions
In accordance with UN sanctionsCertain restrictions are imposed on the making of payments and transfers for current international transactions in respect of the Federal Republic of Yugoslavia (Serbia/Montenegro).
Payment arrearsNo.
Controls on trade in gold (coins and/or bullion)
Controls on external tradeThe exportation of gold is restricted to licensed gold exporters. For the large mines, the licenses are contained in their respective mining agreements. For exports of alluvial gold, specific export licenses are required from the BPNG.
Controls on exports and imports of banknotes
On exports
Domestic currencyTravelers wishing to take or send out domestic currency in excess of K 200 in notes and K 5 in coins must obtain approval from the BPNG. Domestic coins issued for numismatic purposes may be taken out freely.
Foreign currencyOverseas visitors are free to take out any currency they brought in and declared on arrival.
Resident Accounts
Foreign exchange accounts permittedYes.
Held domesticallyResident business entities are required to obtain BPNG approval, except for term deposits placed for a minimum of 90 days.
Held abroadThese accounts may be permitted, but approval is required.
Accounts in domestic currency convertible into foreign currencyYes.
Nonresident Accounts
Foreign exchange accounts permittedYes.
Domestic currency accountsYes.
Convertible into foreign currencyThese accounts may be converted, but approval is required.
Blocked accountsn.a.
Imports and Import Payments
Foreign exchange budgetNo.
Financing requirements for importsNo.
Documentation requirements for release of foreign exchange for importsAuthorized dealers may, without referring to the BPNG, approve applications for import transactions that are not subject to quotas or licensing requirements. Authorized dealers may make payments up to K 5,000 upon presentation of commercial invoices. Payments in excess of K 5,000 require a set of shipping documents and a copy of the customs forms, as well as commercial invoices.
Letters of creditYes.
Import licenses and other nontariff measures
Negative listImports of a limited number of goods are restricted for reasons of health and security, while others are prohibited to protect domestic markets, including sugar, poultry, and pork. The importation of most fresh fruits and vegetables is banned (except for apples, onions, and potatoes for processing). In the event of shortages on the domestic market, special import licenses are issued and imports are subject to a 50% tariff.
Licenses with quotasYes.
Import taxes and/or tariffsThe import tariff regime consists of the following rates: (1) zero for essential items (including food staples such as rice and meat not produced domestically); (2) 8% or 11% for basic goods (including some consumer goods and raw materials); (3) 40% for intermediate goods; (4) 55% for luxury goods; (5) 15% or 100% for selected goods that have domestic substitutes, such as tinned mackerel and citrus fruits; and (6) 85% for sugar.
State import monopolyNo.
Exports and Export Proceeds
Repatriation requirementsOn June 30, 1999, the retention period of export proceeds was shortened to three months from six months.
Surrender requirementsExport proceeds must be sold to an authorized dealer.
Financing requirementsNo.
Documentation requirementsNo.
Export licensesWhen exporters are not in a position to comply with the conditions of the general authority, they must apply to the BPNG for specific authorization.
Without quotasLicenses are required for exports of logs, pearls, fishery and marine products, woodchips, sandalwood, rattan, coffee, cocoa, and copra. Log export licenses are issued subject to minimum export price guidelines.
Export taxesAlthough exports of unprocessed products are subject to export levies, these have been temporarily waived, except for those on fish (10%) and logs (15% to 70%). Export levies also apply to forestry products.
Other export taxesYes.
Payments for Invisible Transactions and Current Transfers
Controls on these transfersThere are restrictions on these payments, but approval is readily granted for most, provided that supporting documentation is submitted. Authorized foreign exchange dealers may approve payments and transfers up to the equivalent of K 500,000 a year for all adult individuals and corporations. Payments and transfers in excess of this amount, except trade-related and debt-service payments, must be referred to the BPNG. For payments or transfers exceeding the equivalent of K 50,000 a year, a certificate of tax payment is required.
In vestment-related paymentsThere are no controls on payment for interest.
Quantitative limitsPayments for the servicing of foreign debt may be approved without a fixed limit by authorized dealers.
Proceeds from Invisible Transactions and Current Transfers
Repatriation requirementsYes.
Surrender requirementsResidents are not permitted to retain foreign exchange earnings from any source without the approval of the BPNG.
Restrictions on use of fundsApproval is required for the disposal of foreign currency proceeds, other than by sale to an authorized dealer in Papua New Guinea, or for its retention.
Capital Transactions
Controls on capital and money market instrumentsThere are no controls on inward portfolio investment. Authorized dealers may approve outward investments by resident individuals and corporations up to the equivalent of K 500,000 a year; investment in excess of this limit requires the approval of the BPNG. Income from the investment must be returned to Papua New Guinea as received. Prior clearance from the tax authorities is required for these transactions if the amount exceeds K 50,000 in any calendar year.
On capital market securities
Shares or other securities of a participating nature
Purchase abroad by residentsYes.
Bonds or other debt securities
Purchase abroad by residentsYes.
On money market instruments
Purchase abroad by residentsYes.
On collective investment securities
Purchase abroad by residentsYes.
Controls on derivatives and other instruments
Purchase abroad by residentsYes.
Controls on credit operations
Commercial credits
By residents to nonresidentsYes.
To residents from nonresidentsPermission is required for these credits; however, authorized foreign exchange dealers may approve offshore foreign currency borrowing by residents other than businesses involved in the forestry sector or mineral resources exploration, without limitation provided that the term is for not less than one year and that interest rates and fees do not exceed the levels specified by the BPNG. Repayment of principal is subject to a six-month moratorium, commencing on the date of disbursements. A maximum debt-to-equity ratio of 5:1 applies to net outstanding borrowing. In the case of a business involved in mineral resource exploration activities, inward investment is considered non-interest bearing equity or loan funds (including preference shares) until the business is successful, at which point any excess above the minimum equity-to-debt ratio specified for that operation can be converted into an interest-bearing loan.
Financial credits
By residents to nonresidentsYes.
To residents from nonresidentsYes.
Guarantees, sureties, and financial backup facilities
By residents to nonresidentsYes.
To residents from nonresidentsYes.
Controls on direct investment
Outward direct investmentYes.
Controls on liquidation of direct investmentProceeds may be transferred, provided that tax clearance certificates are produced.
Controls on real estate transactions
Purchase abroad by residentsYes.
Controls on personal capital movements
Transfer of gambling and prize earningsYes.
Provisions specific to commercial banks and other credit institutions
Borrowing abroadYes.
Maintenance of accounts abroadYes.
Lending to nonresidents (financial or commercial credits)Yes.
Lending locally in foreign exchangeSubject to presentation of commercial invoices for bona fide transactions.
Open foreign exchange position limitsYes.
Provisions specific to institutional investorsNo.
Other controls imposed by securities lawsNo.
Changes During 1999
Exports and export proceedsJune 30. The retention period for export proceeds was shortened to three months.

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