Annual Report on Exchange Arrangements and Exchange Restrictions, 2007
Chapter

PAPUA NEW GUINEA

Author(s):
International Monetary Fund. Monetary and Capital Markets Department
Published Date:
October 2007
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(Position as of January 31, 2007)

Status under IMF Articles of Agreement
Article VIIIDate of acceptance: December 4, 1975.
Exchange Measures
Restrictions and/or multiple currency practicesNo restrictions as reported in the latest staff report as of December 31, 2006.
International security restrictions
In accordance with IMF Executive Board Decision No. 144-(52/51)Yes.
Other security restrictionsYes.
References to legal instruments and hyperlinksn.a.
Exchange Arrangement
CurrencyThe currency of Papua New Guinea is the Papua New Guinea kina.
Exchange rate structureUnitary.
Classification
Managed floating with no predetermined path for the exchange rateThe exchange rate of the kina is determined in the interbank market, in which ADs participate. Commercial banks, the only authorized foreign exchange dealers, publish rates for all transactions with their customers and set their own spreads between the buying and selling rates. The Bank of Papua New Guinea (BPNG) intervenes in the foreign exchange market to smooth out exchange rate volatility.
Exchange taxNo.
Exchange subsidyNo.
Forward exchange marketExporters and importers are free to engage in forward cover transactions with 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.
References to legal instruments and hyperlinksn.a.
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 the foreign currency. Export proceeds may be received in any foreign currency.
Use of foreign exchange among residentsResidents may not use foreign exchange for domestic transactions.
Payments arrangements
Bilateral payments arrangements
OperativeThere is a bilateral agreement with Fiji.
Regional arrangementsPapua New Guinea participates in the following arrangements: the Melanesian Spearhead Group Trade Agreement, PACER, PICTA, Economic Partnership Agreement with the EU (EPA), and APEC.
Administration of controlForeign exchange controls are administered by the 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 carry out foreign exchange transactions. 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 of the BPNG and tax clearance requirements.
Payments arrearsNo.
Controls on trade in gold (coins and/or bullion)Dealings in gold are regulated by exchange controls.
On domestic ownership and/or tradeResidents may trade gold freely within Papua New Guinea.
On external tradeThe export of gold requires an export license from the BPNG.
Controls on exports and imports of banknotes
On exports
Domestic currencyBPNG approval is required for residents and nonresidents to take out kina in notes and coins in excess of K 20,000. BPNG approval is also required for the export of notes and coins for numismatic purposes.
Foreign currencyResidents and nonresidents may take out the foreign currency equivalent to K 20,000 in notes and coins with BPNG approval.
References to legal instruments and hyperlinksn.a.
Resident Accounts
Foreign exchange accounts permittedYes.
Held domesticallyYes.
Approval requiredForeign exchange accounts may be opened with an AD without BPNG approval.
Held abroadThese accounts may be held abroad, but BPNG approval is required.
Approval requiredYes.
Accounts in domestic currency held abroadADs may hold such accounts under correspondent bank arrangements. BPNG approval is required for other residents to operate kina accounts abroad.
Accounts in domestic currency convertible into foreign currencyApproval from an AD or the BPNG is required only for accounts held abroad in domestic currency.
References to legal instruments and hyperlinksn.a.
Nonresident Accounts
Foreign exchange accounts permittedYes.
Domestic currency accountsADs may open these accounts subject to observance of exchange control requirements.
Convertible into foreign currencyApproval from an AD or the BPNG is not required.
Blocked accountsNo.
References to legal instruments and hyperlinksn.a.
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 not required.
Documentation requirements for release of foreign exchange for importsADs may process import payments without reference to the BPNG. Payments exceeding K 10,000 or its equivalent require summary commercial invoices and customs forms.
Letters of creditBPNG approval is required for ADs to issue LCs in favor of nonresidents as guarantees. BPNG approval is not required when such credits originate from nonresidents in favor of residents.
Import licenses and other nontariff measures
Negative listImports of a selected number of goods are restricted for reasons of health and security.
Other nontariff measuresThe purpose of these measures is to restrict or prohibit the importation of certain goods to protect health, security, and morals.
Import taxes and/or tariffsThe seven-year tariff reform program commenced in July 1999 was completed. There are four major ad valorem tariff rates (zero, 15%, 25%, and 40%) and some additional specific tariff rates such as 70% on sugar and 20% on mackerel. Effective January 1, 2007, to assist local industries, the following measures were introduced: (1) the tariff on canned dark tuna meat increased to 20%. Previously, all canned tuna was subject to a 15% tariff. This measure is set to end December 31, 2007; (2) the 20% tariff on canned mackerel (a specific tariff), which was supposed to end December 31, 2010, has been extended to December 31, 2011; and (3) the tariff on canned baked beans increased to 25%. Previously, all baked beans were subject to a zero tariff. This measure is set to end December 31, 2007.
State import monopolyA state import monopoly applies to the importation of military equipment.
References to legal instruments and hyperlinksn.a.
Exports and Export Proceeds
Repatriation requirementsNo.
Financing requirementsNo.
Documentation requirementsCustoms documentation must be submitted to an AD after each shipment.
Export licensesGold exports require export 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 taxes
Other export taxesExport taxes apply on logs, mineral ores and concentrates (except gold, silver, and copper), sandalwood, and crocodile skins. Effective January 1, 2007, the export tax on logs has become a flat rate of 28.5%. The previously progressive export tax rate schedule as a function of the dollar value of logs was abolished to avoid “bracket creeping,” as the value of the kina was appreciating. An export development levy of K 8.00 a cubic meter of logs exported was charged and will be paid to the landowners.
References to legal instruments and hyperlinksn.a.
Payments for Invisible Transactions and Current Transfers
Controls on these transfersAll current account transactions are exempt from exchange controls and can be effected without limit. A remittance to a nontax haven in excess of K 200,000 requires a taxation clearance certificate (TCC), where applicable. BPNG reporting requirements must be complied with for all current account transactions, where applicable.
Trade-related payments
Indicative limits/bona fide testYes.
Investment-related paymentsDividends and interest can be remitted through an AD, subject to the provision of a TCC for payments in excess of K 200,000 (or the foreign currency equivalent) and balance of payments reporting forms.
Prior approvalService payments on foreign debts may be conducted through an AD.
Indicative limits/bona fide testYes.
Payments for travel
Indicative limits/bona fide testYes.
Personal payments
Indicative limits/bona fide testYes.
Foreign workers’ wages
Indicative limits/bona fide testYes.
Credit card use abroadCredit cards may be used only for travel and travel-related expenses.
Indicative limits/bona fide testYes.
Other payments
Indicative limits/bona fide testYes.
References to legal instruments and hyperlinksn.a.
Proceeds from Invisible Transactions and Current Transfers
Repatriation requirementsNo controls apply on invisible receipts and transfers, except for BPNG reporting requirements.
Surrender requirementsProceeds may be converted into domestic currency on receipt or maintained in a foreign currency account with an AD or an approved foreign currency account overseas.
Restrictions on use of fundsNo.
References to legal instruments and hyperlinksn.a.
Capital Transactions
Controls on capital transactionsAll government capital account transactions and all foreign exchange flows arising from approved private capital contracts or agreements are exempted from exchange controls. All private capital account contracts in writing must be approved by the BPNG.
Repatriation requirementsAll inflows from approved contracts were liberalized. Funds can be converted into kina or kept in foreign currency accounts in Papua New Guinea or approved foreign currency accounts overseas.
Controls on capital and money market instruments
On capital market securitiesBPNG approval is required to purchase or sell a capital market security, provided there is an underlying written agreement. The transfer of a security from a domestic register to a foreign register does not require prior BPNG approval.
Shares or other securities of a participating natureApproval is required to deal in any type of security, provided there is an underlying written agreement, except for the transfer of such securities. A TCC is required for the remittance of funds from the sale (or liquidation) of investments or assets in Papua New Guinea, where applicable.
Bonds or other debt securitiesApproval is required for the purchase or disposal of such securities, provided there is an underlying written agreement.
On money market instrumentsApproval is required for the purchase or disposal of such securities, provided there is an underlying written agreement.
On collective investment securitiesApproval is required for the purchase or disposal of such securities, provided there is an underlying written agreement.
Controls on derivatives and other instrumentsTransactions in derivatives and other similar instruments to acquire or deal with an asset located within or outside Papua New Guinea require BPNG approval, provided there is an underlying written agreement.
Controls on credit operationsBorrowers must obtain authorization to borrow and comply with BPNG’s requirements on gearing ratios and the terms of borrowing.
Commercial creditsShort-term credits with less than a one-month maturity are not actively regulated.
By residents to nonresidentsYes.
To residents from nonresidentsBPNG approval is required to borrow from overseas residents. Interest rates and fees may not exceed the levels acceptable to the BPNG. The maturity of the loan may 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 the first three must comply with the 3:1 gearing ratio and gas companies must comply with the 4:1 gearing ratio.
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, where applicable.
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 when a resident is required to pay a guarantee and other fees.
Controls on direct investmentApproval is required for inward and outward investments, provided there is an underlying written agreement.
Controls on liquidation of direct investmentApproval is required for the sale of an investment to a nonresident or its liquidation, provided there is an underlying written agreement.
Controls on real estate transactionsApproval is required for real estate transactions, provided there is an underlying written agreement.
Purchase abroad by residentsYes.
Purchase locally by nonresidentsPrior approval is required for debt and equity capital for such purchases, provided there is an underlying written agreement.
Sale locally by nonresidentsPrior approval is required for debt and equity capital for such sales, provided there is an underlying written agreement. Repatriation of funds does not require approval.
Controls on personal capital transactionsApproval is required for personal capital transactions, provided there is an underlying written agreement.
LoansControls apply to all these transactions.
Settlements of debts abroad by immigrantsBPNG approval is required for remittances to settle immigrants’ debts abroad, provided there is an underlying written agreement.
Transfer of assetsTransfers of assets between residents and nonresidents require BPNG approval, provided there is an underlying written agreement.
Transfer abroad by emigrantsYes.
References to legal instruments and hyperlinksn.a.
Provisions Specific to the Financial Sector
Provisions specific to commercial banks and other credit institutions
Borrowing abroadApproval is required, provided there is an underlying written agreement. The requirements on gearing ratios and terms of borrowing by other residents apply.
Maintenance of accounts abroadAccounts that are not nostro or vostro accounts require BPNG 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, and settlement must be in kina.
Purchase of locally issued securities denominated in foreign exchangeSecurities denominated in foreign exchange may not be issued locally, except with exchange authority approval, provided there is an underlying written agreement.
Differential treatment of deposit accounts in foreign exchange
Credit controlsn.a.
Differential treatment of deposit accounts held by nonresidentsADs are required to distinguish between resident and nonresident accounts; however, no differential treatment is applied.
Credit controlsn.a.
Investment regulations
Abroad by banksApproval is required, provided there is an underlying written agreement.
In banks by nonresidentsApproval is required for nonresidents to invest in local banks, provided there is an underlying written agreement.
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.
On nonresident assets and liabilitiesn.a.
Provisions specific to institutional investorsIn general, institutional investors are required to meet the interest rate and gearing ratio for the purpose of exchange controls, as well as prudential requirements.
Insurance companies
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.
Pension fundsPension funds are required to maintain a balanced portfolio.
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 compositionn.a.
Investment firms and collective investment fundsn.a.
References to legal instruments and hyperlinksLife Insurance Act of 2000 and the Superannuation (General Provisions) Act of 2000.
Changes during 2006
No significant changes occurred in the exchange and trade system.
Changes during 2007
Imports and import paymentsJanuary 1. To assist local industries, the following measures were introduced: (1) the tariff on canned dark tuna meat increased to 20% from 15%. This measure is supposed to end December 31, 2007; (2) the 20% tariff on canned mackerel (a specific tariff), which was supposed to end December 31, 2010, has been extended to December 31, 2011; and (3) the tariff on canned baked beans increased to 25% from zero. This measure is supposed to end December 31, 2007.
Exports and export proceedsJanuary 1. The export tax on logs became a flat rate of 28.5%. The previous progressive export tax rate schedule as a function of the dollar value of logs was abolished to avoid “bracket creeping,” as the value of the kina was appreciating. An export development levy of K 8.00 a cubic meter of logs exported was charged and would be paid to the landowners.

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