The majority of PNG's foreign exchange earnings come from the export of minerals, oil, and gas, which is the foundation of the nation's economy. However, variations in the price of commodities globally and unanticipated shifts in the world's demand might result in lower export revenues, which exacerbates shortages of foreign currency. The majority of the country's operating income, according to the Bank of Papua New Guinea's (Central Bank) 2016 annual report, comes from interest on investments in government securities as well as fees and commissions on foreign exchange trading. Furthermore, PNG's economy is heavily dependent on the export of primary commodities, which can make the economy vulnerable to fluctuations in global commodity prices. However, the government has to step in to impose the tax based on importing because, because the country imports a lot more than it exports, the Central Bank is unable to have an excess of foreign exchange reserves.
PNG's reliance on imports is significant when it comes to fulfilling its internal need for products and services, especially for essentials like food and medication. This means that the country must constantly import goods, leading to a depletion of foreign currency reserves. According to the Bank of PNG (2020), “Papua New Guinea’s foreign exchange reserves have been declining in recent years, due in part to the country's high import bill." This means that the more money that is spent on imports, the more it can lead to a lack of foreign currency. For instance, in 2020, the country's foreign exchange reserves dropped to $7.7 billion, which is not enough to cover more than three months of imports. The country's heavy reliance on imported goods, particularly food and fuel, has contributed to the foreign exchange shortage. According to the report of the PNG National Statistics Office 2020, “the country imported 90% of its food requirements in 2019, which put pressure on the foreign exchange reserves." Nevertheless, the PNG government should impose a tariff tax to minimize importing to gain more foreign currency, which, on the other hand, causes the downfall of the country’s economy. However, import dependence can have significant economic implications for PNG, as it can limit the country's ability to import goods and services that are essential for its economic growth and development.
The consequences of deficient foreign exchange on global
trade:
In addition, there are many implications of a foreign exchange shortage on the global market, but the above-mentioned and here the other two of them—the increased cost of imports and decreased investment—are some of them. An increased cost of import is when Papua New Guinea’s export earnings reduce when there is a shortage of foreign exchange and, on the other hand, a decrease in investment. If our country does not have enough foreign exchange reserves, it discourages businesses and investors from investing in the country because of the unstable currency market. However, these consequences can only happen or affect international trade when there is mismanagement or a shortage of foreign exchange.
In summation, non-native exchange shortages and their effects on global commerce may be attributed to a variety of variables. The scarcity of Papua has dramatically affected the country's exports since exporters are having trouble obtaining foreign cash while importers are postponing or canceling purchases. The outcome has been a decline in trade volume, which has lowered living standards and resulted in financial losses for many Papua New Guineans. These shortages have also affected other economic sectors since the mining and tourism industries depend so heavily on foreign currency. To stabilize the financial system and persuade investors that the country's economy is stable, the government must act swiftly to address this issue.
