Significant interest

rate drop forecast for PNG banks

TfHE World Bank has

foreshadowed significant

drops in interest rates in Papua New Guinea by the end of the year, if not within the next 12 months, on the back of structural reforms and loan assistance the bank has earmarked for PNG.

The Bank’s resident representative Daniel Weise said in Lae the significant inflow of capital from the loans, totalling about K3BO million, will have a positive impact on the economy and the foreign exchange, allowing for the Central Bank to ease monetary policy.

Weise is confident the interest rates would fall by as much as 50 per cent.

He said inflation should also fall to record levels of five to six per cent within the same period.

Addressing a breakfast conference co hosted by the PNG Institute of Accountants’ Lae Branch and Westpac Bank, Weise said the drop in interest rates would be in both Treasury Bills as well as

lending rates.

The interest rates on Treasury Bill yields are currently at 23 per cent, and the indicator lending rates (ILR) by the commercial banks range between 18.5 per cent to 19.5 per cent.

“We can expect that under the reform package interest rates will fall significantly

and there will be more stability on the

foreign exchange,” Weise said.

A team from the Treasury Department is in Washington for negotiations with the World Bank on a loan for US$9O million.

Also tied to the World Bank’s approval

are loans from Japan (US$5O million),

Australia (US$2O million) and US$lO million from a third donor.

Weise said the PNG loan request would go before the Bank board on June 3 and if approved, PNG would get US$9O million.

Out of that, an equivalent of KIOI million would go towards direct budget assistance.

The World Bank has set a program for the release of the loan through three tranches.

The first US$35 million should arrive by the end of next month, followed by a US$2O million second tranche and the final US$35 million thereafter. Each of them is

tied to certain conditions.

The funds would only come if the Government is successful or shows serious commitment in meeting the conditions that the Bank has set.

Among them is the full privatisation of Finance Pacific Limited by the end of the month and strengthening the administration and operation of the Privatisation Commission.

The Bank would also want to see serious moves in place to prepare other public entities, including Telikom, Harbours Board and Electricity Commission for privatisation.

Weise said the Bank had not been happy with the way the commission was set up and the powers provided to the Minister, as well as laws and regulations for privatisation.

Apart from privatisation, the Bank also

wants to see the reforms in the superannuation or pension industry hastened.

“With the significant funding expected over the next six months, macroeconomic variables should improve, allowing the central bank to relax

monetary policy.”

Most commercial banks agree with the World Bank forecast for significant falls in interest rates, according to Westpac Bank managing director Simon Millet.

Millet, who was at the breakfast, also part of the bank’s 90th anniversary celebrations, reaffirmed Weises comments. (Post Courier) ■

For most ram Papua New Guineans, a fall in interest rates will have a minimal effect on their lifestyle