## 1. Pension Savings Withdrawal

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### Context and immediate effects
- Cyclone Winston (February 2016) was a category-five storm; combined value of damaged assets and production losses was about 30 percent of GDP, of which 85 percent was borne by the private sector.
- Government humanitarian response included cash payments, transfers-in-kind, housing and food vouchers, and permission to withdraw from pension savings accounts.
- A large proportion of assistance was distributed via existing social protection programs.
- Pension withdrawals formed part of measures that supported consumption and reconstruction-related demand (electricity usage, new vehicle registrations, cement sales, bank lending to real estate and construction).

### Pension withdrawal mechanics and scale
- FNPF allowed pension contributors to withdraw up to 30 percent of their pension savings.
- About F$275 million (2.8 percent of GDP) were disbursed to 180,000 contributors.
- Box 1 details:
  - Mandatory contributions: Employees and employers pay mandatory monthly contributions (18  percent of the salaries) to FNPF.
  - F$275.5 million (2.8 percent of GDP) were disbursed to 180,000 members in the first two months after Winston.
  - Active FNPF members were allowed to withdraw up to F$1,000 (US$465), plus an additional F$5,000 (US$2,325) with proof of house in an affected area.
  - Only 12 percent of the adult population has some form of insurance.

### Staff view and recommended restoration options
- Staff view: early withdrawal was appropriate given low insurance coverage; pension contributions should be increased to secure adequate pensions in the future.
- Policy options to restore pension savings:
  - Increasing mandatory contribution rates for a few years until pension savings are restored.
  - Increasing pension contribution rates on a permanent basis to restore savings for retirement and to build up precautionary saving for future natural disasters.
  - Gradually increasing the minimum retirement age to access pensions.
- Authorities noted the mandatory pension contribution rate was increased in 2015 from 16 to 18 percent and did not plan near-term measures to restore pension savings.

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### 2. Recent Macro Developments, Outlook, and Risks (relevant to pension withdrawals and financial stability)

### Growth, inflation, current account, fiscal and debt indicators
- GDP growth slowed to 0.4 percent in 2016, from 3.8 percent in 2015; growth is estimated to have picked up to 3.8 percent in 2017.
- Projections and key indicators:
  - Real GDP growth is projected to reach 3.5 percent in 2018.
  - Growth is expected to be around 3–3.5 percent in the medium-term.
  - Inflation is projected to average 3.3 percent in 2018, and converge to 3 percent in the medium term.
  - Current account deficit widened to 5.0 percent of GDP in 2016 from 3.6 percent in 2015; projected to remain close to 5 percent of GDP in 2017-18 and then gradually decline to 3.5 percent of GDP.
  - Fiscal deficit was 2.2 percent of GDP in fiscal year 2016-17 compared to 7 percent of GDP in the budget.
  - Public debt-to-GDP ratio reached 46 percent of GDP by end July 2017.
  - Fiscal deficit projected to increase to 4.5 percent of GDP in fiscal year 2017-18 and then decline to 2.5–3 percent.

### Downside risks relevant to fiscal/external positions and pension policy
- High vulnerability to natural disasters.
- Delayed implementation of structural reforms undermining private sector investment and growth.
- Spillovers from a sharp adjustment in China affecting tourism via trading partners.
- Prolonged monetary accommodation and high credit growth raising financial sector risks.
- Tighter global financial conditions reducing net capital inflows.
- Reduced correspondent banking services disrupting remittances and cross-border transactions.

---

### 3. Monetary and Financial Sector Policy Implications

### Monetary policy stance and staff recommendations
- RBF maintained policy rate at 0.5 percent since 2011 and used unconventional measures (targeted credit support) since 2012 for sectors including SMEs, housing, agriculture, renewable energy, businesses, and households affected by natural disasters.
- Maintaining accommodative policy after Winston was appropriate to prevent disorderly liquidity drain and facilitate recovery.
- Staff view: gradual tightening of monetary policy necessary as recovery becomes firmer; tightening could involve increasing the policy rate and unwinding unconventional measures.
- Authorities’ contingency:
  - If inflation remains low and foreign reserves continue increasing, accommodative policy may continue.
  - If underlying inflation is well above 3 percent and/or foreign reserves become under pressure, RBF would consider raising the policy rate and unwinding unconventional policies.

### Financial stability indicators and recommendations
- Credit and asset quality:
  - Private sector credit growth accelerated earlier in the decade and slowed somewhat after Winston; credit-to-GDP ratio caught up with its long-term trend and a positive credit gap started to emerge in 2016Q4.
  - Nonperforming loans increased from 1 percent by end 2015 to 2.1 percent by 2017Q3 (alternative figures elsewhere: 1.8 percent at end-2016 and 1.9 percent in November 2017).
- Staff recommendations to contain risks:
  - Strengthen macroprudential policies and intensify financial supervision; consider higher capital requirements if the credit gap increases and persists.
  - Consider tightening monetary policy to slow credit growth.
  - Intensify supervision of non-bank financial institutions given rapid growth and typically weaker financial soundness.
- Correspondent banking risk and AML/CFT:
  - Reduced correspondent banking could jeopardize remittances.
  - Authorities have taken steps to improve AML/CFT technical compliance since the 2016 Mutual Evaluation; regional engagement with development partners, banks, and supervisors is important.
  - No cases of withdrawal of correspondent bank relationships were reported by authorities; risk management requirements for banks were strengthened; onsite AML/CFT examinations increased.

---

### 4. Fiscal Stance in Fiscal Year 2017–18 and Medium-Term Projections

### FY2017–18 fiscal stance and financing
- Fiscal deficit projected to increase from 2.2 to 4.5 percent of GDP in fiscal year 2017–18.
- Financing: deficit will be mainly financed by public debt.
- Fiscal year 2017–18: started in August 2017 and will end in July 2018.
- Budget stipulates maximum fiscal deficit financed with public debt is 4.5 percent of GDP and this is a binding constraint.

### Revenue composition and one-off items
- Tax revenue projected to increase by 1 percent of GDP from the collection of tax debts.
  - One-off tax debts of 1 percent of GDP to be collected in FY2017–18; half were already paid by October 2017.
- Non-tax revenue projected to increase by 0.7 percent of GDP from higher dividends from public corporations.
- Drivers of higher non-tax revenue:
  - Fiji Airways and Fiji Electricity Authority achieved higher profits driven by low oil prices.
  - Fiji Airports raised fees and charges.

### Expenditure changes in 2017–18 (percent of GDP)
- Wage bill projected to increase by 0.6 percent of GDP as wages were raised.
- Current transfers projected to increase by 1.1 percent of GDP as poverty alleviation schemes became more generous.
- Capital expenditure projected to increase by 1.8 percent of GDP to accommodate spending planned but not executed during fiscal year 2016–17.

### Medium-term projections and public debt path (selected figures)
- Staff projects fiscal deficit will decline to around 3 percent of GDP in fiscal year 2018–19 as reconstruction is completed.
- Fiscal balance (percent of GDP) across projection years:
  - FY 2016–17: -2.2
  - FY 2017–18: -4.5
  - FY 2018–19: -3.0
  - FY 2019–20: -2.8
  - FY 2020–21: -2.7
  - FY 2021–22: -2.6
- Primary balance (percent of GDP):
  - FY 2016–17: 0.4
  - FY 2017–18: -1.8
  - FY 2018–19: -0.2
  - FY 2019–20: 0.0
  - FY 2020–21: 0.1
  - FY 2021–22: 0.2
- Public debt projected to stabilize around 46 percent of GDP in the medium term as the primary balance improves.
- Public debt path entries (as reported): 46, 47, 47, 47, 46, 47, 46 (across projection years).

### Authorities’ medium-term targets and staff alternative scenario
- Authorities’ National Development Plan (November 2017) target: reach a debt-to-GDP ratio of 35 percent of GDP by 2036.
- Authorities’ fiscal deficit target: reduce from 4.5 percent of GDP in fiscal year 2017–18 to 2 percent of GDP in fiscal year 2021–22.
- Staff-preferred (alternative) scenario:
  - Current primary spending kept constant in real terms from FY2018–19 until FY2020–21.
  - Under this scenario, authorities’ fiscal deficit targets would be met with margin.
  - Debt-to-GDP ratio would decline to 41 percent by the end of FY2021–22.

### Policy recommendations for consolidation and expenditure management
- Near term: supportive fiscal stance in FY2017–18 appropriate to support reconstruction and recovery.
- Medium term: fiscal policy should:
  - Rebuild fiscal buffers.
  - Reduce procyclicality.
  - Maintain fiscal sustainability by putting the debt-to-GDP ratio on a clear downward path.
- Specific measures to keep primary current spending constant in real terms:
  - keeping public employment constant;
  - increasing public wages in line with inflation;
  - creating more competitive conditions for public procurement by enhancing transparency of government purchases;
  - improving targeting of government transfers via adoption of digital technologies;
  - increasing transfers in line with inflation.

### Budget coverage, fiscal risks, and transparency
- Budget currently covers the central government only.
  - Fiji has 13 local government units, 33 extrabudgetary units, and 24 public corporations.
- Recommendations:
  - Broaden coverage to include extrabudgetary units and public corporations that pose significant risk to public finances.
  - Publish a statement of fiscal risks (including from natural disasters).
  - Reporting of fiscal outturns should move from annual to monthly frequency.
  - Subscription to the IMF’s Special Data Dissemination Standards (SDDS) recommended.

---

### 5. Data Quality, Structural Reform Priorities, and Staff Appraisal

### Data quality and statistical gaps
- Progress made with international partners and PFTAC, but quality uneven across areas.
- Financial and trade statistics generally good.
- Significant scope for improvement in national accounts and unemployment statistics in frequency and timeliness.
- Priority recommendation: publishing timely quarterly national accounts.

### Structural reforms and capacity-building measures
- Credit reporting and land administration:
  - Importance of a well-managed credit bureau; application for a Credit Reporting Agency license received in October 2017 and could start in 2018.
  - Plans to enhance land use through digitalization of title records and national land register; streamline lease processes.
- Competition and consumer protection:
  - Develop comprehensive competition and consumer protection policy framework to gradually reduce reliance on price controls.
- Business environment technical assistance:
  - Receiving technical assistance from the Singapore Cooperation Enterprise to improve ease of doing business.
- Labor and skills:
  - Skill development priority; 15 technical colleges already in operation.
- Statistical capacity constraints:
  - Tight resource constraints at Fiji Bureau of Statistics hinder progress on quarterly national accounts.

### Staff appraisal: macro policy and institutional recommendations
- Growth and outlook:
  - Economy resilient; expected eight consecutive years of positive GDP growth in 2017.
  - Near-term growth favorable; projected around 3–3.5 percent over the medium term as private sector compensates for policy withdrawal.
- Policy recommendations:
  - Re-establish a credit bureau with regulatory framework.
  - Upgrade leasing mechanisms to use land more efficiently.
  - Rationalize price controls to mobilize private investment.
  - Consult private sector before major policy changes.
  - Gradual monetary tightening as output gap closes and underlying inflation increases.
  - Strengthen macroprudential policies and financial supervision; consider higher capital requirements and intensify supervision of non-bank financial institutions.
  - Restore pension savings used to mitigate impact of Winston.
  - Broaden budget coverage and improve fiscal transparency by publishing monthly fiscal outturns.
  - Continue relaxation of exchange restrictions on current international transactions to align with Article VIII, Section 2(a).

---

### 6. External Sector Assessment and Debt Sustainability (Annex I & Annex II summary)

### External position and reserves
- NIIP was -81 percent of GDP in 2016.
- External assets were 35 percent of GDP; external liabilities were 116 percent of GDP.
- Reserves by end-2016 about USD 0.9 billion (about 20 percent of GDP); reserves were above 5 months of imports at end-2016.
- Based on IMF composite metric, reserves were about 135 percent of the metric adjusted for capital controls and non-full-floating regimes at end-2016.

### Current account and REER assessments
- Average CA deficit during 2011-16 was about 3.2 percent of GDP.
- CA in 2016 was -5.0 percent of GDP.
- EBA-Lite metrics:
  - CA, actual: -5.0
  - CA, underline: -3.5
  - CA norm, cyc adjusted: -3.1
  - CA-Gap: -0.4 (policy gap: 1.0; fiscal policy: 1.1; credit growth: 0.1; change in reserves: 0.0; capital controls: -0.2)
- Staff estimates Winston increased 2016 CA deficit by 1.5 percent of GDP (Winston-related losses in domestic goods exports about 0.7 percent of GDP; Winston-related imports increase larger than 0.8 percent of GDP).
- REER appreciated 15 percent since 2009 devaluation; in 2016 NEER and REER appreciated by 1.1 and 3.9 percent respectively (relative to 2015 average).
- REER is broadly consistent with fundamentals; REER norm about 1 percent stronger than actual REER in 2016.

### External financing and capital account
- FDI inflows generally financed CA deficits; reserves on increasing trend.
- Restrictions on residents’ overseas investments apply.
- Capital flow liberalization should be planned, timed, and sequenced.

### Public debt sustainability (key conclusions and scenarios)
- Key conclusion: Public debt expected to remain sustainable assuming recovery completed in 2018, GDP growth broadly in line with potential, and gradual fiscal consolidation.
- Baseline: public debt-to-GDP ratio forecast to stabilize around 46 percent of GDP by 2022.
- Composition and stock:
  - Public debt-to-GDP ratio of central government reached 46 percent of GDP by end July 2017.
  - Domestic debt accounted for 70 percent of total debt and external debt for 30 percent.
  - Short-term debt was less than 3 percent of total debt.
- Baseline trajectory:
  - Debt-to-GDP ratio peaks in 2018 at 47 percent of GDP before stabilizing around 46 percent of GDP by 2022.
- Alternative scenarios:
  - Constant primary balance scenario: debt-to-GDP ratio increases to 48 percent in 2022.
  - Historical scenario: debt-to-GDP ratio declines to 42 percent by 2022 (average primary balance 2007–16 was 1.3 percent of GDP vs projected average primary balance 2018–22 of -0.1 percent of GDP).
  - Natural disaster scenario: shock in 2019 increasing primary deficit by 4 percent of GDP in 2019–20; debt-to-GDP ratio jumps to 52 percent in 2020 and remains above 50 percent by 2022.

### Debt and macro indicators (selected projections and figures)
- Nominal gross public debt (percent of GDP): 2015: 52.1; 2016: 46.2; 2017: 46.5; 2018: 46.6; 2019: 47.3; 2020: 46.9; 2021: 46.4; 2022: 46.0; 2022 (final): 45.8
- Public gross financing needs (percent of GDP): 2015: 12.9; 2016: 14.9; 2017: 4.4; 2018: 5.2; 2019: 6.9; 2020: 6.1; 2021: 8.9; 2022: 5.7; 2022 (final): 5.4
- Real GDP growth (percent): 2015: 2.0; 2016: 3.8; 2017: 0.4; 2018: 3.8; 2019: 3.5; 2020: 3.4; 2021: 3.3; 2022: 3.3; 2022 (final): 3.2
- Inflation (GDP deflator, percent): 2015: 3.9; 2016: 3.7; 2017: 4.9; 2018: 3.0; 2019: 3.0; 2020: 3.0; 2021: 3.1; 2022: 3.1; 2022 (final): 3.1
- Effective interest rate (percent): 2015: 6.8; 2016: 7.1; 2017: 6.3; 2018: 6.2; 2019: 6.3; 2020: 6.3; 2021: 6.4; 2022: 6.5; 2022 (final): 6.6
- Change in gross public sector debt (percent of GDP): 2015: 0.1; 2016: -2.0; 2017: 0.3; 2018: 0.1; 2019: 0.7; 2020: -0.4; 2021: -0.5; 2022: -0.4; cumulative to 2022: -0.2; 2022 (final cumulative): -0.7

### Risk matrix highlights and policy responses
- Natural disasters and climate change: Likelihood Medium; Impact High; Policy: Build fiscal buffers; Invest in resilient infrastructure.
- Weaker-than-expected global growth (China slowdown): Likelihood Medium; Impact Medium; Policy: RBF prepare to tighten monetary policy and use macro-prudential measures.
- Tighter global financial conditions: Likelihood High; Impact Medium; Policy: Upgrade regulatory and supervisory frameworks for AML/CFT and tax transparency.
- Reduced correspondent banking services: Likelihood High; Impact High; Policy: Upgrade regulatory frameworks and manage financial inclusion and remittance/trade payment costs.
- Excessive credit growth: Likelihood Low/Medium; Impact Medium/High; Policy: Close monitoring; RBF readiness to use macro-prudential measures and tighten monetary policy.
- Reform momentum stalling: Likelihood Medium; Impact High; Policy: Advance structural reforms (ease of doing business, price controls, land-leasing).
- Upside scenarios (stronger tourism, lower energy prices): Policy: Use favorable conditions to make fiscal and external adjustments and address tourism capacity constraints.

---

### 7. Annex V — External Debt Sustainability Framework (2012–2022) (selected series)

### Baseline external debt (percent of GDP)
- 2012: 24.3
- 2013: 29.3
- 2014: 29.0
- 2015: 26.8
- 2016: 24.3
- 2017: 23.6
- 2018: 22.9
- 2019: 22.3
- 2020: 21.6
- 2021: 21.0
- 2022: 20.3

### Change in external debt (year-on-year, percent of GDP)
- 2012: 1.2
- 2013: 5.0
- 2014: -0.3
- 2015: -2.2
- 2016: -2.5
- 2017: -0.7
- 2018: -0.7
- 2019: -0.7
- 2020: -0.7
- 2021: -0.7
- 2022: -0.6

### Selected components and indicators (percent of GDP)
- Current account deficit, excluding interest payments:
  - 2012: -0.4; 2013: 8.1; 2014: 5.7; 2015: 1.6; 2016: 3.2; 2017: 4.4; 2018: 3.7; 2019: 3.2; 2020: 2.6; 2021: 2.4; 2022: 2.4
- Exports (percent of GDP): 2012: 61.1; 2013: 56.9; 2014: 55.4; 2015: 51.1; 2016: 47.1; 2017: 45.9; 2018: 44.3; 2019: 43.6; 2020: 42.9; 2021: 42.0; 2022: 41.1
- Imports (percent of GDP): 2012: 64.2; 2013: 69.5; 2014: 63.3; 2015: 56.1; 2016: 53.4; 2017: 52.7; 2018: 50.3; 2019: 49.4; 2020: 48.5; 2021: 47.8; 2022: 47.2
- External debt-to-exports ratio (percent): 2012: 39.8; 2013: 51.5; 2014: 52.4; 2015: 52.5; 2016: 51.7; 2017: 51.4; 2018: 51.7; 2019: 51.1; 2020: 50.5; 2021: 49.9; 2022: 49.5

---

### Conclusion

### Overall assessment and authorities’ commitments
- Sound macroeconomic management and a comprehensive reform agenda have served Fiji well.
- Authorities remain committed to sound macroeconomic policies, progressing the reform agenda, and sustaining inclusive growth.
- Authorities appreciated the Article IV dialogue and intend to pursue fiscal consolidation after reconstruction is completed while maintaining investments in infrastructure, health, and education.

*Source: International Monetary Fund — Staff Report excerpt (cr1834).*

### 1.  Pension Savings Withdrawal __________________________________________________________________ 18

### 1.  Pension Savings Withdrawal

### Context
- Cyclone Winston (February 2016) was a category-five storm and the most intense on record to affect Fiji; the combined value of damaged assets and production losses was about 30 percent of GDP, of which 85 percent was borne by the private sector (Text Table 1).
- The government’s humanitarian response included cash payments, transfers-in-kind, housing and food vouchers, and the permission to withdraw from pension savings accounts (Box 1).
- A large proportion of the assistance was distributed via existing social protection programs.

### Recent developments, outlook, and risks (relevant to pension withdrawals and broader macro context)
- GDP growth slowed to 0.4 percent in 2016, from 3.8 percent in 2015; growth is estimated to have picked up to 3.8 percent in 2017.
- Key macro indicators and projections:
  - Real GDP growth is projected to reach 3.5 percent in 2018.
  - Growth is expected to be around 3–3.5 percent in the medium-term.
  - Inflation is projected to average 3.3 percent in 2018, and converge to 3 percent in the medium term.
  - The current account deficit widened to 5.0 percent of GDP in 2016 from 3.6 percent in 2015; it is projected to remain close to 5 percent of GDP in 2017-18 and then gradually decline to 3.5 percent of GDP.
  - The fiscal deficit was 2.2 percent of GDP in fiscal year 2016-17 compared to 7 percent of GDP in the budget.
  - Public debt-to-GDP ratio reached 46 percent of GDP by end July 2017.
  - The fiscal deficit is projected to increase to 4.5 percent of GDP in fiscal year 2017-18 and then decline to 2.5–3 percent.
- Drivers and channels related to pension savings withdrawal:
  - Pension savings withdrawals were authorized as part of the humanitarian assistance package following Cyclone Winston.
  - Such withdrawals formed part of a broader set of measures (cash transfers and vouchers) that supported consumption and reconstruction-related demand (e.g., electricity usage, new vehicle registrations, cement sales, bank lending to real estate and construction).
- Risks skewed to the downside that may affect fiscal and external positions (and hence implications for pension savings policy and financial stability):
  - High vulnerability to natural disasters.
  - Delayed implementation of structural reforms undermining private sector investment and growth.
  - Spillovers from a sharp adjustment in China affecting tourism via trading partners.
  - Prolonged monetary accommodation and high credit growth raising financial sector risks.
  - Tighter global financial conditions reducing net capital inflows.
  - Reduced correspondent banking services disrupting remittances and cross-border transactions.

### Policy discussions and implications for pension savings and related financial stability
- Monetary Policy
  - The Reserve Bank of Fiji (RBF) maintained the policy rate at 0.5 percent since 2011 and used unconventional measures (targeted credit support) since 2012 for sectors including SMEs, housing, agriculture, renewable energy, businesses, and households affected by natural disasters.
  - Maintaining an accommodative stance after Cyclone Winston was appropriate to prevent disorderly liquidity drain and facilitate recovery.
  - Staff view: a gradual tightening of monetary policy is necessary as the recovery becomes firmer; tightening could involve increasing the policy rate and unwinding unconventional measures.
  - Authorities’ contingency: If inflation remains low and foreign reserves continue increasing, accommodative policy may continue; if underlying inflation is well above 3 percent and/or foreign reserves become under pressure, the RBF would consider raising the policy rate and unwinding unconventional policies.
- Financial Policies (relevant to pension savings withdrawals and financial system risks)
  - Private sector credit growth accelerated earlier in the decade and slowed somewhat after Winston; credit-to-GDP ratio caught up with its long-term trend and a positive credit gap started to emerge in 2016Q4.
  - Nonperforming loans (NPLs) increased from 1 percent by end 2015 to 2.1 percent by 2017Q3.
  - Staff recommendations to contain financial stability risks:
    - Strengthen macroprudential policies and intensify financial supervision; consider higher capital requirements if the credit gap increases and persists.
    - Consider tightening monetary policy to slow credit growth.
    - Intensify supervision of non-bank financial institutions given their rapid growth and typically weaker financial soundness.
  - Correspondent banking risk:
    - Reduced correspondent banking could jeopardize remittances, a sizable revenue source for Fiji.
    - Authorities have taken steps to improve AML/CFT technical compliance since the 2016 Mutual Evaluation; regional engagement with development partners, banks, and supervisors is important to enhance AML/CFT effectiveness and improve tax transparency and fairness given Fiji’s recent listing in the EU’s tax haven gray list.
  - Authorities’ stance:
    - RBF is closely monitoring the financial system and has stepped-up supervisory efforts; as of late 2017, authorities considered credit growth was slowing and not excessive, and the financial system relatively sound.
    - If macroprudential measures were needed, tools such as loan-to-value ratio limits or credit ceilings would be considered.
    - No cases of withdrawal of correspondent bank relationships were reported by the authorities; risk management requirements for banks were strengthened and onsite AML/CFT examinations increased in frequency and thoroughness.

*Source: IMF staff report excerpt on Fiji (chapter: Pension Savings Withdrawal).*

### 23.      The fiscal stance in fiscal year 2017–18 will be expansionary and public debt will

### 23.      The fiscal stance in fiscal year 2017–18 will be expansionary and public debt will increase

### Fiscal outturn and 2017–18 stance
- Fiscal deficit projected to increase from 2.2 to 4.5 percent of GDP in fiscal year 2017–18.
- Financing: deficit will be mainly financed by public debt.
- Fiscal year 2017–18 started in August 2017 and will end in July 2018.
- The budget stipulates that the maximum fiscal deficit that can be financed with public debt is 4.5 percent of GDP and this is a binding constraint.

### Revenue composition and one-off items
- Tax revenue projected to increase by 1 percent of GDP from the collection of tax debts.
  - Recent tax audits uncovered one-off tax debts of 1 percent of GDP to be collected in fiscal year 2017–18, of which half were already paid by October 2017.
- Non-tax revenue projected to increase by 0.7 percent of GDP from higher dividends from public corporations.
- Drivers of higher non-tax revenue:
  - Fiji Airways and Fiji Electricity Authority achieved higher profits driven by low oil prices.
  - Fiji Airports raised fees and charges.

### Expenditure changes in 2017–18
- Wage bill projected to increase by 0.6 percent of GDP as wages were raised.
  - Public wages were increased after a review to realign them with the private sector.
- Current transfers projected to increase by 1.1 percent of GDP as poverty alleviation schemes became more generous.
- Capital expenditure projected to increase by 1.8 percent of GDP to accommodate spending planned but not executed during fiscal year 2016–17.

### Medium-term projections and debt path
- Staff projects fiscal deficit will decline to around 3 percent of GDP in fiscal year 2018–19 as reconstruction is completed.
- Fiscal deficit projected trajectory under current policies (Text Table 3 / Text Table 4):
  - FY 2016–17: Fiscal balance -2.2 (percent of GDP)
  - FY 2017–18: Fiscal balance -4.5
  - FY 2018–19: Fiscal balance -3.0
  - FY 2019–20: Fiscal balance -2.8
  - FY 2020–21: Fiscal balance -2.7
  - FY 2021–22: Fiscal balance -2.6
- Public debt projected to stabilize around 46 percent of GDP in the medium term as the primary balance improves.
  - Public debt path in Text Table 3: 46, 47, 47, 47, 46, 47, 46 (as reported across projection years).
- Primary balance figures (Text Table 3):
  - FY 2016–17: Primary balance 0.4
  - FY 2017–18: Primary balance -1.8
  - FY 2018–19: Primary balance -0.2
  - FY 2019–20: Primary balance 0.0
  - FY 2020–21: Primary balance 0.1
  - FY 2021–22: Primary balance 0.2

### Tax administration and compliance improvements
- Expected improvements in tax compliance from:
  - Adoption of Electronic Fiscal Devices.
  - Continuous modernization of the tax administration under PFTAC technical assistance program.
- The evolution of the cyclically adjusted primary balance and the output gap suggests that fiscal policy has been procyclical during 2014–16.

### Authorities’ medium-term targets
- National Development Plan (November 2017) target: reach a debt-to-GDP ratio of 35 percent of GDP by 2036.
- Authorities’ fiscal deficit target: reduce from 4.5 percent of GDP in fiscal year 2017–18 to 2 percent of GDP in fiscal year 2021–22.

### Alternative (staff-preferred) scenario and macro effects
- Staff’s preferred scenario: current primary spending kept constant in real terms from fiscal year 2018–19 until fiscal year 2020–21.
  - Under this scenario, authorities’ fiscal deficit targets would be met with margin.
  - Debt-to-GDP ratio would decline to 41 percent by the end of fiscal year 2021–22.
  - Lower deficits and public debt could improve confidence and private investment and induce higher medium-term growth.

### Policy recommendations for fiscal consolidation and expenditure management
- Near term: a supportive fiscal stance in fiscal year 2017–18 is appropriate to support reconstruction and recovery.
- Medium term: fiscal policy should:
  - Rebuild fiscal buffers.
  - Reduce procyclicality.
  - Maintain fiscal sustainability by putting the debt-to-GDP ratio on a clear downward path to support resilience to future natural disasters or other shocks.
- Specific measures to help keep primary current spending constant in real terms:
  - keeping public employment constant;
  - increasing public wages in line with inflation;
  - creating more competitive conditions for public procurement by enhancing the transparency of the process of government purchases to generate a larger pool of suppliers;
  - improving the targeting of government transfers via the adoption of digital technologies that facilitate the availability and processing of more accurate and timely information on beneficiaries;
  - increasing transfers in line with inflation.

### Pension withdrawals after Cyclone Winston
- Fiji National Provident Fund (FNPF) allowed pension contributors to withdraw up to 30 percent of their pension savings.
- About F$275 million (2.8 percent of GDP) were disbursed to 180,000 contributors.
- Authorities did not plan to take measures to restore pension savings in the near term and noted the mandatory pension contribution rate was increased in 2015 from 16 to 18 percent.

### Budget coverage, fiscal risks, and transparency
- Budget currently covers the central government only.
  - Fiji has 13 local government units, 33 extrabudgetary units, and 24 public corporations.
  - Recommendation: broaden coverage to include extrabudgetary units and public corporations that pose a significant risk to public finances.
  - Recommendation: publish a statement of fiscal risks (including from natural disasters).
- Reporting of fiscal outturns to the public is currently limited to the annual budget and should be done on a monthly frequency.
- Subscription to the IMF’s Special Data Dissemination Standards (SDDS) recommended to align with international best practice on transparency issues.

### Authorities’ views summarized
- Agreed on the need to pursue fiscal consolidation after reconstruction is completed.
- Emphasized the sharp reduction in the public-debt-to GDP ratio since 2010 as evidence of commitment to fiscal discipline.
- Agreed on the benefits of improving coverage and reporting frequency of fiscal data:
  - Aim to publish monthly fiscal statistics on the website of Ministry of Economy and broaden the coverage of government operations in the budget.
- Noted there were no plans to further liberalize capital controls in the near term.

*Source: Ministry of Economy, and IMF staff estimates.*

### 44.      Improving data quality could better guide policy making. With the help of international

### 44.      Improving data quality could better guide policy making. With the help of international

### Data quality and statistical gaps
- Authorities, with the help of international development partners and PFTAC, have made important progress on economic statistics.
- The quality of statistics is uneven across different areas.
- Financial and trade statistics are generally good.
- Significant scope for improvement exists on national accounts and unemployment statistics in terms of frequency and timeliness.
- Priority recommendation: publishing timely quarterly national accounts should be a priority.

### Authorities’ views on structural reforms and capacity
- Improving the business environment is critical to the economy.
- Credit reporting and land administration:
  - Importance of having a well-managed credit bureau was underscored.
  - An application for a license to operate as a Credit Reporting Agency was received in October 2017 and could start to operate sometime in 2018.
  - Authorities will seek to enhance land use through digitalization of title records and the development of a national land register.
  - They will streamline lease processes.
- Competition and consumer protection:
  - Authorities will develop a comprehensive competition and consumer protection policy framework to gradually reduce the reliance on price controls.
- Business environment technical assistance:
  - Authorities are receiving technical assistance form the Singapore Cooperation Enterprise to improve ease of doing business and make the business environment more predictable.
- Labor and skills:
  - Skill development of the labor force and meeting future industry needs should be a priority.
  - The government noted there were 15 technical colleges already in operation around the country to promote vocational skills.
- Statistical capacity constraints:
  - Authorities acknowledged the need to make progress on core statistics such as the quarterly national accounts.
  - Tight resource constraints at the Fiji Bureau of Statistics were mentioned as an obstacle.

### Staff appraisal — growth, macro policy, and institutional recommendations
- Growth and outlook:
  - Economic growth has been resilient despite significant adverse shocks.
  - The economy is expected to record eight consecutive years of positive GDP growth in 2017 as it recovers from the impact of Cyclone Winston.
  - The near-term growth outlook is favorable, supported by reconstruction activities, the normalization of agricultural production, and the robust performance of the tourism sector.
  - Growth is projected to remain strong at around 3–3.5 percent over the medium term as the private sector compensates for the gradual withdrawal of policy support.
- Business environment reforms to maintain growth momentum:
  - Re-establish a credit bureau with an adequate regulatory framework.
  - Upgrade leasing mechanisms to use land more efficiently.
  - Rationalize the extensive net of price controls to improve the allocation of resources and mobilize private investment.
  - Consult the private sector before introducing major policy changes to reduce economic policy uncertainty.
- Monetary policy:
  - A gradual tightening of monetary policy is recommended as the recovery becomes firmer.
  - Underlying inflation pressure is likely to increase as the output gap closes.
  - Tightening of monetary policy could include measures such as an increase in the policy rate, and the unwinding of unconventional monetary policies deployed after the global financial crisis.
- Financial stability and macroprudential policy:
  - Macroprudential policies could be strengthened and financial supervision should be intensified to contain financial stability risks.
  - Credit growth has accelerated over the last few years and there has been an increase in NPLs since late 2015.
  - Macroprudential measures such as higher capital requirements could help moderate credit growth if necessary.
  - The RBF should intensify the supervision of non-bank financial institutions, given they have been growing fast recently and their financial soundness is typically weaker compared to commercial banks.
- Fiscal policy and transparency:
  - A supportive fiscal stance in fiscal year 2017-18 is appropriate but should be followed by fiscal consolidation in the medium term.
  - In the near term, fiscal policy should support reconstruction and recovery by allowing a higher fiscal deficit.
  - Fiscal buffers should be rebuilt in the medium term by adopting fiscal consolidation measures and putting the debt-to -GDP ratio on a clear downward path.
  - Pension savings used to mitigate the impact of Cyclone Winston should be restored.
  - Broaden coverage of government operations in the budget beyond central government; at the minimum, include public entities that pose significant risks to public finance.
  - Improve fiscal transparency by publishing fiscal outturns monthly (instead of yearly) on the website of the Ministry of Economy.
- External payments restrictions:
  - The relaxation of exchange restrictions on payments and transfers for current international transactions should continue.
  - The limits on large external payments and the tax certification requirement on the transfer abroad of profits, dividends, proceeds of airline ticket sales, and making external debt and maintenance payments are inconsistent with Article VIII, Section 2(a) and discourage investment.
- Consultation cycle recommendation:
  - It is recommended that the next Article IV Consultation takes place on the standard 12-month consultation cycle.

### Box 1 — Pension Savings Withdrawal (key facts and policy options)
- Fiji’s pension system is operated by Fiji National Provident Fund (FNPF).
- Mandatory contributions:
  - Employees and employers pay mandatory monthly contributions (18  percent of the salaries) to FNPF.
- Withdrawal after Cyclone Winston:
  - The FNPF allowed its members to withdraw up to 30 percent of their pension savings account balance after Winston.
  - About F$ 275.5 million (2.8 percent of GDP) were disbursed to 180,000 members in the first two months after Winston.
  - Active FNPF members were allowed to withdraw up to F$1,000 (US$465), plus an additional F$5,000 (US$2,325) if they could present proof (property title) of having a house in an area affected by Winston.
- Insurance coverage:
  - Only 12 percent of the adult population has some form of insurance.
- Staff view and recommended options to restore pension savings:
  - Staff view: the early withdrawal measure was an appropriate measure to mitigate the impact of Winston given the low coverage of insurance. However, pension contributions should be increased to secure adequate pensions in the future.
  - Policy options to consider:
    - Increasing mandatory contribution rates for a few years until pension savings are restored.
    - Increasing pension contribution rates on a permanent basis to restore savings for retirement and to build up precautionary saving that could be tapped in case of future natural disasters.
    - Gradually increasing the minimum retirement age to access pensions.

### Box 2 — Medium-Term Growth Outlook in Fiji (summary of findings and projections)
- Historical context:
  - Fiji’s growth performance historically correlated with sugar prices and political stability.
  - Average real GDP growth rate reached 3.5 percent during 2010–15.
- Sectoral composition and productivity:
  - The service sector accounts for about 70 percent of the economy.
  - From 2011 to 2015, primary and secondary sectors grew moderately at about 1.5 percent per year; the services sector grew 4.6 percent per year.
  - Labor productivity growth was faster in the services sector than primary and secondary sectors (by 0.7 and 1.7 percent per year, respectively).
- Growth accounting results:
  - The average growth rate of TFP from 2010 to 2015 was about 1.5 percent per year.
  - Capital accumulation: average pace of capital accumulation was above 4 percent during 2013 to 2015.
  - Population growth has been on a gradual declining trend.
- Growth accounting table (selected values as presented):
  - 2010-2015: TFP 1.5; K 3.0; L 0.5; Potential GDP 3.4
  - 1990-2010: TFP -0.9; K 4.3; L 0.7; Potential GDP 1.9
  - 2017-2021 (projection): TFP 0.7; K 3.9; L 0.5; Potential GDP 3.5
- Assumptions and scenarios:
  - Baseline assumes TFP will grow at 0.7 percent per year and capital accumulation will return to its historical average between 1990 to 2015.
  - Capital accumulation assumption requires an investment-to -GDP ratio of about 19.5–20 percent.
  - Under a more conservative assumption that the investment-to -GDP ratio will be 19 percent from 2017–2021, capital accumulation will be 3.7 percent and potential GDP growth will be 3.3 percent.
- Additional technical notes:
  - In the baseline growth accounting exercise, labor share is assumed to be about 0.4 for 1990–2010 and 1/3 after 2010.
  - Under alternative assumption that labor share is 0.5, annual TFP growth rates during 2010–2015 and 1990–2010 were 1.9 and -0.6 percent, respectively.
  - Considering Fiji is prone to natural disasters, capital depreciation rate is assumed to be 10 percent.

*International Monetary Fund — Staff Report excerpt*

### Box 3. Exchange Rate Policy

### Box 3. Exchange Rate Policy

### Current regime and mechanics
- Fiji has maintained a fixed exchange rate regime since 1975.
- The Fiji dollar (F$) is pegged to a weighted basket comprising the Australian dollar (A$), the New Zealand dollar (NZ$), the United States dollar (US$), the Japanese yen (JPY) and the Euro (EUR).
- The weights of each currency in the basket is not disclosed, although they are updated annually based on the currency denomination of international trade and financial transactions.

### Advantages of a basket peg for Fiji
- Provides a nominal anchor for policy.
- Facilitates international trade by reducing exchange rate risk for importers and exporters.
- Pegging to a basket (instead of a bilateral peg to the US$) helps maintain the stability of the real effective exchange rate and hence external competitiveness when US$ appreciates.

### Empirical findings
- The movements in the F$ are mainly explained by movements in the US$.
- Regression analysis indicates that the weight of the US$ in the basket is much larger than the share of international trade with the United States.
  - This reflects that some international trade and financial transactions in which the US does not participate are still denominated in US$.

### Policy recommendations and considerations
- A smaller weight on the US$ could help contain volatility of the effective exchange rates.
- More frequent revisions of the basket weights could help to contain the volatility of the effective exchange rates.

*Box 3. Exchange Rate Policy, cr1834*

### Annex I.   External Sector Assessment

### Annex I.   External Sector Assessment

### Foreign Asset and Liability Position
- Background:
  - NIIP was -81 percent of GDP in 2016.
  - External assets were 35 percent of GDP.
  - External liabilities were 116 percent of GDP.
  - Reserves held by the Central Bank accounted for about 55 percent of total external assets.
  - Key components of external liabilities included FDI liabilities (87 percent of GDP) and external debt (25 percent of GDP), of which about half was public debt.
  - The commercial banks’ net foreign assets position was positive.
- Assessment:
  - The structure of the external balance sheet, especially the large share of FDI liabilities in total external liabilities and adequate reserves, entails relatively low vulnerabilities.

### Current Account
- Background:
  - The average CA deficit during 2011-16 was about 3.2 percent of GDP.
  - The CA deficit in 2016 was 5 percent of GDP, about 1.4 percent of GDP larger than 2015.
  - The widening CA deficit in 2016 was mainly driven by the decline in exports (especially in agriculture sector) after Cyclone Winston and by the increase in imports stemming from post-Winston reconstruction.
- Assessment and metrics (EBA-Lite CA Model):
  - CA, actual: -5.0
  - CA, underline: -3.5
  - CA norm, cyc adjusted: -3.1
  - CA-Gap: -0.4
    - of which policy gap: 1.0
    - of which fiscal policy: 1.1
    - of which credit growth: 0.1
    - of which change in reserves: 0.0
    - of which capital controls: -0.2
  - The CA norm estimated using the EBA model was -3.1 percent of GDP.
  - The underlying CA (actual CA adjusted by the output gap and by the impact of Winston) was -3.5 percent of GDP.
  - The CA gap (underlying CA minus CA norm) was -0.4 percent of GDP.
  - Using standard trade elasticities, a CA gap at -0.4 percent of GDP is equivalent to a REER gap at 1–2 percent.
- Projections:
  - The projected CA balance in 2017 is -5.7 percent of GDP.
  - The underlying CA for 2017 is projected around 4 percent of GDP as the recovery from Winston is likely to affect the external accounts in a similar way as in 2016.
  - Hence, the assessment of the external position in 2017 is unchanged.

### Real Exchange Rate
- Background:
  - The REER appreciated 15 percent since the large devaluation in 2009.
  - About half of the REER appreciation came from NEER appreciation, and the rest from higher domestic inflation relative to Fiji’s trading partners.
  - In 2016, NEER and REER appreciated by 1.1 and 3.9 percent (relative to 2015 average), respectively.
- Assessment:
  - The REER is broadly consistent with fundamentals and desirable policy settings.
  - The REER norm from the EBA-lite REER model is about 1 percent stronger than the actual REER in 2016.
  - The REER remained broadly constant the first nine months of 2017; the assessment for 2017 remains unchanged.

### Capital and Financial Accounts
- Background:
  - FDI inflows have generally been able to finance the current account deficits in recent years.
  - Consequently, reserves have been on an increasing trend.
  - Restrictions on residents’ overseas investments apply.
- Assessment:
  - Capital flow liberalization need to be planned, timed, and sequenced to ensure that its benefits outweigh its costs.

### FX Intervention and Reserves Level
- Background:
  - The value of the Fiji dollar is officially determined on the basis of a weighted basket of currencies comprising the Australian dollar, Japanese yen, New Zealand dollar, euro, and U.S. dollar.
  - Intervention data is not available.
  - Reserves were about USD 0.9 billion (about 20 percent of GDP) by end-2016, broadly flat relative to the level at end-2015.
- Assessment:
  - Reserves were above 5 months of imports at end-2016.
  - Based on the IMF’s composite metric, reserves were about 135 percent of the metric adjusted for capital controls and non-full-floating exchange rate regimes at end-2016.
  - Both approaches indicate that reserves level is adequate.

### Technical Remark on Underlying CA
- The cyclically-adjusted CA estimated by the EBA-Lite model is marginally weaker than the actual CA (-5 percent of GDP) due to the small output gap in 2016.
- Staff assessment of Winston-related impacts in 2016:
  - Winston-related losses in domestic goods exports are about 0.7 percent of GDP in 2016.
  - Winston-related imports increase was likely to be larger than 0.8 percent of GDP in 2016.
  - Summing up, Winston is likely to have increased 2016 CA deficit by 1.5 percent of GDP (or more).
  - Therefore, staff estimates that the underlying CA in 2016 was about 3.5 percent of GDP.

### Public Sector Debt Sustainability Analysis (Annex II summary)
- Key conclusion:
  - Public debt is expected to remain sustainable assuming the recovery after Winston is completed in 2018, GDP growth is broadly in line with potential growth, and a gradual medium-term fiscal consolidation progresses.
  - Under the baseline, the public debt-to-GDP ratio is forecast to stabilize around 46 percent of GDP by 2022.
  - Future natural disasters and their associated fiscal costs are the major risk to the public debt outlook.
- Recent stock and composition:
  - Public debt-to-GDP ratio of the central government reached 46 percent of GDP by end July 2017.
  - Domestic debt accounted for 70 percent of total debt and external debt for 30 percent.
  - Short-term debt was less than 3 percent of total debt.
- Baseline assumptions and trajectory:
  - Baseline assumes the output gap will close in 2018 and GDP growth will be around 3–   3.5 percent in the medium-term.
  - The primary balance will improve significantly once reconstruction from Winston is completed.
  - Under the baseline scenario the debt-to-GDP ratio peaks in 2018 at 47 percent of GDP before stabilizing around 46 percent of GDP by 2022.
- Alternative scenarios:
  - Constant primary balance scenario: debt-to-GDP ratio increases steadily to 48 percent in 2022, putting debt sustainability at risk.
  - Historical scenario: debt-to-GDP ratio declines to 42 percent of GDP by 2022; average primary balance during 2007–16 was 1.3 percent of GDP versus projected average primary balance under the baseline during 2018–22 of -0.1 percent of GDP.
  - Natural disaster scenario: assumes a shock in 2019 slowing GDP growth and temporarily increasing the primary deficit by 4 percent of GDP in 2019–20; debt-to-GDP ratio jumps to 52 percent of GDP in 2020 and remains above 50 percent by 2022, putting debt sustainability at risk.
- Policy implication from natural disaster scenario:
  - Adopting fiscal consolidation measures after reconstruction is completed and putting debt on a clear downward path would help the economy be more resilient to adverse shocks.

### Debt, Economic, and Market Indicators (selected projections and figures)
- Nominal gross public debt (percent of GDP): 2015: 52.1; 2016: 46.2; 2017: 46.5; 2018: 46.6; 2019: 47.3; 2020: 46.9; 2021: 46.4; 2022: 46.0; 2022 (final): 45.8
- Public gross financing needs (percent of GDP): 2015: 12.9; 2016: 14.9; 2017: 4.4; 2018: 5.2; 2019: 6.9; 2020: 6.1; 2021: 8.9; 2022: 5.7; 2022 (final): 5.4
- Real GDP growth (percent): 2015: 2.0; 2016: 3.8; 2017: 0.4; 2018: 3.8; 2019: 3.5; 2020: 3.4; 2021: 3.3; 2022: 3.3; 2022 (final): 3.2
- Inflation (GDP deflator, percent): 2015: 3.9; 2016: 3.7; 2017: 4.9; 2018: 3.0; 2019: 3.0; 2020: 3.0; 2021: 3.1; 2022: 3.1; 2022 (final): 3.1
- Nominal GDP growth (percent): 2015: 5.9; 2016: 8.1; 2017: 6.9; 2018: 6.9; 2019: 6.6; 2020: 6.5; 2021: 6.5; 2022: 6.5; 2022 (final): 6.4
- Effective interest rate (percent): 2015: 6.8; 2016: 7.1; 2017: 6.3; 2018: 6.2; 2019: 6.3; 2020: 6.3; 2021: 6.4; 2022: 6.5; 2022 (final): 6.6
- Change in gross public sector debt (percent of GDP): 2015: 0.1; 2016: -2.0; 2017: 0.3; 2018: 0.1; 2019: 0.7; 2020: -0.4; 2021: -0.5; 2022: -0.4; cumulative to 2022: -0.2; 2022 (final cumulative): -0.7

### Risk Assessment Matrix (highlights)
- Key risks and policy responses:
  - Natural disasters and climate change: Likelihood Medium; Impact High; Policy: Build fiscal buffers against natural disaster shocks; Invest in resilient infrastructure to strengthen climate change mitigation and adaptation.
  - Weaker-than-expected global growth (especially China slowdown): Likelihood Medium; Impact Medium; Policy: The RBF should prepare to tighten monetary policy and use macro-prudential measures when necessary.
  - Tighter global financial conditions: Likelihood High; Impact Medium; Policy: Upgrade regulatory and supervisory frameworks to comply with international standards regarding AML/CFT and tax transparency.
  - Reduced financial services by correspondent banks: Likelihood High; Impact High; Policy: Upgrade regulatory frameworks and manage financial inclusion and remittance/trade payment costs.
  - Excessive credit growth: Likelihood Low/Medium; Impact Medium/High; Policy: Close monitoring, RBF preparedness to use macro-prudential measures and tighten monetary policy if needed.
  - Reform momentum stalling: Likelihood Medium; Impact High; Policy: More structural reform progress (ease of doing business, price controls, land-leasing policies).
  - Upside scenarios (e.g., stronger tourism, lower energy prices): Policy: Take advantage of favorable conditions to make fiscal and external adjustments; minimize environmental impacts; address constraints in tourism capacity (e.g., landowning).

### Authorities’ Responses to Past Fund Advice (selected)
- Fiscal Policy:
  - Fund recommended fiscal consolidation, contain current spending, maintain robust revenue growth, and diversify FNPF investments.
  - Authorities: Cyclone Winston forced supportive fiscal plans in 2016 and 2017; government’s medium-term fiscal strategy aims for consolidation; FY 2018 budget envisages a significant increase in the wage bill; recent tax reforms broadened the tax base and strengthened anti-avoidance measures; FNPF increased investments abroad and is diversifying its portfolio.
- Monetary and Financial Policies:
  - Fund recommended removing monetary accommodation, monitor banks’ exposures, enlarge supervision on non-banking financial institutions, consider loan-to-value restrictions, and move toward a more flexible exchange rate regime.
  - Authorities: RBF kept the monetary policy rate unchanged since November 2011; accommodative stance was maintained after Winston; RBF collects and publishes financial soundness indicators; draft Credit Union Act presented in June 2016; no changes in exchange rate policies in 2016 and 2017.
- External Sector:
  - Fund recommended gradual relaxation of exchange controls.
  - Authorities: RBF increased limits of some categories of foreign exchange transactions (advance import payments, subscriptions, wages in foreign currency to foreign crew).
- Structural Reforms:
  - Fund recommended relaxation of price controls, increased land-use efficiency, improved consultative process, streamlined regulation, investment in human capital.
  - Authorities: Progress on land-leasing scheme (land bank) and education budget increases; price controls remain broad-based.
- Statistics:
  - Fund recommended improving data quality.
  - Authorities: Progress with quarterly national accounts has been slow; government budget presentation improved somewhat.

*Source: IMF staff.*

### Annex V.  External Debt Sustainability Framework, 2012–22

### Annex V.  External Debt Sustainability Framework, 2012–22

### Baseline external debt path (2012–2022)
- Baseline: External debt (in percent of GDP)
  - 2012: 24.3
  - 2013: 29.3
  - 2014: 29.0
  - 2015: 26.8
  - 2016: 24.3
  - 2017: 23.6
  - 2018: 22.9
  - 2019: 22.3
  - 2020: 21.6
  - 2021: 21.0
  - 2022: 20.3
- Change in external debt (year-on-year, percent of GDP)
  - 2012: 1.2
  - 2013: 5.0
  - 2014: -0.3
  - 2015: -2.2
  - 2016: -2.5
  - 2017: -0.7
  - 2018: -0.7
  - 2019: -0.7
  - 2020: -0.7
  - 2021: -0.7
  - 2022: -0.6

### Identified external debt-creating flows and components
- Identified external debt-creating flows (4+8+9), percent of GDP:
  - 2012: -9.4
  - 2013: 3.3
  - 2014: -0.7
  - 2015: -4.5
  - 2016: -2.6
  - 2017: -2.3
  - 2018: -0.7
  - 2019: -1.0
  - 2020: -0.7
  - 2021: -1.3
  - 2022: -1.2
- Current account deficit, excluding interest payments (percent of GDP)
  - 2012: -0.4
  - 2013: 8.1
  - 2014: 5.7
  - 2015: 1.6
  - 2016: 3.2
  - 2017: 4.4
  - 2018: 3.7
  - 2019: 3.2
  - 2020: 2.6
  - 2021: 2.4
  - 2022: 2.4
- Deficit in balance of goods and services (percent of GDP)
  - 2012: 3.1
  - 2013: 12.6
  - 2014: 7.9
  - 2015: 4.9
  - 2016: 6.3
  - 2017: 6.8
  - 2018: 6.0
  - 2019: 5.9
  - 2020: 5.9
  - 2021: 5.8
  - 2022: 6.1
- Exports (percent of GDP)
  - 2012: 61.1
  - 2013: 56.9
  - 2014: 55.4
  - 2015: 51.1
  - 2016: 47.1
  - 2017: 45.9
  - 2018: 44.3
  - 2019: 43.6
  - 2020: 42.9
  - 2021: 42.0
  - 2022: 41.1
- Imports (percent of GDP)
  - 2012: 64.2
  - 2013: 69.5
  - 2014: 63.3
  - 2015: 56.1
  - 2016: 53.4
  - 2017: 52.7
  - 2018: 50.3
  - 2019: 49.4
  - 2020: 48.5
  - 2021: 47.8
  - 2022: 47.2
- Net non-debt creating capital inflows (negative, percent of GDP)
  - 2012: -9.4
  - 2013: -6.2
  - 2014: -6.9
  - 2015: -7.8
  - 2016: -6.3
  - 2017: -7.1
  - 2018: -4.8
  - 2019: -4.6
  - 2020: -3.7
  - 2021: -4.1
  - 2022: -4.0
- Automatic debt dynamics (percent of GDP)
  - 2012: 0.4
  - 2013: 1.4
  - 2014: 0.5
  - 2015: 1.7
  - 2016: 0.6
  - 2017: 0.4
  - 2018: 0.5
  - 2019: 0.4
  - 2020: 0.4
  - 2021: 0.4
  - 2022: 0.4
- Contribution from nominal interest rate (percent of GDP)
  - 2012: 1.8
  - 2013: 1.6
  - 2014: 1.9
  - 2015: 1.9
  - 2016: 1.9
  - 2017: 1.3
  - 2018: 1.2
  - 2019: 1.2
  - 2020: 1.1
  - 2021: 1.1
  - 2022: 1.1
- Contribution from real GDP growth (percent of GDP)
  - 2012: -0.3
  - 2013: -1.1
  - 2014: -1.6
  - 2015: -1.1
  - 2016: -0.1
  - 2017: -0.8
  - 2018: -0.8
  - 2019: -0.7
  - 2020: -0.7
  - 2021: -0.7
  - 2022: -0.6
- Contribution from price and exchange rate changes 2/ (percent of GDP)
  - 2012: -1.1
  - 2013: 0.9
  - 2014: 0.2
  - 2015: 0.9
  - 2016: -1.2
  - 2017: (not shown for projections)
- Residual, incl. change in gross foreign assets (2-3), percent of GDP
  - 2012: 10.6
  - 2013: 1.6
  - 2014: 0.5
  - 2015: 2.3
  - 2016: 0.1
  - 2017: 1.6
  - 2018: 0.0
  - 2019: 0.3
  - 2020: 0.0
  - 2021: 0.6
  - 2022: 0.5

### Debt vulnerability indicators and financing needs
- External debt-to-exports ratio (in percent)
  - 2012: 39.8
  - 2013: 51.5
  - 2014: 52.4
  - 2015: 52.5
  - 2016: 51.7
  - 2017: 51.4
  - 2018: 51.7
  - 2019: 51.1
  - 2020: 50.5
  - 2021: 49.9
  - 2022: 49.5
- Gross external financing need (in billions of US dollars) 4/
  - 2012: 206.5
  - 2013: 612.3
  - 2014: 565.5
  - 2015: 675.1
  - 2016: 783.9
  - 2017: 575.4
  - 2018: 574.9
  - 2019: 569.0
  - 2020: 758.7
  - 2021: 565.0
  - 2022: 583.7
- Gross external financing need (in percent of GDP)
  - Selected entries shown in source: 5.2, 14.6, 12.6, 15.5, 16.8 (presented without year labels in source)

### Key macroeconomic assumptions underlying the baseline
- Real GDP growth (in percent)
  - Historical: 1.4
  - Baseline by year (2013–2022 as shown): 4.7, 5.6, 3.8, 0.4, 2.0, 2.3, 3.8, 3.5, 3.4, 3.3, 3.3, 3.2
- GDP deflator in US dollars (change in percent)
  - Historical: 5.0
  - Baseline series shown: -3.7, -0.6, -3.1, 4.8, 1.5, 7.6, 5.0, 4.0, 3.0, 3.1, 3.1, 3.1
- Nominal external interest rate (in percent)
  - Historical: 8.5
  - Baseline series shown: 6.7, 6.9, 6.7, 7.4, 7.1, 0.7, 5.8, 5.8, 5.6, 5.4, 5.4, 5.4
- Growth of exports (US dollar terms, in percent)
  - Historical: 8.5
  - Baseline series shown: -1.8, 4.3, -10.6, -1.0, 4.9, 17.2, 6.2, 4.0, 4.7, 4.7, 4.4, 4.0
- Growth of imports (US dollar terms, in percent)
  - Historical: 3.6
  - Baseline series shown: 14.2, -2.4, -14.2, 2.3, 3.4, 18.1, 7.6, 2.7, 4.6, 4.4, 5.0, 5.0
- Current account balance, excluding interest payments (percent of GDP)
  - Historical: 0.4
  - Baseline series shown: -8.1, -5.7, -1.6, -3.2, -4.8, 4.2, -4.4, -3.7, -3.2, -2.6, -2.4, -2.4
- Net non-debt creating capital inflows (percent of GDP)
  - Historical: 9.4
  - Baseline series shown: 6.2, 6.9, 7.8, 6.3, 8.5, 2.3, 7.1, 4.8, 4.6, 3.7, 4.1, 4.0
- Debt-stabilizing non-interest current account (long-run constant balance that stabilizes the debt ratio) 6/
  - Shown in table: -4.2

### Stress tests and scenario analysis (Bond tests and shocks)
- Figure 1 annotations and scenario types presented:
  - Interest rate shock: permanent one-half standard deviation shocks; individual shocks presented.
  - Historical scenarios: historical averages over ten years used to project five years ahead.
  - Combined shocks: permanent 1/4 standard deviation shocks applied to real interest rate, growth rate, and current account balance.
  - Real depreciation shock: one-time real depreciation of 30 percent occurs in 2010 (as an illustrative shock noted).
- Selected scenario averages reported in figure captions:
  - Baseline average projections for key variables: 5.4, 5.8, 7.1 (variables not explicitly labeled in source excerpt)
  - Scenario averages and historical averages reported in figure: 3.3, 2.2, 2.0 (variables not explicitly labeled in source excerpt)
  - Non-interest current account shock (in percent of GDP): Baseline: -2.8; Scenario: -4.9; Historical: -4.8
  - Growth shock (in percent per year): Baseline: 21; Scenario: (figure shows values in graphic; exact tabulated values not provided in excerpt)

### Key findings and policy implications from accompanying staff and authorities texts
- Recent macroeconomic outcomes and outlook
  - 2017 GDP growth estimated at 4.2 percent; potential growth assessed at 3-3.5 percent.
  - Inflation as at December 2017: 2.8 percent.
  - International reserves coverage remained sufficient at over 5 months of retained imports.
  - Unemployment rate reached 4.5 percent (2017 population census).
- Fiscal stance and public debt
  - Downward trajectory in public debt-to-GDP ratio from around 56 percent in 2010 to 46 percent at end of fiscal year 2016/2017.
  - Government intends to reduce public debt-to-GDP ratio to 35 percent by 2036.
  - Authorities plan fiscal consolidation starting from 2019 while maintaining investments in infrastructure, health, and education.
- Monetary and financial sector
  - Monetary policy described as appropriately accommodative; next-year expectations: inflation around 2.5 percent and foreign reserves coverage around 5.2 months.
  - Private sector credit annual growth slowed to 9.1 percent in December 2017 (from 12.9 percent in 2016 and 14.2 percent in 2015).
  - NPLs increased from 1.0 percent at end-2015 to 1.8 percent at end-2016 and 1.9 percent in November 2017.
  - No current need for macroprudential intervention according to authorities; ongoing supervisory enhancements and reforms noted.
- Structural and resilience measures
  - Green bond issued in November 2017: budgeted $50 million proceeds for 2017/18 fiscal year dedicated to climate change mitigation, adaptation and environment-friendly initiatives.
  - Emphasis on building resilience to natural disasters: inclusive insurance framework, regional catastrophe risk insurance pool exploration, parametric insurance considerations by Fiji National Provident Fund.
  - Structural reform priorities identified: investment climate reform, public enterprise reform, tax policy and administration reform, strengthening statistical capacity and statistics.

*Prepared by Asian and Pacific Department (in consultation with other departments); source content from the Annex V and related sections of the staff report.*

### Conclusion

### Conclusion

### Macroeconomic management and reforms
- On the whole, sound macroeconomic management and the comprehensive reform agenda have served Fiji well.

### Authorities' stance and commitments
- Nevertheless, the authorities are not at all complacent and remain committed to sound macroeconomic policies, progressing the reform agenda and sustaining inclusive growth.

### Dialogue and Article IV process
- The authorities reiterate their appreciation to staff for the candid dialogue and value the Article IV process for the cross-country perspectives it brings to bear and the opportunity these consultations provides authorities to assess policies and in return, inform Fund advice, work and policy frameworks.

*cr1834 - Conclusion*

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_Source: https://www.imf.org/-/media/files/publications/cr/2018/cr1834.pdf_