With the recent announcement of $US19 billion (K52 billion) ExxonMobil led gas project ahead of schedule, experts at the international monetary fund (IMF) expect the kina to appreciate sharply, hurting traditional exporters and rural population.
The analysis was made in the IMF country report.
While acknowledging that sharp appreciation of the Kina as LNG revenues begin to flow may help to reduce imported inflation and overheating pressures, the report says that the authorities are also conscious of its distribution implications.
“Whereas inflation impacts particularly on the urban poor, kina appreciation is particularly damaging to rural citizens relying on export cash crops, such as coffee, cocoa and copra.
“With 85 per cent of the population living in rural areas with limited alternative sources of income, the impact of kina appreciation is likely to be widespread.
“Moreover, kina appreciation will exacerbate the challenges of developing the non-minerals sector in order to diversify the economy” the report says
The report further states that whilst the authorities do not target a specific exchange rate, experts at IMF are concerned that a rapid kina appreciation will hurt traditional exporters and the rural population.
IMF therefore favors a more gradual exchange rate adjustment according to the report.