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Cash confusion – the K570 million windfall the PNG govt ignored

Paul FlanaganPAUL FLANAGAN | PNG Economics | Edited

CANBERRA – Papua New Guinea is reported to have a cash crisis and this is having dire effect on both its economy and society.

A leaked central bank email in late February highlighted the difficulties in finding the cash to pay public servants. The response to the recent PNG earthquake has been hampered by a lack of cash for relief operation centres. Departments have been locked out of their offices due to non-payment of rents.

But in the context of this cash crisis, an extraordinary fact has emerged.

On 7 March the PNG government turned down K300 million in cash offered to it by the private sector. On 14 March – last Wednesday - it turned down another K270 million.

Extraordinary treasury bill oversubscriptionsThese were funds offered through the weekly Treasury Bill auction less the amount the government actually accepted.

This K570 million excess funding (an ‘oversubscription’) by PNG’s banks, financial institutions and superannuation funds is unprecedented.

And it represented an opportunity to collect some scarce cash to pay bills and help meet the needs of the disastrous earthquake.

It seems this opportunity has been squandered.

Someone should be held accountable for such decisions – probably the Secretary of the Treasury and, if he informed the Treasurer, the Treasurer himself.

My view is that the O’Neill government has been facing a major cash crisis caused by poor fiscal policy with a continuation of the worst deficits in PNG’s history. The government’s way out was a compliant central bank governor willing to ‘print money’ - a very dangerous course for PNG.

The Treasury Bill auction results indicated the private sector was offering a partial way out of the cash crisis without printing money.

But for reasons that should be provided but have not, the O’Neill government decided not to accept up to K570m in extra cash financing.

What will the government do tomorrow if the opportunity is offered again?

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