Get ready for a major shift in the foreign exchange market! The FX deficit is about to become a thing of the past. An economist predicts a surplus, where buying Kina will exceed sell demand, and it's all thanks to rising export revenue.
Kishti Sen, a senior international economist at ANZ Bank, believes this surplus will lead to an appreciation of the Kina starting in the second half of 2026. But here's where it gets controversial...
Sen attributes this turnaround to improved liquidity, primarily driven by commercial flows. In simpler terms, more foreign currency is being channeled through authorized dealers, mostly commercial banks. This influx is largely due to agriculture exporters cashing in on high global prices and using the proceeds to pay local suppliers.
"These higher volumes have settled outstanding sell Kina orders, reducing the market backlog significantly," Sen explained.
And this is the part most people miss: the PNG FX market is now closer to a balanced state than ever before. This has resulted in smaller declines in the value of the PGK against the US dollar this year.
However, the record increase in soft commodity prices is over, and coffee and cocoa prices are expected to retreat in 2026. This means export-related flows will likely return to 2024 levels, pushing the backlog even higher.
Most mining and petroleum taxes and dividends flow through the BPNG to the government. The central bank deposits these funds into the national foreign reserves account and credits the government's account with the Kina equivalent.
While some gold exports will enter the inter-bank market, they may not be enough to maintain elevated commercial flows into 2026.
According to Sen, limiting Kina depreciation and keeping the FX market backlog in check requires greater involvement from the BPNG, especially in the first half of 2026.
"We anticipate commercial flows will regain control over FX market liquidity in H2 2026, driven by foreign direct investment in US dollars," Sen concluded.
So, what do you think? Will the FX market truly reverse in 2026? Share your thoughts and predictions in the comments!
