Annual Report on Exchange Arrangements and Exchange Restrictions 2005
Chapter

PAPUA NEW GUINEA

Author(s):
International Monetary Fund. Monetary and Capital Markets Department
Published Date:
September 2005
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(Position as of June 30, 2005)

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 engage in forward cover transactions with the commercial banks at market-determined rates. Each commercial bank is subject to a prudential limit on its uncovered forward position. ADs may engage in forward cover for themselves or on behalf of customers.
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 power to the ADs, which have been authorized to deal in foreign exchange transactions. Effective June 1, 2005, all current account transactions, all government capital account transactions, and all foreign exchange flows arising from approved private capital account contracts or agreements are exempted from obtaining an exchange control authority from the BPNG or from an AD. These exemptions are subject to reporting requirements to the BPNG and tax clearance requirements.
International security restrictions
In accordance with IMF Executive Board Decision No. 144-(52/51)Yes.
In accordance with UN sanctionsYes.
Payments arrearsNo.
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 tradeExports of gold require licenses 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. Residents may take out foreign currency exceeding the equivalent of K 10,000 with BPNG approval.
Resident Accounts
Foreign exchange accounts permittedYes.
Held domesticallyYes.
Approval requiredADs may open accounts for individuals, subject to meeting exchange control requirements. Resident business entities are required to obtain BPNG approval.
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 requiredADs may approve these accounts subject to observance of exchange control requirements.
Domestic currency accountsYes.
Convertible into foreign currencyApproval from an AD or the BPNG is required where applicable.
Blocked accountsYes.
Imports and Import Payments
Foreign exchange budgetNo.
Financing requirements for importsADs may provide trade finance for any amount subject to compliance with BPNG reporting requirements.
Advance import depositsBPNG approval is required.
Documentation requirements for release of foreign exchange for importsExcept for advance deposits, ADs may approve applications for import payments without referring to the BPNG. Payments exceeding K 5,000 require commercial invoices, shipping documents, and customs forms.
Letters of creditBPNG approval is required for ADs to issue LCs to residents. BPNG approval is not required where such credits originate from nonresidents in favor of resident ADs.
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 tariffsA seven-year tariff reform program commenced in July 1999. There are four major ad valorem tariff rates (zero, 20%, 30%, and 45%) and some additional specific tariff rates. Under the tariff reform program, tariff rates are to be reduced a further five percentage points to final rates of 15%, 25%, and 40% in January 2006. Effective January 1, 2004, a 12-month temporary levy of 2% was imposed on imports, except imports by petroleum and mining companies, church and charitable groups, and imports of pharmaceutical and medical goods.
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, unless the BPNG authorizes otherwise.
Financing requirementsNo.
Documentation requirementsCustoms documentation must be submitted to the BPNG or an AD after each shipment.
Preshipment inspectionYes.
Export licensesGold exports require licenses from 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 ores and concentrates (except gold, silver, and copper), sandalwood, and crocodile skins.
Payments for Invisible Transactions and Current Transfers
Controls on these transfersEffective June 1, 2005, all current account transactions are exempted from obtaining exchange control authorization from the BPNG or ADs. Previously, ADs could approve current 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 were referred to the BPNG. For amounts exceeding the equivalent of K 50,000 a year, a certificate of tax payment was required.
Trade-related payments
Prior approvalYes.
Indicative limits/bona fide testYes.
Investment-related paymentsDividend and interest payments are approved, provided that companies submit financial statements, tax clearance certificates, and exchange control reporting forms.
Prior approvalService payments on foreign debts require BPNG or AD approval.
Quantitative limitsYes.
Indicative 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 abroadCredit cards may be used only for travel and travel-related 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 requirementsNo controls apply on invisible receipts and transfers, except for BPNG reporting requirements.
Surrender requirementsProceeds must be converted into domestic currency upon receipt.
Restrictions on use of fundsNo.
Capital Transactions
Controls on capital transactionsEffective June 1, 2005, all government capital account transactions and all foreign exchange flows arising from approved private capital contracts or agreements are exempted from obtaining exchange control authorization from the BPNG or from an AD. Previously, an AD or the BPNG could approve any amount of principal repayment. However, cumulative remittances by ADs of amounts in excess of K 500,000 or its equivalent required prior BNPG approval. A tax clearance was required for remittances of loan principal or other capital in excess of K 500,000 or its equivalent.
Controls on capital and money market instrumentsAlthough there are no controls on inward portfolio investment, they must be reported to the BPNG.
On capital market securitiesBPNG approval is required to transfer to or purchase a capital market security listed on a foreign stock exchange. The transfer of a security from a PNG register to a foreign register also requires prior BPNG approval.
Shares or other securities of a participating natureControls apply to all these transactions. Approval is required for the purchase, disposal, or transfer of such securities.
Bonds or other debt securitiesControls apply to all these transactions except sale or issue abroad by residents. Approval is required for the purchase, disposal, or transfer of such securities.
On money market instrumentsControls apply to all these transactions. Approval is required for the purchase, disposal, or transfer of such securities.
On collective investment securitiesApproval is required for the purchase, disposal, or transfer of such securities.
Purchase locally by nonresidentsYes.
Purchase abroad by residentsYes.
Controls on derivatives and other instrumentsTransactions in derivatives and other instruments and related payments overseas require approval.
Controls on credit operationsNo controls apply to the terms of external borrowing. However, borrowers must obtain authorization to borrow and comply with BPNG’s gearing ratios.
Commercial creditsShort-term credits with less than a one-month maturity are not actively regulated. Effective September 6, 2004, lending to companies controlled by nonresidents is liberalized.
By residents to nonresidentsYes.
To residents from nonresidentsADs may approve credit amounts in foreign currency up to the equivalent of K 5 million. BPNG approval is required for higher amounts. In either case, interest rates and fees can not exceed the levels acceptable to the BPNG. The maturity of the loan can not be less than 12 months and the gearing ratio of 5:1 must be observed. Logging, mining, petroleum, and gas companies must comply with the same requirements, except that they must observe a gearing ratio of 3:1.
Financial credits
By residents to nonresidentsYes.
To residents from nonresidentsThe rules on commercial credits apply. In addition, inward capital for exploration activities is considered risk capital and non–interest bearing until exploration reaches the commercial development stage, at which time any excess above the 3:1 gearing ratio is converted into an interest-bearing loan.
Guarantees, sureties, and financial backup facilities
By residents to nonresidentsApproval is required for guarantees that may involve a payment by a resident to a nonresident outside Papua New Guinea or to an account of a resident held on behalf of a nonresident.
To residents from nonresidentsApproval is required where a resident is required to pay a guarantee and other fees.
Controls on direct investmentApproval is required for inward and outward investments.
Outward direct investmentYes.
Inward direct investmentYes.
Controls on liquidation of direct investmentApproval is required for the sale of an investment to a nonresident, or its liquidation, and for the remittance of proceeds abroad.
Controls on real estate transactionsApproval is required for real estate transactions.
Purchase abroad by residentsYes.
Sale locally by nonresidentsRepatriation of funds from abroad requires approval.
Controls on personal capital transactionsApproval is required for personal capital transactions.
Loans
By residents to nonresidentsYes.
To residents from nonresidentsYes.
Settlement of debts abroad by immigrantsAD or BPNG approval is required for remittances to settle immigrants’ debts abroad.
Transfer of assetsTransfers of assets between residents and nonresidents require AD or BPNG approval.
Transfer abroad by emigrantsYes.
Transfer of gambling and prize earningsApproval is required for transfers abroad.
Provisions specific to commercial banks and other credit institutions
Borrowing abroadApproval is required. The requirements on gearing and maturity of borrowing by other resident individuals and entities apply.
Maintenance of accounts abroadAccounts that are not nostro or vostro accounts require approval.
Lending to nonresidents (financial or commercial credits)Bank lending to companies controlled by nonresidents is liberalized.
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.
Differential treatment of deposit accounts held by nonresidentsThough ADs are required to distinguish between resident and nonresident accounts, no differential treatment is applied.
Investment regulations
Abroad by banksApproval is required.
In banks by nonresidentsApproval is required for nonresidents to invest in local banks.
Open foreign exchange position limits
On resident assets and liabilitiesForeign currency exposure limits are 15% of capital for all currencies combined and 10% of capital for a single currency.
Provisions specific to institutional investorsIn general, institutional investors are required to meet interest rate and gearing requirements.
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 lawsApproval is required to deal in any type of security. Tax clearance is required for the remittance of funds from the sale (or liquidation) of investments or assets in Papua New Guinea.
Changes During 2004
Imports and import paymentsJanuary 1. A 12-month temporary levy of 2% was imposed on imports, except imports by petroleum and mining companies, churches and charitable groups, and imports of pharmaceutical and medical goods.
Capital transactions
Controls on credit operationsSeptember 6. Commercial credits to resident companies controlled by nonresidents were liberalized.
Changes During 2005
Arrangements for payments and receiptsJune 1. All current account transactions, all government capital account transactions, and all foreign exchange flows arising from approved private capital account contracts or agreements were exempted from obtaining an exchange control authorization from the BPNG or from an AD. These exemptions remained subject to reporting requirements of the BPNG and tax clearance requirements.
Payments for invisible transactions and current transfersJune 1. All current account transactions were exempted from obtaining exchange control authorization from the BPNG or from ADs.
Capital transactionsJune 1. All government capital account transactions and all foreign exchange flows arising from approved private capital contracts or agreements were exempted from obtaining exchange control authorization from the BPNG or from ADs.

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