Chapter

PAPUA NEW GUINEA

Author(s):
International Monetary Fund. Monetary and Capital Markets Department
Published Date:
September 2004
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(Position as of December 31, 2003)
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 interbank market, in which authorized banks participate. The commercial banks, the only authorized foreign exchange dealers, publish rates for all current transactions with their customers within a maximum spread of 2% between the buying and selling rates.
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 operationsAuthorized dealers (ADs) may take out forward exchange cover among themselves or for their clients.
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.
Controls on the use of domestic currency
For capital transactions
Transactions in derivatives and other instrumentsThese transactions are unrestricted provided there is a real underlying transaction.
Use of foreign exchange among residentsResidents may not use foreign exchange for domestic transactions.
Payments arrangements
Regional arrangementsPapua New Guinea participates in the following arrangements: the Melanesian Spearhead Group Trade Agreement, PACER, PICTA, and APEC.
Administration of controlForeign exchange control is administered by the Bank of Papua New Guinea (BPNG) under the Central Banking Act (Foreign Exchange and Gold Regulation). 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 ADs in foreign exchange.
International security restrictions
In accordance with IMF Executive Board Decision No. 144-(52/51)Yes.
In accordance with UN sanctionsYes.
Payments arrears
OfficialYes.
PrivateYes.
Controls on trade in gold (coins and/or bullion)
Controls on domestic ownership and/or tradeResidents may trade gold freely within Papua New Guinea.
Controls on external tradeThe export of gold is restricted to licensed gold exporters. For the large mines, licenses are given in conjunction with relevant mining development agreements. For exports of alluvial gold, specific export licenses must be obtained from the BPNG.
Controls on exports and imports of banknotes
On exports
Domestic currencyBPNG approval is required for the export of domestic currency in excess of K 200 in banknotes or K 5 in coins, including those issued for numismatic purposes.
Foreign currencyVisitors are free to take out the amount of currency they brought in and declared on arrival in the same calendar year.
Resident Accounts
Foreign exchange accounts permittedYes.
Held domesticallyYes.
Approval requiredResident business entities are required to obtain BPNG approval, except for term deposits placed for a minimum of 90 days.
Held abroadThese accounts may be held abroad, but BPNG approval is required.
Accounts in domestic currency held abroadADs may hold such accounts under correspondent bank arrangements.
Accounts in domestic currency convertible into foreign currencyApproval from an AD or the BPNG is required where applicable.
Nonresident Accounts
Foreign exchange accounts permittedYes.
Approval requiredBPNG approval is required.
Domestic currency accountsYes.
Convertible into foreign currencyThese accounts may be converted, but approval from an AD or the BPNG is required where applicable.
Blocked accountsYes.
Imports and Import Payments
Foreign exchange budgetNo.
Financing requirements for importsNo.
Documentation requirements for release of foreign exchange for importsADs may approve applications for import transactions that are not subject to quotas or licensing requirements without referring to the BPNG. Payments exceeding K 5,000 require commercial invoices, shipping documents, and customs forms.
Letters of creditIssuance by ADs is subject to BPNG approval.
Import licenses and other nontariff measures
Negative listImports of a limited number of goods are restricted for reasons of health and security.
Licenses with quotasLicenses apply on certain products, including firearms, chemicals, and drugs.
Other nontariff measuresThese measures are applied to protect health and security.
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. Under a tariff reform program covering the period 1999–2006, import tariffs are gradually being reduced.
State import monopolyNo.
Exports and Export Proceeds
Repatriation requirementsThe retention period for export proceeds is six months.
Surrender requirementsExport proceeds must be sold to an AD within six months of the date of export.
Financing requirementsNo.
Documentation requirementsCustoms forms must be submitted to the BPNG or an AD after each shipment.
Preshipment inspectionYes.
Export licensesLicenses for exports other than gold are granted by the Department of Trade and Industry or the relevant government department or authority. Licenses for gold exports are granted only by the BPNG.
Without quotasLicenses are required for exports of logs, pearls, fishery and marine products, wood chips, sandalwood, rattan, coffee, cocoa, and copra. Log export licenses are issued based on minimum export price guidelines.
Export taxesExport taxes apply on logs, mineral products, and crocodile skins.
Payments for Invisible Transactions and Current Transfers
Controls on these transfersADs may approve payments and transfers up to the equivalent of K 500,000 a year for adult individuals and corporations with supporting documentation. Payments and transfers in excess of this amount must be referred to the BPNG. For amounts exceeding the equivalent of K 50,000 a year, a certificate of tax payment is required.
Trade-related payments
Prior approvalYes.
Quantitative limitsYes.
Indicative limits/bona fide testYes.
Investment-related paymentsThere are no restrictions on dividend and interest payments provided companies submit financial statements and tax clearance certificates.
Prior approvalPayments for the servicing of foreign debt require approval from the BPNG or an AD.
Quantitative limitsYes.
Iudicative limits/bona fide testYes.
Payments for travel
Prior approvalYes.
Quantitative limitsYes.
Indicative limits/bona fide testYes.
Personal payments
Prior approvalYes.
Quantitative limitsYes.
Indicative limits/bona fide testYes.
Foreign workers’ wages
Prior approvalYes.
Quantitative limitsYes.
Indicative limits/bona fide testYes.
Credit card use abroadCredits may be used only for travel and accommodation expenses.
Prior approvalYes.
Quantitative limitsYes.
Indicative limits/bona fide testYes.
Other payments
Prior approvalYes.
Quantitative limitsYes.
Indicative limits/bona fide testYes.
Proceeds from Invisible Transactions and Current Transfers
Repatriation requirementsYes.
Surrender requirementsProceeds must be converted into domestic currency upon receipt.
Restrictions on use of fundsApproval is required for use of foreign currency proceeds other than those sold to an AD in Papua New Guinea.
Capital Transactions
Controls on capital transactionsNo controls apply to the terms of external borrowing. However, borrowers must comply with gearing ratios.
Controls on capital and money market instrumentsAlthough there are no controls on inward portfolio investment, large amounts must be reported to the BPNG. ADs may approve outward investments by resident individuals and corporations up to the equivalent of K 500,000 a year; investments in excess of this limit require the approval of the BPNG. Income from these investments must be repatriated to Papua New Guinea as soon as it is 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 securitiesThe transfer of a Papua New Guinea security to a foreign resident requires prior BPNG approval.
Shares or other securities of a participating nature
Purchase locally by nonresidentsApproval is required to repatriate principal and earnings from abroad.
Sale or issue locally by nonresidentsYes.
Purchase abroad by residentsYes.
Sale or issue abroad by residentsYes.
Bonds or other debt securities
Purchase locally by nonresidentsApproval is required to repatriate principal and earnings from abroad.
Sale or issue locally by nonresidentsYes.
Purchase abroad by residentsThese transactions require approval.
On money market instruments
Purchase locally by nonresidentsApproval is required to repatriate principal and earnings from abroad.
Sale or issue locally by nonresidentsApproval is required to remit proceeds abroad or to repatriate capital from abroad.
Purchase abroad by residentsYes.
Sale or issue abroad by residentsThese transactions require approval.
On collective investment securities
Purchase locally by nonresidentsApproval is required to repatriate principal and earnings from abroad.
Purchase abroad by residentsYes.
Controls on derivatives and other instrumentsDerivatives must be based on a real underlying transaction and are subject to exchange control rules.
Purchase locally by nonresidentsApproval is required for payments overseas.
Sale or issue locally by nonresidentsApproval is required for payments overseas.
Purchase abroad by residentsYes.
Sale or issue abroad by residentsApproval is required for payments overseas.
Controls on credit operationsThere are controls on all credit operations.
Commercial creditsShort-term credits with less than a one-month maturity are not actively regulated.
By residents to nonresidentsYes.
To residents from nonresidentsPermission is required for these credits; however, ADs may approve amounts up to the equivalent of K 5 million from offshore sources and lend to residents for businesses not involved in the forestry sector (logging) or the mineral and gas sectors, provided that the term is for a minimum of one year and that interest rates and fees do not exceed the levels acceptable to the BPNG. Repayment of the 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 borrowing by companies other than those in the forestry, mining, petroleum, and gas sectors. In the case of a business involved in resource exploration activities, inward investment is considered non–interest bearing equity or loan funds (including preferred shares) until exploration reaches commercial development stage, at which time any excess above the 5:1 equity-to-debt ratio must be converted into an interest-bearing loan.
Financial credits
By residents to nonresidentsYes.
To residents from nonresidentsYes.
Guarantees, sureties, and financial backup facilitiesApproval is required.
By residents to nonresidentsYes.
To residents from nonresidentsYes.
Controls on direct investment
Outward direct investmentYes.
Inward direct investmentApproval is required to repatriate capital.
Controls on liquidation of direct investmentThe transfer of proceeds abroad requires BPNG approval.
Controls on real estate transactions
Purchase abroad by residentsApproval is required.
Sale locally by nonresidentsRepatriation of funds from abroad requires approval.
Controls on personal capital transactions
Loans
By residents to nonresidentsYes.
To residents from nonresidentsYes.
Settlement of debts abroad by immigrantsYes.
Transfer of assets
Transfer abroad by emigrantsYes.
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 exchangeThese transactions are subject to BPNG approval.
Purchase of locally issued securities denominated in foreign exchangeSecurities denominated in foreign exchange may not be issued locally.
Investment regulations
Abroad by banksApproval is required.
In banks by nonresidentsApproval is required for the repatriation of capital.
Open foreign exchange position limits
On resident assets and liabilitiesForeign currency exposure limits against capital are 15% of a bank’s total capital in all currencies and 10% of a single currency.
Provisions specific to institutional investors
Limits (max.) on securities issued by nonresidentsYes.
Limits (max.) on investment portfolio held abroadYes.
Limits (min.) on investment portfolio held locallyYes.
Currency-matching regulations on assets/liabilities compositionYes.
Other controls imposed by securities lawsYes.
Changes During 2003
No significant changes occurred in the exchange and trade system.

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