The shortage of US dollars is the top concern of Papua New Guinea business leaders, according to a recent survey by Business Advantage Papua New Guinea, a local news provider. Up to 1.2 billion kinas ($490 million) in foreign exchange transactions was estimated to be awaiting clearance at the central bank, it said. But analysts warn that securing an IFC loan will not solve Papua New Guinea's financial difficulties or even its foreign exchange problems. "The IFC loan is a Band Aid," said Paul Flanagan, a former senior Australian and Papua New Guinea Treasury official. He said part of the dollar liquidity problem stemmed from a June 2014 decision by the central bank to intervene in the market to tackle what it claimed was "profiteering" by foreign exchange dealers. It set a trading range for the kina that led it to appreciate by about 17 per cent - a move he claims was not supported by economic fundamentals. "Only a more rapid depreciation of the currency or a rise in business confidence among local businesses and foreign investors is likely to lead to increases in supply of foreign currency," said Mr Flanagan. Business confidence has been rocked by a sharp fall in oil prices, which has dented state revenues that had been expected to flow after ExxonMobil's liquefied natural gas plant came on stream in 2014. Political instability linked to a corruption investigation into Peter O'Neill, Papua New Guinea's prime minister, is denting sentiment, adding to other economic concerns. Aid agencies say the worst drought since 1997 has hit farmers and led to malnutrition in remote areas, although the government has denied reports of widespread deaths. A lack of water temporarily closed the OK Tedi gold and copper mine, hitting government revenues. "The situation is very difficult, particularly in remote areas where a lack of rain has led to food shortages and malnutrition," said Barbara Jackson, humanitarian director of Care International, who recently returned from Papua New Guinea. The budget deficit increased to K2,142.5 million in the 10 months to October 2015, compared with K1,834.2 million in the same period the year before, according to Papua New Guinea's central bank. The Asian Development Bank is forecasting annual growth to slow to 2.4 per cent by 2017, far below the 13.3 per cent rate hit in 2014. Big budget cuts proposed in the country's 2016 budget would reduce government expenditure to 23 per cent of gross domestic product by 2020, from 30 per cent in 2015. But a looming election due next year may hamper the implementation of savage cuts of up to 40 per cent in health and 23 per cent in education, analysts say. Papua New Guinea also faces mounting debt-servicing costs, which are expected to rise to 10 per cent of government spending this year, and a K3 billion bill over the next three years on preparations to host the Asia-Pacific Economic Co-operation summit in 2018 in Port Moresby. "Fiscal management is a challenge," said Yurendra Basnett, ADB economist. "It would be a gross underestimation to say that the coalescing of the structural shift in the LNG project, commodities downturn and impact of weather - on agriculture and closure of mines - was not going to produce severe challenges."
Papua New Guinea's warns that its government revenues for 2015 came in 21% below expectations due to an oil price slump, the worst drought since 1997 and ballooning budget deficit, resulting in the country seeking a IFC loan of $ 23 per cent m to tackle its financial crisis. However, analysts warn that securing an World Bank loan will not solve Papua New Guinea financial problems.