## 1fjiea2020001 - 2019

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### Executive Board assessment and staff context
- Report prepared before COVID-19 and does not reflect its implications; the outbreak has "greatly amplified uncertainty and downside risks around the outlook."
- Directors welcomed recent pickup after a sharp slowdown in 2019 but noted medium-term growth favorable yet subject to significant risks, including rising fiscal and external imbalances, and natural disasters.
- Priority emphases by Directors:
  - Consolidate the fiscal position in a growth-friendly way to rebuild buffers and ensure debt sustainability.
  - Rationalize current spending while protecting priority investments and social programs.
  - Maintain monetary policy stance focused on adequate foreign reserves; rely on the automatic stabilizing mechanism of the peg; avoid central bank financing of the government; strengthen operational independence.
  - Gradually relax remaining exchange restrictions with Fund technical support.
  - Safeguard financial stability: upgrade supervision of nonbank financial institutions, adopt the Credit Union Act, monitor nonperforming loans, and strengthen AML/CFT framework per FATF recommendations.
  - Advance structural reforms: improve business environment, foster private investment, strengthen governance, improve labor and product market functioning (including boosting female labor force participation), rationalize price controls, align the investment regime with international best practices, and upgrade disaster risk management.

### Key economic developments and context
- Vulnerabilities and past shocks:
  - Cyclone Winston (February 2016) led to government reconstruction spending of "about 4   percent of GDP."
  - Real GDP growth averaged "4.5 percent in 2017-18," above estimated potential growth of "3 percent."
  - Current account deficit was "8.5 percent of GDP in 2018"; election-year fiscal deficit of "5.5 percent of GDP" contributed.
- Recent developments (2019):
  - GDP growth estimated at "1 percent in 2019," down from "3.5 percent in 2018."
  - VAT collections declined by "1.8 percent" in the year to October 2019.
  - Retail sales growth estimated at "2 percent" in 2019, down from "6.2 percent" in 2018.
  - Visitor arrivals rose "3.2   percent y/y" in the first ten months of 2019.
  - Inflation reached "- 0.3   percent y/y" in November 2019.
  - Government spending contracted by "4.1 percent in 2019 up to October" while government revenues declined by "3 percent."
  - Merchandise trade deficit in 2019 up to October declined by "9 percent."
  - Foreign reserves coverage reached "5.1 months of imports in November 2019."

### Outlook and risks
- Baseline projections and near-term outlook:
  - Growth projected at "1.8 percent in 2020."
  - Inflation projected to be "around 2 percent."
  - Fiscal deficit projected to gradually decline to "about 3 percent of GDP."
  - Debt-to-GDP ratio projected to "increase steadily in the medium term."
  - Current account deficit expected to narrow as private sector expands and reforms support external position.
- Risks:
  - Downside risks: increasing debt-to-GDP ratio in the medium term, weaker global growth, delays in structural reforms, higher oil prices, natural disasters.
  - Upside risk: stronger-than-expected tourism arrivals from national carrier route expansions and code-sharing.
- Authorities’ views:
  - Authorities project growth to pick up to "around 3 percent by 2021."
  - Authorities estimate the current account deficit to narrow to "5.5 percent of GDP in 2019" and remain around "5 percent of GDP in 2020-24."
  - Authorities project fiscal deficit to decline to "around 2 percent of GDP in the medium term" consistent with FY2019/20 medium-term fiscal strategy.

### Fiscal strategy, debt outlook, and resilience
- Medium-term fiscal strategy in FY2019/20 focuses on fiscal consolidation to rebuild fiscal space and facilitate external balance.
- Staff view: current strategy lacks detailed revenue and expenditure projections and measures underpinning fiscal deficit targets.
- Need to protect public investment for climate resilience; public investment management should be strengthened with technical support from PFTAC.
- Staff projects that under current policies the public debt-to-GDP ratio will continue increasing in the medium term, posing major risks to debt sustainability.
- Footnote: Spending to boost resilience would go from 0.1 percent of GDP in 2020 to 0.7 percent in 2024. The annual fiscal cost of natural disasters in Fiji is about 1 percent of GDP (IMF Working Paper 19/152).

### Recommended fiscal consolidation approach and specific measures
- Consolidation should be primarily based on rationalizing current spending because current spending has increased too fast and tax revenue scope is limited.
- Staff recommendation: keep current spending constant in real terms in the coming 5 years and sustain capital expenditure at around 10 percent of GDP, including increasing allocation for natural disaster resiliency.
- Possible measures to keep current spending constant in real terms:
  - Maintaining public employment and transfer recipients constant.
  - Adjusting public wages and transfers in line with inflation.
  - Reducing transfers to state-owned enterprises such as the Fiji Sugar Corporation and the Water Authority of Fiji.
  - Rationalizing tertiary education spending per World Bank recommendations.
  - Targeting social programs to the most vulnerable.

### Baseline and recommended fiscal scenarios (Text Table 1)
- Scenario years: 2020 2021 2022 2023 2024
- Real GDP Growth:
  - Baseline: 1.8, 2.8, 3.0, 3.3, 3.3
  - Recommended: 1.6, 2.6, 2.8, 3.1, 3.2
- Government Revenue:
  - Baseline: 25.7, 26.0, 26.3, 26.5, 26.6
  - Recommended: 25.7, 26.0, 26.3, 26.5, 26.6
- Current Expenditure (including interest payments):
  - Baseline: 20.5, 20.5, 20.5, 20.5, 20.3
  - Recommended: 20.2, 19.7, 19.2, 18.6, 18.1
- Capital Expenditure:
  - Baseline: 9.7, 9.6, 9.5, 9.4, 9.3
  - Recommended: 9.8, 9.9, 9.9, 10.0, 10.0
- Fiscal Balance:
  - Baseline: -4.5, -4.1, -3.7, -3.4, -3.0
  - Recommended: -4.3, -3.6, -2.8, -2.1, -1.5
- Public Debt:
  - Baseline: 50.3, 51.8, 52.8, 53.3, 53.4
  - Recommended: 50.1, 51.1, 51.2, 50.5, 49.2

### Debt Sustainability Analysis — key findings
- Public debt expected to increase steadily under the baseline; fiscal deficit reached 5.5 percent of GDP in 2018; public debt-to-GDP rose to 46 percent of GDP.
- Fiscal deficit projected at 4.9 percent of GDP in 2019; under current policies debt-to-GDP ratio forecast to reach 53 percent of GDP by 2024.
- Debt ownership (end FY2018/19): domestic 75%; global bonds 7%; ADB loans 7%; China loans 8%; IBRD loans 3%.
- About 52 percent of total public debt is held by the FNPF.
- Short-term public debt about 5 percent of the total and held by domestic residents.
- World Bank approved Fiji’s inclusion as an IDA-eligible economy in March 2019.

### DSA scenarios and stress tests
- Constant Primary Balance scenario:
  - Assumption: Primary Balance = -2.1 percent of GDP each year.
  - Outcome: debt-to-GDP reaches 60 percent of GDP in 2024.
- Historical scenario:
  - Assumption: 2020-24 equal 2009-18 average.
  - Outcome: public debt-to-GDP reaches 46 percent of GDP in the medium term.
  - Note: average primary balance 2009-18 = 0.5 percent of GDP; average projected 2020-24 = -0.8 percent of GDP.
- Natural Disaster scenario:
  - Assumptions: shock in 2020, GDP growth slows to -2 percent; primary deficit increases to 3.7 percent of GDP in 2021 and 3.2 percent in 2022.
  - Outcome: debt-to-GDP reaches 74 percent of GDP in 2022 and close to 59 percent by 2024.
- Contingent Liability shock scenario:
  - Assumption: central government guarantees of SOE debt ~10 percent of GDP materialize in 2020.
  - Outcome: debt-to-GDP jumps to almost 61 percent in 2020 and reaches 67 percent by 2024; gross financing needs breach 15 percent benchmark in 2020.
- Policy implication: preserving fiscal discipline (returning to 2009-18 average primary balances) would rebuild a debt buffer of 7 percent of GDP relative to end FY2018/19.

### Monetary policy, exchange regime, and reserves
- Fiji operates a fixed exchange regime with the Fiji dollar pegged to a basket of currencies amid limited capital mobility.
- RBF relies on the automatic stabilizing mechanism of the peg: when foreign reserves decline, domestic liquidity tightens, interest rates rise, and import growth is contained.
- At current low inflation and high current account deficit, monetary policy should focus on maintaining adequate foreign reserves.
- RBF should avoid financing the government to protect the sustainability of the peg and the integrity of the monetary policy framework; the government should prohibit central bank financing of fiscal deficits to strengthen RBF independence.
- Central Bank Policy rate history (selected): "0.5 0.5 0.5 0.0 ... ..."

### Financial sector, NBFIs, AML/CFT, and governance
- Banking sector:
  - Remains sound overall; large foreign bank branches provide access to parent bank capital and liquidity.
  - Credit expansion moderated from double-digit growth during 2014-2016 to a pace broadly in line with nominal GDP growth.
  - NPLs increased but remain low relative to historical peers; monitor closely.
- Non-Bank Financial Institutions (NBFIs) vulnerabilities:
  - Credit unions and financial cooperatives not properly regulated; governance shortcomings in FNPF, FDB, HA regarding tenure, independence, expertise of board members.
  - Two recent FNPF board members were nominated without passing the fit and proper test in the FNPF Act.
  - Recommendation: FNPF should establish sound investment guidelines and a risk tolerance framework.
- AML/CFT:
  - Fiji has six non-compliant/partially compliant ratings out of forty FATF recommendations; low or moderate AML/CFT effectiveness for all "immediate outcome" criteria.
  - Recommendations: strengthen transparency of legal persons and arrangements; enhance effectiveness of terrorism financing preventive measures and prosecution; step up AML/CFT supervisory efforts.
- Financial sector reform priorities:
  - Streamline supervision of bank branches; adopt the new Credit Union Act to bring credit unions and financial cooperatives into the RBF regulatory perimeter.
  - Protect board members of major public NBFIs from removal without cause and extend terms from two to four years.
  - Strengthen FNPF governance; require rigorous fit and proper tests for nominees.
  - Implement scenario-based solvency stress testing and summarize results in the Financial Stability Review.

### Correspondent banking, external constraints, and statistics
- Correspondent banking pressures lower in Fiji than other regional countries; stronger AML/CFT and supervisory frameworks cited.
- Data quality priorities:
  - Publish quarterly national accounts.
  - Report fiscal outcomes according to GFS 2014 standards with PFTAC support.
- Authorities' statistical actions:
  - Ministry of Economy working with PFTAC to publish fiscal data in line with GFS standards in 2020.
  - Quarterly national accounts targeted for publication in 2020.

### Structural reforms and business environment
- Structural reform priorities to boost potential growth and inclusiveness:
  - Improve business environment and governance to foster private investment, productivity, competitiveness.
  - Reform labor and product markets, including measures to boost female labor force participation and rationalize price controls.
  - Align investment regime with international best practices; adopt new Investment Act drafted with IFC support.
  - Phase out exchange restrictions on current international transactions (limits on large payments; tax certification requirements).
- Key frictions and reform targets:
  - Starting a business: forty days and eleven procedures.
  - Construction permits: fifteen procedures and almost seven months.
  - Credit access impeded by prior absence of credit bureau and registry for movable assets; credit bureau licensed May 2018; Personal Property Securities Registry created June 2019.
  - Tax compliance costs elevated due to time-consuming filing and many steps.
  - Recommendation: extend "Digital Fiji" to reduce face-to-face contact and corruption vulnerabilities; improve public consultation on policy changes.
  - Price controls: about one third of consumption basket subject to price controls; FCCC adopted transparent formula to adjust electricity prices in August 2019; recommend publishing rate of return benchmark and using electricity regulatory framework as a model for water sector where tariffs frozen for more than twenty years.

### Female labor force participation, demographics, and family policies
- Demographics:
  - Median age: 27.5 as of 2017.
  - Population growth declined from about 2 percent per year in the 1980s to 0.6 percent in the 2010s.
- Labor force:
  - Fiji's female labor force participation was 39 percent in 2016; male participation 76 percent.
- Parental leave and childcare:
  - From 2019, paid maternity leave extended from 84 to 98 days and introduced 5 days of paid paternity leave for fathers.
  - IFC study: businesses and public sector lose 12.7 workdays per employee each year due to responsibilities of working parents.
  - Limited supply of affordable child care services.
- Staff recommendations:
  - Establish coherent policy framework to ensure all childcare services are safe and high quality.
  - Adopt legislation prohibiting discrimination by creditors on the basis of gender.
  - Mandate equal remuneration for work of equal value.
  - Ensure women are able to work in the same industries as men.
- Authorities' measures:
  - Support to the Fiji National Women’s Expo and workshops to help women expand small and micro enterprises.

### Natural disaster risk management (Annex IV)
- Disaster profile and history:
  - 36 total natural disasters between 1981 and 2016; 20 were cyclones.
  - 7 natural disasters caused damage of more than 2% of GDP and affected more than 20 percent of the population.
  - Cyclone Winston in 2016 (category-five) caused extensive damage.
- DRM institutional framework:
  - National Disaster Management Office (NDMO) established in 2001.
  - Natural Disaster Management Act (1998); Fiji National Disaster Management Plan (1995); National Climate Change Policy (2012).
- Disaster Resilience Strategy (DRS) pillars:
  1. Structural resilience — infrastructure and investment (public investment average: 10.3 percent of GDP during 2014-18).
  2. Financial resilience — fiscal buffers and financial instruments (public debt-to-GDP: 43 percent by end-2015; 49 percent by July 2019; IFC estimates 94 percent of homes uninsured).
  3. Post-disaster resilience — contingency planning and efficient response.
- Instruments and experience:
  - IFC assisting with parametric insurance for farmers and disadvantaged families.
  - PCRAFI cited for large-disaster risk transfer.
  - Green bonds: Fiji issued sovereign green bonds in November 2017 raising 100 million Fiji dollars (around 50 million US dollars or 1 percent of GDP); split 20 million (5-year tenor) and 80 million (13-year tenor); coupons 4 percent (5 years) and 6.3 percent (13 years).
  - Lessons: green bonds not necessarily cheaper; transparency and capacity for monitoring proceeds critical.
- Policy recommendations:
  - Develop a DRS integrated into the medium-term fiscal framework and consistent with debt sustainability.
  - Prioritize ex ante investments in structural resilience while pursuing current expenditure-based consolidation.
  - Strengthen financial resilience by restoring fiscal buffers, expanding insurance coverage, leveraging risk-transfer mechanisms, and using green bonds with transparency.
  - Maintain and strengthen post-disaster contingency planning and coordination.

### Risk Assessment Matrix — selected risks and recommended actions
- Fiscal and debt risks:
  - Risk: Confidence falters due to increasing debt-to-GDP ratio.
  - Relative Likelihood: Medium; Time Horizon: ST, MT; Expected Impact: High.
  - Recommendation: credible fiscal consolidation focused on rationalizing current spending.
- Commodity-price risks (energy):
  - Relative Likelihood: Medium; Time Horizon: ST, MT; Expected Impact: High.
  - Note: Oil imports are about 20 percent of Fiji’s total imports.
  - Recommendation: finance temporary shocks; adjust policy mix preemptively for permanent shocks.
- Global demand and trade risks:
  - Relative Likelihood: High; Expected Impact: Medium.
  - Recommendation: tighten fiscal and monetary policy to support external stability if needed.
- Sectoral upside risk (tourism):
  - Relative Likelihood: Low-Medium; Expected Impact: Medium.
  - Recommendation: remove impediments to tourism expansion.
- Natural disaster and climate risks:
  - Relative Likelihood: Medium; Expected Impact: High.
  - Recommendation: rebuild fiscal and external buffers and prioritize investment in high-quality infrastructure.
- Structural reform risks:
  - Relative Likelihood: Medium; Expected Impact: High.
  - Recommendation: expedite structural reforms to promote private sector development.

### Selected economic indicators (Table 1 highlights)
- Quota: "SDR 98.4 million"
- GDP per capita (2018): "US$6,208"
- Nominal GDP (2018): "US$5.5 billion"
- Real GDP (percent change, 2015 2016 2017 2018 2019 2020 Proj.): "4.7 2.5 5.4 3.5 1.0 1.8"
- GDP deflator (percent change): "3.7 5.8 0.7 3.0 2.4 2.5"
- Consumer prices (average): "1.4 3.9 3.4 4.1 1.9 2.0"
- Central government budget (percent of GDP) — Revenue: "26.0 26.1 27.6 27.1 25.4 25.7"; Expenditure: "29.8 27.4 29.4 32.6 30.3 30.2"; Fiscal balance: "-3.8-1.3-1.8-5.5-4.9-4.5"
- Public debt: "43.044.043.746.247.850.3"
- Private sector credit: "14.2 12.9 13.9 14.9 7.0 6.0"
- Trade balance (percent of GDP): "-19.5-20.2-20.4-24.4-21.5-21.8"
- Current account balance: "-3.5-3.6-6.7-8.5-7.2-6.9"
- Gross official reserves (US$ millions): "921 915 1,103 940 1,008 1,038" — months of retained imports: "5.6 5.3 5.7 4.4 5.0 4.8"
- External central government debt (percent of GDP): "12.7 13.1 12.6 12.6 13.1 13.7"
- Output gap: "1.3 0.5 2.5 2.8 0.7 -0.5"
- GDP at current market prices (US$ millions): "4,682 4,930 5,353 5,537 5,526 5,766"
- GDP per capita (US$): "5,386 5,621 6,050 6,223 6,176 6,409"

### Staff appraisal — summary judgments and recommendations
- Growth and risks:
  - Growth slowed to "1 percent in 2019"; staff expects growth to pick up to "around 3 percent in the medium term."
  - Downside risks include increasing debt-to-GDP ratio, natural disasters, weaker global growth, delays in structural reforms, higher oil prices.
- Fiscal policy and public debt:
  - Fiscal space is at risk and should be rebuilt via fiscal consolidation focused on rationalizing current spending.
  - A credible medium-term fiscal strategy with revenue and expenditure projections should underpin consolidation efforts.
- Monetary policy and external stability:
  - Monetary stance appropriate under baseline but may need to be tightened to keep external stability risks in check.
  - RBF should avoid financing the government.
- Financial sector stability and governance:
  - Monitor NPLs; upgrade supervision with scenario-based stress tests.
  - Adopt Credit Union Act; strengthen governance of public NBFIs; subject FNPF nominations to fit and proper tests; establish FNPF investment guidelines and risk tolerance framework.
- Structural reforms:
  - Streamline business start-up and construction permit processes; reduce tax compliance costs; adopt new investment legislation; rationalize price controls; boost female labor force participation.
- Exchange restrictions:
  - Phase out exchange restrictions on current international transactions as inconsistent with Article VIII and harmful to trade and investment.
- Additional recommendation:
  - Next Article IV Consultation on standard 12-month cycle.

*Staff Report for the 2019 Article IV Consultation (discussions took place December 3-13, 2019; report reflects information as of December 15, 2019).*

### 2019. It focuses on Fiji near and medium-term challenges and policy priorities and was

### 1fjiea2020001 - 2019

### Executive Board assessment and staff context
- The report was prepared before COVID-19 and does not reflect its implications; the outbreak has "greatly amplified uncertainty and downside risks around the outlook."
- Executive Directors welcomed the recent pickup in activity after a sharp slowdown in 2019, but noted medium-term growth is favorable yet subject to significant risks, including rising fiscal and external imbalances, and natural disasters.
- Priority emphases by Directors:
  - Consolidate the fiscal position in a growth-friendly way to rebuild buffers and ensure debt sustainability.
  - Rationalize current spending while protecting priority investments and social programs.
  - Maintain monetary policy stance focused on adequate foreign reserves; rely on the automatic stabilizing mechanism of the peg; avoid central bank financing of the government; strengthen operational independence.
  - Gradually relax remaining exchange restrictions with Fund technical support.
  - Safeguard financial stability: upgrade supervision of nonbank financial institutions, adopt the Credit Union Act, monitor nonperforming loans, and strengthen AML/CFT framework per FATF recommendations.
  - Advance structural reforms to improve business environment, foster private investment, strengthen governance, improve labor and product market functioning (including boosting female labor force participation), rationalize price controls, align the investment regime with international best practices, and upgrade disaster risk management.

### Key economic developments and context
- Context and vulnerabilities:
  - Fiji is highly vulnerable to natural disasters and climate change; Cyclone Winston (February 2016) led to government reconstruction spending of "about 4   percent of GDP."
  - Real GDP growth averaged "4.5 percent in 2017-18," above estimated potential growth of "3 percent," driven by expansionary fiscal policy, strong tourism, and loose financial conditions.
  - The current account deficit was "8.5 percent of GDP in 2018," the largest since 2013, driven by an election-year fiscal deficit of "5.5 percent of GDP," higher imports of transportation equipment and oil, and modest real exchange rate appreciation.

- Recent developments (2019):
  - GDP growth estimated at "1 percent in 2019," down from "3.5 percent in 2018."
  - VAT collections declined by "1.8 percent" in the year to October 2019.
  - Retail sales growth estimated at "2 percent" in 2019, down from "6.2 percent" in 2018.
  - Visitor arrivals rose "3.2   percent y/y" in the first ten months of 2019.
  - Inflation reached "- 0.3   percent y/y" in November 2019.
  - Government spending contracted by "4.1 percent in 2019 up to October" while government revenues declined by "3 percent."
  - Merchandise trade deficit in 2019 up to October declined by "9 percent."
  - Foreign reserves coverage reached "5.1 months of imports in November 2019."

### Outlook and risks
- Baseline projections and near-term outlook:
  - Growth projected at "1.8 percent in 2020," supported by resilient tourism and remittances, more supportive financial conditions, and recovered business confidence.
  - Inflation projected to be "around 2 percent."
  - Fiscal deficit projected to gradually decline to "about 3 percent of GDP" as the economy recovers.
  - Debt-to-GDP ratio projected to "increase steadily in the medium term."
  - Current account deficit expected to narrow as private sector expands and reforms support external position.

- Risks:
  - Downside risks are elevated: an increasing debt-to-GDP ratio in the medium term, weaker global growth, delays in structural reforms, and higher oil prices.
  - Upside risk: stronger-than-expected tourism arrivals from national carrier route expansions and code-sharing.

- Authorities’ views:
  - Authorities broadly agreed with staff projections, projecting growth to pick up to "around 3 percent by 2021."
  - Authorities estimate the current account deficit to narrow to "5.5 percent of GDP in 2019" and remain around "5 percent of GDP in 2020-24."
  - Authorities project fiscal deficit to decline to "around 2 percent of GDP in the medium term" consistent with FY2019/20 medium-term fiscal strategy.

### Policy recommendations (macroeconomic and structural)
- Macroeconomic policy stance:
  - Set policies to reduce fiscal and external imbalances in an orderly way.
  - Pursue fiscal consolidation despite the slowdown to secure public debt sustainability and rebuild buffers for future disasters.
  - Monetary policy stance appropriate under baseline but should be tightened if foreign reserves decline and external risks increase.
  - Structural reforms to improve business environment and governance to strengthen external position and lift potential growth.

- Fiscal policy specifics:
  - Rebuild fiscal buffers in a growth-friendly way, focusing consolidation on reining in current spending given limited scope for further revenue mobilization and the need to protect capital spending for climate resilience.
  - Correctly treat privatization proceeds: the sale portion of Energy Fiji Limited (EFL) to FNPF and associated proceeds ("1.8 percent of GDP") should be treated as a financing item, not revenue; staff projects the fiscal deficit in 2019 will be "4.9 percent of GDP" and public debt-to-GDP will continue rising.

- Financial sector and governance:
  - Safeguard financial stability: upgrade supervision of nonbank financial institutions, adopt Credit Union Act, monitor nonperforming loans.
  - Strengthen AML/CFT framework per FATF.
  - Improve public financial management and governance to encourage private investment and enhance resilience.

- Structural and social priorities:
  - Improve business environment and governance to foster private investment, productivity, and competitiveness.
  - Reform labor and product markets, including measures to boost female labor force participation and rationalize price controls.
  - Align investment regime with international best practices.
  - Upgrade disaster risk management and increase climate resilience investments.

### Selected economic indicators (as presented in Table 1: Fiji: Selected Economic Indicators, 2015–20)
- Quota: "SDR 98.4 million"
- GDP per capita (2018): "US$6,208"
- Nominal GDP (2018): "US$5.5 billion"
- Real GDP (percent change): "4.7 2.5 5.4 3.5 1.0 1.8" (2015 2016 2017 2018 2019 2020 Proj.)
- GDP deflator (percent change): "3.7 5.8 0.7 3.0 2.4 2.5"
- Consumer prices (average): "1.4 3.9 3.4 4.1 1.9 2.0"
- Central government budget (percent of GDP)
  - Revenue: "26.0 26.1 27.6 27.1 25.4 25.7"
  - Expenditure: "29.8 27.4 29.4 32.6 30.3 30.2"
  - Fiscal balance: "-3.8-1.3-1.8-5.5-4.9-4.5"
- Public debt: "43.044.043.746.247.850.3"
- Money and credit (percent change)
  - Net domestic credit depository corporations: "13.4 7.6 5.9 9.7 ... ..."
  - Private sector credit: "14.2 12.9 13.9 14.9 7.0 6.0"
  - Broad money (M3): "13.9 4.8 8.2 2.7 ... ..."
  - Monetary base: "8.4 0.5 18.4 -9.9... ..."
  - Central Bank Policy rate: "0.5 0.5 0.5 0.0... ..."
  - Commercial banks deposits rate: "2.7 3.0 3.2 3.4... ..."
  - Commercial banks lending rate: "5.9 5.8 5.6 5.7... ..."
- External sector (percent of GDP)
  - Trade balance: "-19.5-20.2-20.4-24.4-21.5-21.8"
  - Services (net): "16.0 16.3 15.5 16.7 17.0 17.1"
  - Primary Income (net): "-6.1-5.5-7.9-6.5-8.2-7.6"
  - Secondary Income (net): "6.1 5.8 6.1 5.7 5.5 5.4"
  - Current account balance: "-3.5-3.6-6.7-8.5-7.2-6.9"
  - Capital account balance: "0.1 0.1 0.1 0.1 0.1 0.1"
  - Financial account balance: "-3.2-6.2-9.5-12.1-8.6-7.4"
    - Of which: FDI (net): "-5.1-8.2-7.2-8.6-7.6-6.2"
    - Of which: Portfolio investment (net): "1.9 0.6 0.8 0.6 0.3 2.2"
    - Of which: Other investment (net): "0.0 1.4 -3.0-4.2-1.4-3.3"
  - Errors and omissions: "1.6 -2.60.3 -6.00.0 0.0"
  - Change in reserve assets: "1.4 0.1 3.1 -2.31.5 0.5"
  - Gross official reserves (in millions of U.S. dollars): "921 915 1,103 940 1,008 1,038"
    - (In months of retained imports): "5.6 5.3 5.7 4.4 5.0 4.8"
  - External central government debt (In percent of GDP): "12.7 13.1 12.6 12.6 13.1 13.7"
- Miscellaneous
  - Output gap: "1.3 0.5 2.5 2.8 0.7 -0.5"
  - Real effective exchange rate (average): "105.5 110.1 111.9 112.7 ... ..."
  - Exchange rate (Fiji dollars per U.S. dollar; period average): "2.10 2.09 2.07 2.09 ... ..."
  - GDP at current market prices (in millions of U.S. dollars): "4,682 4,930 5,353 5,537 5,526 5,766"
  - GDP per capita (in U.S. dollars): "5,386 5,621 6,050 6,223 6,176 6,409"
  - GDP at current market prices (in millions of Fiji dollars): "9,822 10,327 11,065 11,557 11,951 12,470"

*Staff Report for the 2019 Article IV Consultation (discussions took place December 3-13, 2019; report reflects information as of December 15, 2019).*

### 14.      A key priority should be to rebuild fiscal buffers in a growth-friendly way to create

### 14.      A key priority should be to rebuild fiscal buffers in a growth-friendly way to create

### Fiscal strategy, debt outlook, and resilience
- Medium-term fiscal strategy in the budget for FY2019/20 focuses on fiscal consolidation to rebuild fiscal space to respond to shocks and facilitate external balance.
- Staff view: current strategy lacks detailed revenue and expenditure projections and measures underpinning fiscal deficit targets.
- Need to protect public investment to build resilience to natural disasters and boost potential growth.
- Public investment management should be strengthened with technical support from PFTAC.
- Staff projects that, under current policies, the public debt-to-GDP ratio will continue increasing in the medium term, posing major risks to debt sustainability.
- Footnote: Spending to boost resilience would go from 0.1 percent of GDP in 2020 to 0.7 percent in 2024. The annual fiscal cost of natural disasters in Fiji is about 1 percent of GDP according to the estimates by Hidetaka, N, S. Roger, and H. Zhang, 2019, IMF Working Paper 19/152.

### Recommended fiscal consolidation approach and specific measures
- Fiscal consolidation should be primarily based on rationalizing current spending.
- Rationale: Current spending has increased too fast and is substantially above the historical average; tax revenues have increased strongly since 2010 and are relatively high compared to other countries in the region, limiting scope for further revenue mobilization.
- Staff recommendation: keep current spending constant in real terms in the coming 5 years and sustain capital expenditure at around 10 percent of GDP, including an increasing allocation of spending to support natural disaster resiliency (Text Table 1 and Annex 4).
- If implemented, fiscal buffers would be rebuilt and the public debt-to-GDP ratio would be on a downward path (Text Table 1).
- Measures to keep current spending constant in real terms could include:
  - Maintaining public employment and transfer recipients constant
  - Adjusting public wages and transfers in line with inflation
  - Reducing transfers to state-owned enterprises such as the Fiji Sugar Corporation and the Water Authority of Fiji
  - Rationalizing spending in tertiary education by adopting recommendations from the education spending review being conducted by the World Bank
  - Targeting social programs to the most vulnerable

### Baseline and recommended fiscal scenarios (Text Table 1)
- Scenario years: 2020 2021 2022 2023 2024 (Baseline and Recommended scenarios presented)
- Real GDP Growth:
  - Baseline: 1.8, 2.8, 3.0, 3.3, 3.3
  - Recommended: 1.6, 2.6, 2.8, 3.1, 3.2
- Government Revenue:
  - Baseline: 25.7, 26.0, 26.3, 26.5, 26.6
  - Recommended: 25.7, 26.0, 26.3, 26.5, 26.6
- Current Expenditure (including interest payments):
  - Baseline: 20.5, 20.5, 20.5, 20.5, 20.3
  - Recommended: 20.2, 19.7, 19.2, 18.6, 18.1
- Capital Expenditure:
  - Baseline: 9.7, 9.6, 9.5, 9.4, 9.3
  - Recommended: 9.8, 9.9, 9.9, 10.0, 10.0
- Fiscal Balance:
  - Baseline: -4.5, -4.1, -3.7, -3.4, -3.0
  - Recommended: -4.3, -3.6, -2.8, -2.1, -1.5
- Public Debt:
  - Baseline: 50.3, 51.8, 52.8, 53.3, 53.4
  - Recommended: 50.1, 51.1, 51.2, 50.5, 49.2

### Authorities’ views on fiscal consolidation
- Authorities prioritize fiscal consolidation to reduce fiscal deficits and put the debt-to-GDP ratio on a downward trajectory.
- Expenditure restraint will underpin consolidation by maximizing growth dividend from public investment, enhancing operational efficiency, and containing wage bill expansion.
- Infrastructure management improvements (e.g., Construction Implementation Unit after Cyclone Winston) are cited as contributing to reduced vulnerability to natural disasters.

### Monetary policy and foreign reserves
- Fiji operates a fixed exchange regime with the local currency pegged to a basket of currencies amid limited capital mobility.
- RBF relies on the automatic stabilizing mechanism of the peg to manage liquidity: when foreign reserves decline, domestic liquidity tightens, interest rates rise, and import growth is contained.
- At current low inflation and high current account deficit, monetary policy should focus on maintaining adequate foreign reserves.
- Given recent recovery in foreign reserves and adequacy (Annex 2), RBF should continue relying on the automatic stabilizing mechanism of the peg.
- If foreign reserves fall again, RBF could tighten domestic credit to support the mechanism.
- RBF should avoid financing the government to protect the sustainability of the peg and the integrity of the monetary policy framework; the government should prohibit the central bank from financing fiscal deficits to strengthen RBF independence.

### Banking sector, NPLs, and financial stability measures
- Banking sector remains sound overall, underpinned by large foreign bank branches with access to parent banks for capital and liquidity.
- Credit expansion moderated from double-digit growth during 2014-2016 to a pace broadly in line with nominal GDP growth.
- NPLs have increased steadily in recent years though still low relative to historical levels and peers; they should be closely monitored.
- Recommendation: strengthen banking supervision by undertaking scenario-based solvency stress testing and summarizing results in the Financial Stability Review, per IMF technical assistance.

### Non-Bank Financial Institutions (NBFIs) vulnerabilities and governance
- Pockets of vulnerability in NBFIs: credit unions and financial cooperatives not properly regulated.
- Governance shortcomings in three big public NBFIs (Fiji National Provident Fund (FNPF), Fiji Development Bank (FDB), Housing Authority (HA)) regarding tenure, independence, and expertise of board members.
- Two recent FNPF board members were nominated without passing the fit and proper test in the FNPF Act.
- FNPF should establish sound investment guidelines and a risk tolerance framework to guide equity investments and protect pension savings.

### AML/CFT compliance gaps and recommended actions
- Fiji has six non-compliant/partially compliant ratings out of forty FATF recommendations; low or moderate AML/CFT effectiveness for all “immediate outcome” criteria.
- Recommendations:
  - Strengthen transparency of legal persons and arrangements by making beneficial ownership information available.
  - Enhance effectiveness of terrorism financing preventive measures and prosecution.
  - Step up AML/CFT supervisory efforts to improve compliance of financial institutions and designated non-financial businesses and professions.

### Financial sector reform priorities
- Streamline supervision of bank branches (robust home supervision) to focus on higher-risk NBFIs.
- Adopt the new Credit Union Act to bring credit unions and financial cooperatives into the RBF regulatory perimeter.
- Protect board members of major public NBFIs from removal without cause and extend terms from two to four years.
- Strengthen FNPF governance by appointing board members without conflicts of interest and who pass the fit and proper test.
- Continue strengthening the AML/CFT framework by fully adopting FATF recommendations.

### Authorities’ views on financial sector reforms and AML/CFT
- RBF sees scope to support activity if recovery is weaker; policy rate at 0.5 percent leaves little room for rate cuts, but lowering reserve requirements could place downward pressure on market rates.
- Draft Credit Union Act subject to final revisions; authorities anticipated adoption by August 2020.
- New supervisory ranking framework based on risk-based methodology in place since September 2019.
- NPLs under 5 percent and RBF considers this satisfactory.
- RBF has started supervising FDB; concrete measures to better protect NBFI board members are still pending.
- Scenario-based stress testing to be implemented in 2020 with results summarized in the Financial Stability Review; technical assistance provided in November 2019.
- AML/CFT framework improving: new prudential policies effective since January 2019; progress from compliance with 13 FATF recommendations in 2016 to 34 currently.

### Correspondent banking and external constraints
- Correspondent banking relationship pressures have been lower in Fiji than in other regional countries; past pressures during 2012-14 were resolved.
- Fiji’s stronger AML/CFT and supervisory frameworks relative to most regional peers cited as explanation for lower pressures.

### Structural reforms to sustain medium- and long-term inclusive growth
- Need to boost potential growth, improve inclusiveness, and strengthen resilience given limited fiscal space.
- Priorities: enhance business environment, strengthen governance, foster private investment, reduce corruption vulnerabilities, encourage greater female labor participation.

### Improving the business environment and governance
- Key impediments: starting a business, getting construction permits, obtaining credit, and tax compliance costs.
- Specific frictions:
  - It takes forty days and eleven procedures to start a business.
  - It takes fifteen procedures and almost seven months to get construction permits.
  - Access to credit was impeded by absence of a credit bureau and a registry for movable assets; improvements: credit bureau licensed May 2018; Personal Property Securities Registry created June 2019, though legal uncertainty discourages banks from joining the credit bureau.
  - Tax compliance costs elevated due to time-consuming filing and many steps.
- Recommendation: extend “Digital Fiji” to reduce face-to-face contact and vulnerabilities to corruption.
- Improve public consultation on policy changes via public hearings and written replies to budget submissions to reduce perceived policy uncertainty.
- Investment regime: current legal provision allows expropriation without compensation in broad circumstances; a new Investment Act aligning with international best practice has been drafted with IFC support and staff encourages prompt adoption.
- Price controls: about one third of consumption basket subject to price controls; recommendation to rationalize price controls and replace with sound market regulations.
  - FCCC adopted transparent formula to adjust electricity prices in August 2019; publishing the rate of return benchmark used to calculate tariffs is recommended.
  - Use improved electricity regulatory framework as a model for the water sector where tariffs frozen for more than twenty years.
- Exchange restrictions for payments on current international transactions (limits on large external payments; tax certification requirement for transfer of profits and dividends abroad, proceeds of airline ticket sales, and for making external debt and maintenance payments) should be phased out as they are inconsistent with Article VIII, hamper trade, and discourage foreign investment; remove with IMF advice and proper sequencing.

### Authorities’ views on business environment reforms
- MITT leading national effort to facilitate doing business with SCE and IFC to redesign and streamline processes, centralize information on BizFiji portal, and digitalize processes; goal to reduce time to start a business to 2 days and 2 procedures.
- FRCS rolling out new Taxpayer Online Services System to increase voluntary compliance and reduce tax compliance costs.
- New foreign investment legislation endorsed by Cabinet in September 2019 and to be submitted to Parliament in early 2020.
- FNPF aims to diversify investments: acquisition of 20 percent of EFL; gradual increase of equity investments from 25 to 35 percent and reduce fixed income from 75 to 65 percent.
- FCCC aims to enhance regulatory framework of the water sector using the electricity sector framework.
- RBF reviews exchange controls annually; last modification of limits was August 2018; FRCS aims to develop a strategy to gradually eliminate the tax certification requirement.

### Female labor force participation and demographics
- Median age: 27.5 as of 2017.
- Population growth has declined from about 2 percent per year in the 1980s to 0.6 percent in the 2010s.
- Fiji's female labor force participation was 39 percent in 2016, lower than in most countries and much lower than men at 76 percent.

*Source: IMF staff report excerpt.*

### 43.      More efforts to raise female labor force participation could help compensate for the

### 43.      More efforts to raise female labor force participation could help compensate for the 

### Female labor force participation and parental leave
- Starting from 2019, Fiji extended paid maternity leave from 84 to 98 days and introduced 5 days of paid paternity leave for fathers.
- An IFC study found that each year, businesses and the public sector in Fiji are losing 12.7 workdays per employee due to the responsibilities of working parents.
- The limited supply of affordable child care services is failing to meet the growing needs of families.
- Staff recommendation:
  - Establish a coherent policy framework to ensure that all childcare services in Fiji are safe and high quality.
  - Adopt legislation prohibiting discrimination by creditors on the basis of gender.
  - Mandate equal remuneration for work of equal value.
  - Ensure that women are able to work in the same industries as men.
- Authorities’ measures:
  - Continued support to the Fiji National Women’s Expo, providing a platform for many rural women to access urban markets and expand small and micro enterprises.
  - Workshops under the program have helped women gain experience and skills over the years.

### Data quality and statistical reporting
- Priority areas for improving data quality:
  - Publishing quarterly national accounts.
  - Reporting fiscal outcomes according to GFS 2014 standards with support from PFTAC.
- Authorities’ views and actions:
  - The Ministry of Economy has been working with PFTAC to publish fiscal data according to GFS standards.
  - Although tight resource constraints prevented completing the project, the Ministry of Economy will publish fiscal data in line with GFS standards in 2020.
  - Quarterly national accounts should also be published in 2020.

### Staff appraisal — Growth and risks
- Recent performance:
  - Economic growth slowed in 2019; GDP growth is projected at 1 percent in 2019, from 3.5 percent in 2018.
  - Staff expects growth to pick up to around 3 percent in the medium term, in line with estimates of potential growth.
- Downside risks to the outlook:
  - Increasing debt-to-GDP ratio.
  - Natural disasters.
  - Weaker-than-expected global growth.
  - Delays in implementing structural reforms.
  - Higher oil prices.

### Fiscal policy and public debt
- Key judgments:
  - Fiscal space is at risk and should be rebuilt.
  - Fiscal consolidation is warranted to rebuild fiscal buffers to respond to future natural disasters and to maintain public debt sustainability.
- Recommended actions:
  - A credible medium-term fiscal strategy including revenue and expenditure projections should underpin consolidation efforts and put the debt-to -GDP ratio on a downward path.
  - Specific consolidation measures should be identified, focused on rationalizing current spending, which increased too fast in recent years and is too high compared to the past.

### Monetary policy and external stability
- Assessment:
  - The stance of monetary policy remains appropriate under the baseline but may need to be tightened to keep external stability risks in check.
- Recommendation:
  - The RBF should avoid financing the government to safeguard the sustainability of the peg and the integrity of the monetary policy framework.

### Financial sector stability and governance
- Staff recommendations:
  - Closely monitor the evolution of NPLs and upgrade financial supervision by relying on scenario-based stress tests.
  - Adopt the new Credit Union Act as soon as possible, placing credit unions and financial cooperatives under the oversight of the RBF.
  - Strengthen the governance of public NBFIs.
  - The FNPF should avoid conflicts of interest for its board members; all future nominations should be subject to a rigorous fit and proper test.
  - FNPF should establish sound investment guidelines and a risk tolerance framework to guide equity investments and protect pension savings.

### Structural reforms to boost potential growth
- Recommended reforms:
  - Improve the business environment by streamlining requirements for starting a business and for getting construction permits.
  - Reduce tax compliance costs.
  - Adopt new legislation that aligns the investment regime with international best practice expeditiously.
  - Rationalize extensive price controls and replace them with sound market regulations, especially in the water sector.
  - More efforts to raise female labor force participation are desirable, including to compensate for the slowdown in population growth.

### Exchange restrictions and external transactions
- Recommendation:
  - Phase out the exchange restrictions for payments on current international transactions.
  - These restrictions on large external payments and tax certification requirements for certain international transactions are inconsistent with Article VIII, hamper Fiji's international trade, and discourage foreign investment.

### Additional recommendations
- It is recommended that the next Article IV Consultation take place on the standard 12-month consultation cycle.

*Source: Republic of Fiji — IMF staff report (selected extracts).*

### Annex I. Risk Assessment Matrix

### Annex I. Risk Assessment Matrix

### Fiscal and debt risks
- Risk: Confidence falters due to increasing debt-to-GDP ratio  
  - Relative Likelihood: Medium  
  - Source: Domestic  
  - Time Horizon: ST, MT  
  - Expected Impact: High  
  - Direction of Impact: (negative on confidence/investment)  
  - Main impacts and recommended policy actions:
    - A sustained increase in the debt-to-GDP ratio could affect business confidence and hamper private investment.
    - → A credible fiscal consolidation strategy focused on rationalizing current spending would put the debt-to GDP ratio on a clear downward path and secure public debt sustainability.

### Commodity-price risks (energy)
- Risk: Large swings in energy prices  
  - Relative Likelihood: Medium  
  - Source: External  
  - Time Horizon: ST, MT  
  - Expected Impact: High  
  - Main impacts and recommended policy actions:
    - Oil imports are about 20 percent of Fiji’s total imports. Risks to oil prices are broadly balanced, reflecting offsetting—but large and uncertain—supply and demand shocks.
    - → Temporary shocks should be financed while permanent shocks should be adjusted. Preemptive and gradual adjustments in the policy mix are adequate to deal with an uncertain duration of a shock.

### Global demand and trade risks
- Risk: Weaker-than-expected global growth  
  - Relative Likelihood: High  
  - Source: External  
  - Time Horizon: ST, MT  
  - Expected Impact: Medium  
  - Main impacts and recommended policy actions:
    - Weaker-than-expected global growth could materialize due to escalating trade tensions affecting China. Its impact on Fiji would also depend on its effect on Australia and New Zealand, the two largest trading partners.
    - → Tighten fiscal and monetary policy to support external stability and to secure fiscal sustainability.

### Sectoral upside risk (tourism)
- Risk: Stronger-than-expected performance in tourism sector  
  - Relative Likelihood: Low-Medium  
  - Source: Domestic  
  - Time Horizon: MT  
  - Expected Impact: Medium  
  - Main impacts and recommended policy actions:
    - The new air route and code share arrangements may boost the tourists from the Europe and India.
    - → Remove impediments to the expansion of the tourism sector to further improve the capacity and price competitiveness.

### Natural disaster and climate risks
- Risk: Higher frequency and severity of natural disasters  
  - Relative Likelihood: Medium  
  - Source: External  
  - Time Horizon: ST, MT  
  - Expected Impact: High  
  - Main impacts and recommended policy actions:
    - Fiji is prone to natural disasters.
    - → Rebuild fiscal and external buffers in normal times to use them when natural disasters hit. Enhance structural resilience prioritizing investment in high-quality-infrastructure.

### Structural reform risks
- Risk: Delays in the adoption of structural reforms  
  - Relative Likelihood: Medium  
  - Source: Domestic  
  - Time Horizon: MT  
  - Expected Impact: High  
  - Main impacts and recommended policy actions:
    - Structural reforms are essential to promote private sector development and support medium-term growth.

### RAM methodology and interpretation
- The Risk Assessment Matrix (RAM) shows events that could materially alter the baseline path (the scenario most likely to materialize in the view of IMF staff).
- Relative likelihood coding (staff subjective assessment):
  - “L” (low) is meant to indicate a probability below 10 percent.
  - “M” (medium) a probability between 10 percent and 30 percent.
  - “H” (high) a probability of 30 percent or more.
- The RAM reflects staff views on the source of risks and overall level of concern as of the time of discussions with the authorities. Non-mutually exclusive risks may interact and materialize jointly.

*Annex I. Risk Assessment Matrix — Republic of Fiji (IMF staff summary).*

### Annex III . Debt Sustainability Analysis

### 1fjiea2020001 - Annex III . Debt Sustainability Analysis

### Key findings and summary
- Public debt is expected to increase steadily under the baseline, posing major risks to debt sustainability.
- The fiscal deficit reached 5.5 percent of GDP in 2018, the highest in the decade, and the public debt-to-GDP ratio increased sharply to 46 percent of GDP.
- The fiscal deficit is projected at 4.9 percent of GDP in 2019 and to gradually decline in the medium-term as the economy recovers.
- Under current policies, the debt-to-GDP ratio is forecast to reach 53 percent of GDP by 2024.
- Fiji’s debt profile is associated with moderate levels of risk: public debt held by non-residents by end FY2018/19 was 25 percent; the remaining 75 percent is held by domestic residents.
- About 52 percent of total public debt is held by the FNPF.
- Short-term public debt was about 5 percent of the total and was held by domestic residents.
- The World Bank approved Fiji’s inclusion as an IDA-eligible economy in March 2019, making it eligible for concessional financing.
- Authorities plan to replace the global bond due in October 2020 with loans from the ADB and the World Bank.

### Baseline and projections
- Baseline assumption: GDP growth around 3 percent in the medium-term, in line with estimates of potential growth.
- Baseline projection: debt-to-GDP ratio increases to 53 percent of GDP over 2019-2024, remaining below the debt-to-GDP burden benchmark of 70 percent.
- Fiscal figures and projections (selected):
  - Fiscal deficit: 5.5 percent of GDP in 2018; projected 4.9 percent of GDP in 2019.
  - Public gross financing needs (selected years): shown in charts (percent of GDP) with values around 6-10 percent in projections.
- Historical revision note: Compared with the DSA in the last Article IV report, the debt-to-GDP ratios from 2014 to 2018 have been revised down by 3-4 percentage points due to an upward revision of historical nominal GDP.

### Alternative scenarios and their implications
- Constant Primary Balance scenario
  - Assumption: the estimated primary balance in 2019 remains constant in the medium term (Primary Balance = -2.1 percent of GDP each year).
  - Outcome: debt-to-GDP ratio increases steadily, reaching 60 percent of GDP in 2024, putting debt sustainability at risk.
- Historical scenario
  - Assumption: GDP growth and primary balances in 2020-24 equal the 2009-18 average.
  - Outcome: public debt-to-GDP ratio in the medium term reaches 46 percent of GDP, lower than in the baseline.
  - Note: average primary balance during 2009-18 was 0.5 percent of GDP versus average projected primary balance during 2020-24 of -0.8 percent of GDP.
  - Implication: preserving fiscal discipline as in 2009-18 would help rebuild a debt buffer of 7 percent of GDP compared to end FY2018/19.

### Stress tests and shock scenarios
- Natural Disaster scenario
  - Assumptions: shock hits in 2020, slowing GDP growth to -2 percent and temporarily increasing the primary deficit to 3.7 percent of GDP in 2021 and 3.2 percent of GDP in 2022.
  - Outcome: debt-to-GDP ratio reaches 74 percent of GDP in 2022 and remains close to 59 percent by 2024, putting debt sustainability at risk.
  - Note: this is broadly in line with what was observed with Cyclone Winston in 2016.
- Contingent Liability shock scenario
  - Assumption: central government guarantees state-owned enterprises’ debt of about 10 percent of GDP materialize in 2020 (contingent liability = 10 percent of GDP).
  - Outcome: debt-to-GDP ratio jumps to almost 61 percent of GDP in 2020 and reaches 67 percent of GDP by 2024; gross financing needs breach the benchmark of 15 percent in 2020.
- Other stress tests (summary of assumptions and sample impacts)
  - Primary Balance Shock: primary balance path adjusted (example projections shown with primary balance values).
  - Real GDP Growth Shock: sample path includes Real GDP growth 1.0, -0.3, 0.7, 3.0, 3.3, 3.3 for 2019-2024 under the shock.
  - Real Interest Rate Shock and Real Exchange Rate Shock: effective interest rate and inflation assumptions adjusted in charts and tables.
  - Combined Macro-Fiscal Shock: combined impacts generate larger debt and financing need responses in projection charts.

### Debt composition and market indicators
- Public debt holders (percent of total, end FY2018/19):
  - Domestic: 75%
  - Global Bonds: 7%
  - ADB Loans: 7%
  - China Loans: 8%
  - IBRD Loans: 3%
- Market and risk indicators (selected snapshots):
  - Sovereign spreads (EMBIG, bp) as of Dec 05, 2019: 372 (reported as EMBIG (bp) 372).
  - Nominal gross public debt (selected years): 2019 = 46.2 (percent of GDP); projections to 2024 include values up to 53.4 (percent of GDP) in projection table.
  - Public gross financing needs (percent of GDP) reported in the table and charts with values in the range shown for 2019-2024.
  - Ratings (2019): Moody's Ba3; S&P's BB-; Fitch n.a.

### Fiscal and macro assumptions used in DSA
- Baseline underlying assumptions (selected):
  - Real GDP growth (baseline projections): 2019 = 1.0; 2020 = 1.8; 2021 = 2.8; 2022 = 3.0; 2023 = 3.3; 2024 = 3.3 (percent).
  - Inflation (GDP deflator, percent): 2019 = 2.4; 2020-2024 = 2.5 each year.
  - Primary Balance (baseline path, percent of GDP): 2019 = -2.1; 2020 = -1.7; 2021 = -1.2; 2022 = -0.8; 2023 = -0.4; 2024 = 0.0.
  - Effective interest rate (percent): 2019 = 6.3; 2020-2024 ~6.0-6.1.
- External DSA key figures (selected):
  - External debt (percent of GDP): 2019 = 23.3; projected around 24.9-25.6 in subsequent years.
  - Current account deficit, excluding interest payments (percent of GDP): sample values include -5.5 in 2019 and various projected deficits in the table (e.g., -5.7, -5.4).
  - Gross external financing need (in millions of US dollars): 2019 = 589.6; 2020 = 812.3; 2021 = 648.8; projected up to 889.3 by 2024.
  - External debt-to-exports ratio (percent): 2019 = 49.9; projected values shown through 2024 (e.g., 48.1 in 2024).

### Risk assessment and policy implications
- Risk assessment summary:
  - Baseline keeps debt below the 70 percent debt burden benchmark, but several shocks push debt above that threshold.
  - Natural disaster shock and contingent liability shock both put debt sustainability at risk (debt-to-GDP rising to 74 percent in 2022 under the natural disaster shock; nearly 67 percent by 2024 under the contingent liability shock).
  - Gross financing needs can breach the 15 percent of GDP benchmark under contingent liability shock conditions.
- Policy implications highlighted in the analysis:
  - Preserving fiscal discipline (e.g., returning to average primary balances seen in 2009-18) would help rebuild a debt buffer of 7 percent of GDP relative to end FY2018/19.
  - Building a clear downward path for debt in normal times would improve resilience to natural disasters and contingent liabilities.
  - Use of concessional financing (IDA eligibility) and replacement of the global bond with ADB and World Bank loans are part of the authorities’ plan to manage debt rollover risks.

*Source: IMF staff (Annex III . Debt Sustainability Analysis, as of December 05, 2019).*

### Annex IV. Natural Disasters Risk Management

### Annex IV. Natural Disasters Risk Management

### Overview
- Fiji has a disaster risk management (DRM) framework that has been strengthened after dealing with a variety of natural disasters, with strong institutional arrangements and capacity to respond quickly and effectively.
- There is a case for investing more in building resilience ex ante (rather than responding to a disaster ex post) by focusing on structural and financial resilience.

### Natural disaster risk profile and history
- Fiji’s location in the tropical cyclone belt renders it prone to cyclones and other natural disasters.
- Between 1981 and 2016, Fiji experienced 36 natural disasters, 20 of which were cyclones.
- About 7 natural disasters caused damage of more than 2% of GDP and affected more than 20 percent of the population.
- In 2016, Cyclone Winston, a category-five storm and the most intense on record to hit Fiji, caused extensive damage to infrastructure, agricultural production, and the sugar industry.
- The frequency and severity of natural disasters in the region has been increasing, making building resilience of utmost importance.

### DRM institutional framework and evolution
- Key institutional milestones:
  - National Disaster Management Office (NDMO) established in 2001, responsible for coordination of response to natural disasters.
  - NDMO operates under the Natural Disaster Management Act (1998), providing legislative basis for the Fiji National Disaster Management Plan (1995).
  - In 2007 Fiji adopted the National Climate Change Policy Framework, resulting in Fiji’s first National Climate Change Policy (2012).
- The humanitarian response to Cyclone Winston, led by the government with external assistance, was quick and successful: cash and voucher payments were used for food assistance, civil-military coordination enabled fast deployment of relief, and most schools were operational a few weeks after the shock.

### Disaster Resilience Strategy (DRS) within a macroeconomic framework
- Recommendation: develop a resilience strategy within a macroeconomic framework consistent with maintaining debt sustainability, including under adverse shocks.
- The Disaster Resilience Strategy (DRS) could be incorporated into the medium-term fiscal strategy chapter in the budget.
- A DRS has three important pillars:
  1. Structural resilience
  2. Financial resilience
  3. Post-disaster resilience

### Pillar 1 — Structural resilience
- Definition: infrastructure and other investment to limit the impact of natural disasters.
- Recent actions and observations:
  - Government investments to enhance structural resilience include providing early warnings and properly maintaining energy infrastructure.
  - Public investment (including infrastructure to strengthen resilience) was increased notably, reaching an average of 10.3 percent of GDP during 2014-18.
  - The 2018 Climate Vulnerability Assessment conducted by the World Bank estimated large investment needs to strengthen structural resilience.
- Fiscal implication: a current expenditure-based fiscal consolidation is warranted to prioritize investment needs while maintaining debt sustainability.

### Pillar 2 — Financial resilience
- Definition: fiscal buffers and financial instruments to protect fiscal sustainability and manage recovery costs.
- Key statistics and facts:
  - Public debt-to-GDP ratio increased from 43 percent of GDP by end-2015 to 49 percent by July 2019.
  - Fiji’s households have limited access to housing insurance; IFC estimates that 94 percent of homes are uninsured.
- Instruments and initiatives:
  - IFC is helping the Fiji government to provide parametric insurance to farmers and disadvantaged families.
  - For large natural disasters, the PCRAFI insurance program allows countries to pay a premium to transfer some risk to international reinsurance markets; Tonga and Vanuatu have relied on this scheme in recent years.
  - Green bonds are cited as a useful tool to attract financing for building resilience to natural disasters and to support sustainable development.

### Box 1 — Green Bonds in Fiji
- Fiji collaborated with IFC to develop Fiji’s first sovereign Green Bond.
- On November 2017, Fiji became the first emerging economy to issue sovereign green bonds.
- The bond raised 100 million Fiji dollars (around 50 million US dollars or 1 percent of GDP), split between:
  - a five-year tenor at 20 million targeting commercial banks, and
  - a 13-year tenor at 80 million focusing on institutional investors.
- The bond was issued in domestic currency.
- Eligible expenditures pipeline was developed and endorsed with support from the World Bank’s Climate and Environment team.
- Example projects financed:
  - rehabilitation and construction of schools damaged by Cyclone Winston,
  - a rainwater harvesting system,
  - construction of Naboro landfill,
  - reducing emissions from deforestation and forest degradation,
  - installation of solar home systems for rural areas.
- Lessons learned:
  - Green bonds are not necessarily a cheaper source of financing: the coupon for 5 years was 4 percent and for 13 years was 6.3 percent, broadly in line with standard bonds.
  - Transparency is critical; resources and expertise must be applied to monitor and report use of proceeds. Capacity gaps can be filled with external expertise (Fiji drew on the World Bank).

### Pillar 3 — Post-disaster resilience
- Definition: contingency planning ensuring an efficient disaster response.
- Fiji’s post-disaster practices noted as strengths:
  - Strong institutional arrangements and coordination mechanisms.
  - Effective use of cash and voucher payments for food assistance.
  - Robust civil-military coordination enabling rapid relief deployment.
  - Rapid restoration of school operations within weeks after Cyclone Winston.

### Key statistics (preserved exactly as in source)
- 36 (total natural disasters between 1981 and 2016)
- 20 (cyclones among those disasters)
- 7 natural disasters caused damage of more than 2% of GDP and affected more than 20 percent of the population
- 2016 (Cyclone Winston)
- National Disaster Management Office (NDMO) established in 2001
- Natural Disaster Management Act (1998)
- Fiji National Disaster Management Plan (1995)
- National Climate Change Policy (2012)
- Public investment average: 10.3 percent of GDP during 2014-18
- Public debt-to-GDP: 43 percent of GDP by end-2015; 49 percent by July 2019
- 94 percent (share of homes uninsured, IFC estimate)
- Green bond amount: 100 million Fiji dollars (around 50 million US dollars or 1 percent of GDP)
- Green bond split: 20 million (5-year tenor); 80 million (13-year tenor)
- Green bond coupons: 4 percent (5 years); 6.3 percent (13 years)
- November 2017 (green bond issuance date as stated)

### Policy recommendations and priorities
- Develop a Disaster Resilience Strategy (DRS) integrated into the medium-term fiscal framework and consistent with debt sustainability.
- Prioritize ex ante investments in structural resilience (infrastructure, early warning systems, energy infrastructure maintenance) while pursuing a current expenditure-based fiscal consolidation to finance these needs.
- Strengthen financial resilience by:
  - restoring fiscal buffers and putting public debt on a downward path through fiscal consolidation,
  - expanding insurance coverage (including parametric insurance for farmers and disadvantaged families),
  - leveraging risk-transfer mechanisms such as PCRAFI for large disasters,
  - using green bonds and similar instruments while ensuring transparency and capacity for monitoring proceeds.
- Maintain and strengthen post-disaster contingency planning and coordination mechanisms to ensure efficient humanitarian response and rapid recovery.

*Source: Annex IV. Natural Disasters Risk Management (excerpt).*

### Annex VI. Selected Past Advice

### Annex VI. Selected Past Advice

### Fund recommendations and policy actions
- Fiscal consolidation to rebuild fiscal space and support external stability.
  - Policy action: Fiscal consolidation is a key objective of the medium-term fiscal strategy in the FY2019/20 budget. The challenge is implementation.
  - Assessment: No progress.
- Protect public investment by containing current primary expenditure.
  - Assessment: (Implied in strategy above; no separate progress line provided in source.)
- Reduce policy uncertainty by fostering more comprehensive and transparent consultations.
  - Policy action: Conduct policy consultations (e.g., budget) with a diverse set of stakeholders.
  - Assessment: Some progress, including conducting policy consultations (e.g., budget) with a diverse set of stakeholders.
- Rationalize price controls.
  - Assessment: Some progress in the electricity sector.
- Restore pension savings disbursed after TC Winston.
  - Assessment: No progress. The authorities are reluctant to increase mandatory pension contributions. The work with IFC to get parametric insurance will contain the need for using pension savings in future natural disasters.
- Improve fiscal reporting.
  - Assessment: Some progress. The government publishes fiscal data every quarter. No progress in publishing in a timely manner the annual reports of major SOEs.
- Improve the ease of doing business.
  - Assessment: Some progress. The Personal Property Registry was launched in June 2019 facilitating access to credit.
- Upgrade the foreign investment regime.
  - (No progress statement provided in the excerpt.)
- Remove exchange restrictions for payments on current international transactions.
  - Assessment: No progress in some areas; authorities agree to consider gradually phasing out exchange restrictions and welcome technical support from the Fund for appropriate measures and sequencing.
- Strengthen statistics for informed policy making.
  - Assessment: Mixed progress. No progress on some items. Some progress: Data Dissemination System (e-GDDS) in September 2018. Progress with quarterly national accounts and with fiscal statistics under GFS (2014) standards has been slow.

### Fund relations and financial positions (as of December 31, 2019)
- Membership Status: Joined: May 28, 1971; Article VIII.
- Quota and holdings:
  - Quota 98.40 SDR Million 100.00 Percent of Quota
  - Fund holdings of currency 74.30 SDR Million 75.51 Percent of Quota
  - Reserve position in Fund 24.14 SDR Million 24.53 Percent of Quota
- SDR Department:
  - Net cumulative allocation 67.09 SDR Million 100.00 Percent of Allocation
  - Holdings 44.01 SDR Million 65.59 Percent of Allocation
- Outstanding Purchases and Loans: None
- Latest Financial Arrangements: None
- Projected Payments to Fund (SDR Million; based on existing use of resources and present holdings of SDRs):
  - Principal: (no principal amounts listed)
  - Charges/Interest: 2020: 0.25; 2021: 0.26; 2022: 0.25; 2023: 0.26; 2024: 0.26
  - Total: 2020: 0.25; 2021: 0.26; 2022: 0.25; 2023: 0.26; 2024: 0.26

### Exchange rate arrangements
- Fiji’s de facto exchange rate arrangement is a conventional peg to a basket of currencies of Fiji’s five major trading partners.
- The exchange rate of the Fiji dollar against U.S. dollar was F$ 2.17 per U.S. dollar as of December 20, 2019.
- Remaining exchange restrictions subject to Article VIII arise from Fiji Revenue and Customs Authority tax certification requirements on the transfer abroad of profits and dividends, on the proceeds of airline ticket sales, and on the making of external debt and maintenance payments and from limits on large payments (e.g., oil imports and dividends repatriation of foreign banks).

### Statistical issues and data adequacy
- General assessment: Data provision is broadly adequate for surveillance. Macroeconomic data are improving, aided by Fund and PFTAC technical assistance.
- Data dissemination:
  - In September 2018, the authorities began publishing key macroeconomic data via a National Summary Data Page (NSDP) under the enhanced General Data Dissemination System (e-GDDS).
- National accounts:
  - Production-side estimates of GDP by production at current and constant 2014 prices are available up to 2018.
  - Current price estimates of GDP by expenditure and income are available to 2017 and will be updated to 2018 by early-2020.
  - Estimates were rebased from 2011 to 2014 in 2019 using the 2013/14 HIES and the 2014 Business Census.
- Price statistics:
  - CPI data are published monthly using 2014 weights derived from the 2013/14 HIES survey.
  - Quarterly PPIs for goods and services (experimental) are available from 2011 to 2019:Q2.
- Government finance statistics (GFS):
  - Fiji compiles and submits annual GFS data for budgetary central government (BCG).
  - Most recent submission was in December 2018 and included data for the fiscal years 2016 and 2017.
  - Re-classification of BCG expenditure data is required to improve integrity and prepare for general government consolidation.
  - Ongoing chart of accounts reforms for BCG planned for implementation mid-August 2020 may improve GFS reporting.
  - Delays persist in obtaining audited annual financial statements from statutory bodies and state-owned enterprises.
- Monetary and financial statistics (MFS):
  - Data on the central bank, ODCs, and OFCs are comprehensive and provided regularly using standardized reporting forms.
  - Full implementation of STA technical assistance recommendations will improve quality and comparability.
- Financial sector indicators:
  - Fiji reports all core FSIs and seven encouraged FSIs for deposit takers on a quarterly basis with one quarter timeliness; coverage and timeliness for other sectors need improvement.
- Balance of payments:
  - Weaknesses persist in coverage, classification and compilation methodology of external sector statistics (ESS).
  - FBoS has undertaken actions to improve timeliness and consistency with BPM6, albeit at a slow pace.

### Key economic developments, outlook, and policy priorities (authorities’ statement)
- Recent performance and outlook:
  - GDP growth: 1.0 percent in 2019 compared to 3.5 percent in 2018.
  - Tourism earnings: growth of 3.7 percent (Jan-Sep 2019).
  - Remittances: growth of 4.2 percent in 2019.
  - Current account deficit: 5.5 percent of GDP in 2019 compared to 8.5 percent of GDP in 2018.
  - Inflation: December 2019 inflation -0.9 percent; average inflation for 2019 1.8 percent versus 4.1 percent in 2018.
  - Growth projections: 1.7 percent in 2020; 2.9 percent in 2021; 3.0 percent in 2022.
  - Inflation forecast: rebound to an average of around 2.0 percent in the medium term.
- Risks to outlook:
  - Downside risks from slower growth in major trading partners, potential adverse impact of the COVID-19 outbreak and the Australian bushfires on tourism, and delays in structural reforms.
- Fiscal policy:
  - Fiscal deficit: 5.6 percent of GDP in 2018; 4.3 percent of GDP in 2019.
  - Debt-to-GDP ratio: 48.0 percent in 2019 from 46.2 percent in 2018.
  - Medium-term fiscal framework aims to reduce the fiscal deficit to around 1.5 percent of GDP and bring down the debt-to-GDP ratio to 45.9 percent by 2021-22.
  - Policy actions: contain expenditure growth, keep public sector wage-bill stable, prioritize high-impact capital spending, enhance revenue collection via FRCS IT systems and additional resources for tax compliance.
- External sector:
  - Current account deficit expected to narrow from 5.5 percent of GDP in 2019 to around 5.0 percent of GDP in 2024.
  - Foreign reserves equivalent to 5.2 months of retained imports (MORI) of goods and non-factor services, above the 3 months minimum level of the international reserve adequacy standard.
- Monetary policy:
  - Monetary policy will remain accommodative in 2020 to support economic activity while ensuring price stability and adequate foreign reserves.
  - Authorities consider rationalizing certain price controls, including tariffs in the water sector.
- Financial sector:
  - Banking sector: non-performing loans (NPLs) relatively low at 3.0.
  - Liquidity remained adequate and supportive of credit growth.
  - Access to credit improved with the Personal Property Securities Registry launched in 2019.
  - Credit Reporting Agency licensed in 2018 expected to start operation in early 2020.
  - Plans for scenario-based solvency stress testing and publication in the Financial Stability Review.
  - Revised Credit Unions Act planned to place credit unions and financial cooperatives under RBF oversight; RBF’s full supervision of the Fiji Development Bank underway.
- Structural reforms and governance:
  - Reforms focused on ease of doing business, governance, and investment regime modernization with support from SCE and IFC.
  - Investment Bill endorsed by Cabinet in September 2019 and expected to be presented to Parliament in 2020.
  - Plans to publish quarterly national accounts and report fiscal outcomes according to the GFS 2014 standards in 2020 with PFTAC support.
- Climate commitments:
  - Submitted long-term climate action plan under the Paris Agreement aiming to reach net zero carbon emissions across all sectors of the economy by 2050.
  - Plan to introduce a carbon credit scheme, reward climate-friendly infrastructure projects, and make 30 percent of its exclusive economic zone a marine protected area by 2030.

*Source: Republic of Fiji — Staff Report for the 2019 Article IV Consultation (Informational Annex), prepared by Asian and Pacific Department (as presented in the supplied content).*

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_Source: https://www.imf.org/-/media/files/publications/cr/2020/english/1fjiea2020001.pdf_