The path to kina convertibility: An analysis of Papua New Guineaʼs foreign exchange market

Papua New Guinea (PNG) has faced a foreign exchange (forex) shortage since 2015. The Bank of PNG resorted to forex rationing protect reserves, leading large backlog orders and import compression. This paper surveys the structure PNGʼs market analyses recent conditions. We argue that real rate depreciation is required restore currency convertibility. develop model features unmet which suggests frontloaded preferred an often-favored gradual adjustment. Empirical results indicate governmentʼs budget deficits have contributed shortage, highlighting need for greater fiscal restraint. In longer term, we more flexibility allocation through competitive auction.