Economist says PNG central bank risks soaring inflation

3:32 pm on 20 December 2016

An Australian economist says the Papua New Guinea central bank is risking serious inflation by effectively printing money.

Papua New Guinea Kina.

Papua New Guinea Kina. Photo: RNZI

The Australian National University's Paul Flanagan, who used to worked with the PNG Treasury, said the Bank of PNG is buying up surplus government securities that could not find a buyer on the open market.

He said the impact of this is inflationary and threatens to overheat the economy which will drive foreign investors away and the government needs to be more transparent.

"It is a circumstance where international lenders will be very very cautious if they don't understand their risks, if there isn't transparency and if there is a risk of high inflation, forcing down the exchange rate - because that is another consequence. This will make it so much harder for them ever to finance a sovereign bond."

Mr Flanagan said the latest figures made available only go to June and it is not known what actions the central bank has taken in the subsequent six months.

He also said it would be mistake for the government to go ahead with its plans to drop the new taxes outlined in the new budget released just last month.