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Pacific Islands Development Program, East-West Center

With Support From Center for Pacific Islands Studies, University of Hawai‘i


PM Calls To Centralize PNG Government Trust Accounts
‘Millions’ in commercial banks putting pressure on economy

PORT MORESBY, Papua New Guinea (The National, Nov. 26, 2012) – Prime Minister Peter O’Neill wants all government trust accounts held in commercial banks to be transferred to Papua New Guinea's Central Bank to soak up excess liquidity in the banking system which is putting inflationary pressure on the economy.

O’Neill said in a statement yesterday he had written to Treasury Minister Don Polye directing the move and had also asked for details of interest earned from these trust accounts held in commercial banks and where the interest earned had been spent.

"I would imagine millions of kina in interest earned from these accounts, yet the government has not been informed of where and how they have been used," O’Neill said in his letter.

O’Neill said he had met and discussed the centralization of government accounts with Central Bank Governor Loi Bakani. He wants Polye to get Treasury to work towards this before the 2013 fiscal year begins.

"Most of the trust accounts operated by the government for projects and procurement of essential goods are held at commercial banks. Some are held at the Central Bank.

"These accounts hold hundreds of millions of kina, and the concern is that this contributes to the excess liquidity in the system," O’Neill said.

Excess liquidity puts upward pressure on the economy, and causes interest rates and inflation to rise.

In recent times, the Central Bank has used its monetary policy to intervene in the market to ease the pressure. But O’Neill believes the government can act decisively to mitigate the risks by transferring the trust accounts to the Central Bank where there will be effective management of cash flow and foreign exchange risks. In his letter to Polye, O’Neill emphasized that with most of the budget deficit in the 2013 national budget to be financed domestically through treasury bills and inscribed stocks and so the need to manage cash flow was absolutely imperative. Inscribed stocks are fixed term interest bearing investments in which ownership information is recorded and a means of domestic borrowing for the government.

The Bank of PNG website say auctions of government inscribed stocks are conducted on the second Tuesday of each month.

The National: www.thenational.com.pg/
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