The Central Bank governor has warned the government that its opaque management of trust funds could seriously undermine Papua New Guinea's economic future.

In his latest bi-annual statement [attached below] the governor, Loi Bakani, says the government has already reneged on a promise to open all new trust accounts at the Central Bank, and K103 million from the K592 million announced in the 2010 Supplementary Budget has not been deposited with the Bank.

In addition, the government still has K2.243 billion, including numerous trust accounts, deposited in the commercial banks. Bakani says these funds must be transferred to the Central Bank otherwise its ability to support monetary policy management and control inflation will be impeded.

The Central Bank is warning that a fast draw down of the trust account funds and high government spending, especially on LNG landowner-related payments will impact liquidity and increase inflation. 

The Central Bank wants close monitoring of all government trust accounts 'to ensure proper application of the funds'. But the government is, so far, refusing to cooperate.