## 1fjiea2021001 ## Source details **Canonical URL:** [1fjiea2021001](https://www.imf.org/-/media/files/publications/cr/2021/english/1fjiea2021001.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2021/english/1fjiea2021001.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2021/english/1fjiea2021001.pdf.json) --- ### Context and recent developments - COVID-19 Delta variant outbreak in April 2021; infection rates were at one point among the highest in the world. - AstraZeneca vaccine contributions from Australia and New Zealand enabled aggressive vaccination. - As of mid-October, more than 95 percent of eligible Fijians (those over 18) had received their first dose and 80 percent were fully vaccinated. - Government eased local curfew and business restrictions and announced borders would reopen to fully vaccinated travelers from a select group of countries starting December 1, 2021. - Crisis produced the worst economic contraction in Fiji’s history with large-scale layoffs, surging unemployment, and high non-performing loans. - Multilateral and bilateral support, including loans, grants, and the 2021 SDR allocation, cushioned the balance of payments. - Fiscal impact of COVID-19 support measures reduced the overall revenue envelope by about 5 percent of GDP, creating a structural imbalance. - National elections must be held sometime between July 2022 and January 2023. ### Outlook and key macro projections - Baseline tourism assumption: tourist arrivals reach 50 percent of 2019 levels in 2022 and 95 percent of 2019 levels in 2023. - Real GDP (percent change): 2021: -4.0; 2022: 6.2; 2023: 8.3; 2024: 6.4; 2025: 4.5; 2026: 3.4. - Consumer prices (average percent change): 2021: 1.2; 2022: 2.5; 2023: 3.0. - Per capita GDP not projected to recover to 2019 levels before 2023. - Baseline fiscal assumption: authorities reduce fiscal deficit to around 2 percent of GDP over the medium term and achieve a sustainable primary budget surplus of 1-2 percent of GDP by the end of the medium-term. - Key downside risks: - High vulnerability to natural disasters. - Uncertainty in reestablishment of pre-pandemic tourism and spending patterns. - Surge in contingent liabilities from loan guarantees to state-owned enterprises. - Scarring effects and diminished fiscal space. - Upside possibility: faster border reopening and tourism arrivals. ### Fiscal and selected macro indicators (exact figures) - Real GDP (percent change): 2018: 3.8; 2019: -0.4; 2020: -15.7; 2021: -4.0; 2022: 6.2; 2023: 8.3; 2024: 6.4; 2025: 4.5; 2026: 3.4. - Central government budget (percent of GDP): - Revenue: 2018: 26.9; 2019: 27.3; 2020: 20.4; 2021: 21.4; 2022: 22.2; 2023: 23.8; 2024: 25.0; 2025: 25.4; 2026: 25.7. - Expenditure: 2018: 32.4; 2019: 29.9; 2020: 33.2; 2021: 37.2; 2022: 33.2; 2023: 30.2; 2024: 28.9; 2025: 28.5; 2026: 28.3. - Overall balance: 2018: -5.5; 2019: -2.7; 2020: -12.8; 2021: -15.8; 2022: -11.0; 2023: -6.4; 2024: -4.0; 2025: -3.1; 2026: -2.6. - Primary balance: 2018: -2.8; 2019: 0.1; 2020: -9.1; 2021: -11.8; 2022: -7.0; 2023: -2.5; 2024: -0.2; 2025: 0.6; 2026: 1.2. - Central government debt (percent of GDP): 2018: 46.4; 2019: 48.9; 2020: 70.8; 2021: 86.7; 2022: 89.4; 2023: 85.9; 2024: 82.3; 2025: 79.8; 2026: 78.0. - External sector (percent of GDP): - Current account balance: 2018: -8.4; 2019: -12.6; 2020: -13.4; 2021: -15.7; 2022: -8.8; 2023: -7.0; 2024: -6.7; 2025: -7.4; 2026: -7.8. - Services balance: 2018: 16.6; 2019: 14.9; 2020: -1.7; 2021: -5.9; 2022: 7.8; 2023: 13.5; 2024: 15.3; 2025: 15.9; 2026: 15.9. - Gross official reserves (months of prospective imports): 2021: 7.7 (noted elsewhere as expected around $1.2 billion by end-2021, equivalent to about 7 months of prospective import cover). - Monetary and financial indicators: - Private sector credit (percent change): 2019: 4.6; 2020: -3.1; 2021: -3.6. - Broad money (M3) (percent change): 2019: 2.6; 2020: 1.3; 2021: 13.2. - Monetary base (percent change): 2019: 15.2; 2020: 13.5; 2021: 35.7. - Central Bank Policy rate (end of period): 2018: 0.50; 2019: 0.50; 2020: 0.25. - Commercial banks lending rate (end of period): 2018: 5.69; 2019: 6.30; 2020: 6.12. - Additional macro figures (exact): - GDP at current market prices (FJD millions): 2021: 9,466; 2022: 10,307; 2023: 11,491; 2024: 12,566; 2025: 13,480; 2026: 14,281. - GDP at current market prices (USD millions): 2021: 4,641; 2022: 5,054; 2023: 5,635; 2024: 6,162; 2025: 6,610; 2026: 7,003. - GDP per capita (USD): 2021: 5,130; 2022: 5,556; 2023: 6,160; 2024: 6,699; 2025: 7,146; 2026: 7,450. - Real output gap: 2018: 2.8; 2019: -0.8; 2020: -12.9; 2021: -17.8; 2022: -14.5; 2023: -9.2; 2024: -5.7; 2025: -3.9; 2026: -3.1. ### Financial sector stability and non-performing loans (NPLs) - Monetary policy accommodative; financial conditions relatively loose. - Private sector credit contracted by 3.1 percent in 2020 and expected to shrink by a further 3.6 percent by end-2021. - Non-performing loans have risen to record levels. - NPLs to Total Loans: 1.9 (2017), 2.6 (2018), 3.0 (2019), 4.6 (2020), 7.5 (Jun-21). - Provision to NPLs: 55.2 (2017), 36.2 (2018), 38.9 (2019), 45.0 (2020), 30.4 (Jun-21). - Net NPLs to Net Loans: 0.9 (2017), 1.7 (2018), 1.8 (2019), 2.6 (2020), 5.4 (Jun-21). - Risk Weighted CAR / Capital adequacy (percent): 14.7 (2017), 16.6 (2018), 18.3 (2019), 19.3 (2020), 20.8 (Jun-21). - Return on Assets (Before Tax): 2.1 (2017), 2.1 (2018), 2.2 (2019), 2.0 (2020), 1.6 (Jun-21). - Banks have made significant provisions; under a “severe” shock where the entire COVID relief portfolio (almost 19 percent of banks’ total loans) is added to existing NPLs, four banks would need to strengthen capital adequacy. ### Financial sector supervision and recommended actions - RBF should continue to bolster off-site and on-site supervision and closely monitor asset portfolios and liquidity positions. - Enhance microprudential supervision via bilateral consultations with banks. - RBF has mandated prudential reporting specifically on loans under repayment holidays and enhanced on-site examinations. - Deploy macroprudential tools to address potential systemic issues. - Implement outstanding Financial Sector Assessment Program 2018 recommendations, particularly on crisis management. - Continue to monitor correspondent banking relationships and AML/CFT compliance; Fiji is in discussions with European authorities regarding tax cooperation concerns. ### Fiscal consolidation roadmap and revenue measures (staff proposals and estimates) - Target: sustainable primary budget surplus of 1-2 percent of GDP by end of medium-term. - Full implementation of proposed reforms would raise government revenue by about 4.3 percentage points of GDP. - Phased implementation approach: target measures with greatest revenue gains and least household impact first; broader reforms in FY23-24 or beyond. - Text Table 1 (selected revenue measures, percent of GDP): - FY22-23: Simplify PIT Structure; Lower Threshold to F$20,000: 0.16 - FY23-24: PIT Structure: Lower Threshold to F$15,000: 0.26 - Raise VAT from 9% to 10%: 0.66 - FY24-25: Raise VAT from 10% to 12%: 1.32 - Raise Fringe Benefit Tax to 35%: 0.15 - Introduce Dividend Witholding Tax at 10%: 0.29 - Increase Excise Tax on Alcohol: 0.37 - Cut Film Tax Rebate by 50%: 0.68 - Discontinue Export Incentive: 0.13 - Raise Departure Tax from F$100 to F$125: 0.16 - Raise Departure tax from F$125 to F$150: 0.16 - Total FY Increase in Revenue: FY22-23: 1.78; FY23-24: 1.98; FY24-25: 0.42; FY25-26: 0.16 - Direct Taxes by FY: FY22-23: 0.68; FY23-24: 0.29; FY24-25: 0.26; FY25-26: 0.00 - Indirect Taxes by FY: FY22-23: 1.1; FY23-24: 1.69; FY24-25: 0.16; FY25-26: 0.16 - Reduced Current Spending by FY: FY22-23: 0.1; FY23-24: 0.3; FY24-25: 0.4; FY25-26: 0.3; FY26-27: 0.2 - Text Table 2 (decomposition of fiscal consolidation, percent of GDP): - Revenue Measures by FY: FY22-23: 1.8; FY23-24: 2.0; FY24-25: 0.4; FY25-26: 0.2; FY26-27: 0.0 - Expenditure Measures by FY: FY22-23: 0.1; FY23-24: 0.3; FY24-25: 0.4; FY25-26: 0.3; FY26-27: 0.2 - Unwinding of Pandemic Expenditure Measures: FY22-23: 1.9; FY23-24: 0.8; FY24-25: 0.0; FY25-26: 0.0; FY26-27: 0.0 - Cyclical Improvement (incl. Denominator Effect): FY22-23: 1.3; FY23-24: 0.8; FY24-25: 0.4; FY25-26: 0.2; FY26-27: 0.2 - Other Factors by FY: FY22-23: -0.2; FY23-24: 0.1; FY24-25: 0.0; FY25-26: -0.1; FY26-27: 0.2 - Total Change in Primary Balance: FY22-23: 4.9; FY23-24: 4.0; FY24-25: 1.2; FY25-26: 0.5; FY26-27: 0.6 - Primary Balance Forecast by FY: FY22-23: -4.9; FY23-24: -0.9; FY24-25: 0.3; FY25-26: 0.8; FY26-27: 1.4 - Staff assessment: adjustments feasible absent large new shocks; incomplete implementation is a key risk. ### Contingent liabilities, SOEs, and public financing risks - Total contingent liabilities rose nearly 70 percent over the last four years, reaching about 19 percent of GDP in October 2021. - Significant guarantees: - May 2020: government guaranteed F$455 million to Fiji Airways (about 4.2 percent of GDP) for three years (extended until loan discharge under FY21-22 budget). - May 2021: government guarantee for $170 million (1.8 percent of GDP) extended to Fiji Development Bank; total guarantees to FDB were 3.5 percent of GDP as of July 2021. - Domestic financing concentrated on the Fiji National Provident Fund (FNPF); FNPF held about 41 percent of total public debt (68 percent of domestic debt) as of end-FY2020/21. - Staff recommendations: - Manage public guarantees transparently and prepare contingency plans in case liabilities materialize. - Strengthen SOE management, clarify relationships with government, and set high standards for transparency and governance. ### Debt sustainability, stress tests, and scenarios (selected exact outcomes) - Public debt increased to 70.8 percent of GDP by end-2020; expected to rise to 86 percent of GDP by end-2021. - Baseline debt-to-GDP peaks at 89 percent in 2022 before receding to 77 percent by 2026 under one DSA presentation. - Gross financing needs exceed the MAC DSA threshold of 15 percent of GDP for 2020-22. - Stress test scenarios (selected): - Constant primary balance scenario: debt-to-GDP reaches 123 percent of GDP in 2026. - Historical scenario (2011-20 averages): public debt-to-GDP reaches 91 percent in the medium term. - Natural disaster scenario: assumes 2021 shock reducing GDP growth by 4 percentage points; primary deficit increases to 8.9 percent of GDP in 2022 and 4.8 percent of GDP in 2023; debt-to-GDP reaches 95 percent in 2022 and eases to 84 percent by 2026. - Contingent liability shock: assumes 70 percent of contingent liabilities materialize over 2022–2023 and GDP growth about 6 percentage points lower in both years; debt-to-GDP jumps to 110 percent in 2023 and reaches 101 percent by 2026; gross financing needs rise to 23 and 20 percent of GDP in 2022 and 2023. - External debt (baseline): projected to decline from 55.3 percent of GDP in 2022 to 45.8 percent by 2026. - Fiji’s total external debt increased by 15.5 percentage points of GDP in the last 5 years. ### External sector, reserves, and exchange rate assessment - REER depreciated by about 4 percent on average in 2020; depreciated by about 1.5 percent as of August 2021. - CA-Actual (2020): -13.4 percent of GDP; adjusted CA: -11.6 percent of GDP; CA Norm: -3.7 percent of GDP; CA Gap: -7.8 percent of GDP; REER Gap: 22.5 percent (elasticity -0.35). - Gross official reserves: US$1,011 million (7.7 months of imports) in 2020; US$1,027 million (7.3 months) in 2019. - IMF’s 2021 SDR allocation to Fiji of about USD 133.8 million boosted foreign reserves. - Reserves adequacy optimal range estimated between 3.3 and 5.3 months of imports; incorporating disaster vulnerability raises adequacy to 5.3 months. - Exchange controls: April 2, 2020 changes tightened delegated limits and introduced RBF approval requirements; staff recommends phasing out tightening as conditions allow. ### Climate adaptation financing and related macro implications - Climate adaptation and resilience cost estimates: about 10 percent of GDP over next 10 years; recurrent costs estimated at an additional 2-4 percent of GDP. - Government estimates actual current expenditures on climate adaptation are about ¼ of estimated needs. - Given high public debt and limited fiscal space, new financing should be primarily grants and concessional loans. - FDB direct access and Green Climate Fund: FDB gained accreditation in October 2017; time to accreditation about 3.7 years; time to project approval after accreditation almost 3 years. - Authorities plan to invest around 8-9 percent of GDP in blue and green climate projects. ### Main policy recommendations (staff) - Provide targeted public support in the near term while setting out a roadmap for phased revenue reforms and fiscal consolidation toward a sustainable primary surplus of 1-2 percent of GDP. - Prepare contingency plans if contingent liabilities in the form of guarantees to SOEs need to be partially or fully taken onto the government’s books. - Maintain accommodative monetary stance but plan for phased withdrawal of other means of support as recovery proceeds. - Closely monitor the financial sector for vulnerabilities as support unwinds, with particular attention to non-banks and rising NPLs. - Establish a financing plan for climate adaptation and integrate it with the medium-term macro-fiscal framework; seek grants and concessional loans given debt constraints. - Implement phased revenue reforms and expenditure rationalization, strengthen governance and transparency of SOEs, build climate resilience, and phase out exchange restrictions for payments on current international transactions as conditions allow. - Develop the domestic debt market and a digital national payment system; address skills gaps and labor mismatches; simplify labor market regulations; raise female labor force participation by focusing on early childhood care and education. - Enhance AML/CFT effectiveness, strengthen governance in NBFIs, and continue capacity development via PFTAC and other IMF facilities. *Republic of Fiji — Staff report for the 2021 Article IV consultation (discussions took place by video conference during September 27 to October 8, 2021).* ### 2021. Non-performing loans have risen to record levels. ### 2021. Non-performing loans have risen to record levels. ### Context and recent developments - Fiji experienced a COVID-19 Delta variant outbreak in April 2021; while largely confined to one island, infection rates were at one point among the highest in the world. - Contributions of AstraZeneca vaccine from Australia and New Zealand enabled an aggressive vaccination campaign. - As of mid-October, more than 95 percent of eligible Fijians (those over 18) had received their first dose and 80 percent were fully vaccinated. - Following these milestones, the government eased local curfew and business restrictions and announced that Fiji’s borders will be reopened to fully vaccinated travelers from a select group of countries starting December 1, 2021. - The crisis produced the worst economic contraction in Fiji’s history, with large-scale layoffs, surging unemployment, and high non-performing loans. - Multilateral and bilateral support, including loans, grants, and the 2021 SDR allocation, cushioned the balance of payments and supported government response. - The fiscal impact of COVID-19 support measures reduced the overall revenue envelope by about 5 percent of GDP, creating a structural imbalance in the fiscal framework. - National elections must be held sometime between July 2022 and January 2023, which may complicate near-term reform implementation. ### Outlook and risks - Baseline tourism and growth assumptions: tourist arrivals reach 50 percent of 2019 levels in 2022 and 95 percent of 2019 levels in 2023. - Real GDP projections (percent change): 2021: -4.0; 2022: 6.2; 2023: 8.3; 2024: 6.4; 2025: 4.5; 2026: 3.4. - Consumer prices (average percent change): 2021: 1.2; 2022: 2.5; 2023: 3.0. - Per capita GDP is not projected to recover to 2019 levels before 2023. - The baseline assumes authorities reduce the fiscal deficit to around 2 percent of GDP over the medium term and achieve a sustainable primary budget surplus of 1-2 percent of GDP by the end of the medium-term. - Key risks (tilted to the downside): - High vulnerability to natural disasters, particularly tropical cyclones. - Uncertainty whether pre-pandemic tourism and spending patterns will reestablish themselves. - Surge in contingent liabilities from loan guarantees to state-owned enterprises, some of which could become government obligations. - Scarring effects and diminished fiscal space that exacerbate vulnerabilities. - Upside possibility: faster border reopening and tourism arrivals could lead to a stronger recovery than expected. ### Fiscal and macroeconomic indicators (selected exact figures) - Real GDP (percent change): 2018: 3.8; 2019: -0.4; 2020: -15.7; 2021: -4.0; 2022: 6.2; 2023: 8.3; 2024: 6.4; 2025: 4.5; 2026: 3.4. - Central government budget (percent of GDP): - Revenue: 2018: 26.9; 2019: 27.3; 2020: 20.4; 2021: 21.4; 2022: 22.2; 2023: 23.8; 2024: 25.0; 2025: 25.4; 2026: 25.7. - Expenditure: 2018: 32.4; 2019: 29.9; 2020: 33.2; 2021: 37.2; 2022: 33.2; 2023: 30.2; 2024: 28.9; 2025: 28.5; 2026: 28.3. - Overall balance: 2018: -5.5; 2019: -2.7; 2020: -12.8; 2021: -15.8; 2022: -11.0; 2023: -6.4; 2024: -4.0; 2025: -3.1; 2026: -2.6. - Primary balance: 2018: -2.8; 2019: 0.1; 2020: -9.1; 2021: -11.8; 2022: -7.0; 2023: -2.5; 2024: -0.2; 2025: 0.6; 2026: 1.2. - Central government debt (percent of GDP): 2018: 46.4; 2019: 48.9; 2020: 70.8; 2021: 86.7; 2022: 89.4; 2023: 85.9; 2024: 82.3; 2025: 79.8; 2026: 78.0. - External sector (percent of GDP): - Current account balance: 2018: -8.4; 2019: -12.6; 2020: -13.4; 2021: -15.7; 2022: -8.8; 2023: -7.0; 2024: -6.7; 2025: -7.4; 2026: -7.8. - Services balance: 2018: 16.6; 2019: 14.9; 2020: -1.7; 2021: -5.9; 2022: 7.8; 2023: 13.5; 2024: 15.3; 2025: 15.9; 2026: 15.9. - Gross official reserves (in months of prospective imports): 2021: 7.7 (noted elsewhere as expected around $1.2 billion by end-2021, equivalent to about 7 months of prospective import cover). - Monetary and financial indicators: - Private sector credit (percent change): 2019: 4.6; 2020: -3.1; 2021: -3.6. - Broad money (M3) (percent change): 2019: 2.6; 2020: 1.3; 2021: 13.2. - Monetary base (percent change): 2019: 15.2; 2020: 13.5; 2021: 35.7. - Central Bank Policy rate (end of period): 2018: 0.50; 2019: 0.50; 2020: 0.25. - Commercial banks lending rate (end of period): 2018: 5.69; 2019: 6.30; 2020: 6.12. - Additional exact macro figures: - GDP at current market prices (in millions of Fiji dollars): 2021: 9,466; 2022: 10,307; 2023: 11,491; 2024: 12,566; 2025: 13,480; 2026: 14,281. - GDP at current market prices (in millions of U.S. dollars): 2021: 4,641; 2022: 5,054; 2023: 5,635; 2024: 6,162; 2025: 6,610; 2026: 7,003. - GDP per capita (in U.S. dollars): 2021: 5,130; 2022: 5,556; 2023: 6,160; 2024: 6,699; 2025: 7,146; 2026: 7,450. - Real output gap: 2018: 2.8; 2019: -0.8; 2020: -12.9; 2021: -17.8; 2022: -14.5; 2023: -9.2; 2024: -5.7; 2025: -3.9; 2026: -3.1. ### Financial sector stability and non-performing loans - Monetary policy stance has been accommodative; financial conditions remain relatively loose. - Both lending and deposit rates have decreased. - Private sector credit contracted by 3.1 percent in 2020 and is expected to shrink by a further 3.6 percent by end-2021. - Non-performing loans have risen to record levels. - The overall balance of payments was cushioned by external financial flows (loans and grants), strong growth in inward remittances, and the new SDR allocation in 2021. - The Fiji dollar depreciated by 4 percent on average in real effective terms in 2020. ### Main policy recommendations (staff) - Provide targeted public support in the near term while setting out a roadmap for phased revenue reforms and fiscal consolidation, with the objective of achieving a sustainable primary surplus by the end of the medium term. - Prepare a contingency plan in the event that contingent liabilities in the form of guarantees to state owned enterprises need to be partially or fully taken onto the government’s books. - Maintain the current accommodative monetary stance but plan for a phased withdrawal of other means of support. - Closely monitor the financial sector for vulnerabilities as support unwinds and scarring effects are more visible, with particular attention to non-banks and rising non-performing loans. - Establish a financing plan for climate adaptation and integrate it with the medium-term macro-fiscal framework. - Additional structural recommendations from Directors: implement phased revenue reforms and expenditure rationalization, strengthen governance and transparency of state-owned enterprises, build climate resilience and mainstream climate adaptation into fiscal planning, phase out exchange restrictions for payments on current international transactions as conditions allow, develop the domestic debt market and a digital national payment system, address skills gaps and labor mismatches, simplify labor market regulations, and raise female labor force participation by focusing on early childhood care and education. *Republic of Fiji — Staff report for the 2021 Article IV consultation (discussions took place by video conference during September 27 to October 8, 2021).* ### 7. The authorities generally agreed with staff’s outlook but cited the high degree of ### 7. The authorities generally agreed with staff’s outlook but cited the high degree of ### Authorities’ near-term outlook and drivers - Authorities and staff largely agreed on the outlook but highlighted a high degree of uncertainty in the near term and the possibility of upside risks. - Key recent shocks and developments: - Emergence of the Delta variant outbreak in April and resulting restrictions significantly dampened economic prospects for 2021, making a second year of economic contraction likely. - Rapid acceleration of vaccination, easing of movement and business restrictions in recent months, and evidence of significant pent-up demand could improve outcomes. - Phased reopening of borders and resumption of international travel in November-December could make Q4 more positive and could lift 2021 real GDP growth above -4 percent. - For 2022-23, authorities’ growth projections were largely in line with staff. ### A. Fiscal Policies: A Roadmap for Consolidation — key findings - Fiscal response cushioned macroeconomic impact and protected vulnerable populations, but: - The level of fiscal stimulus (relative to peer countries) has been large. - Heavy emphasis on tax and tariff cuts was assessed by staff as not fully appropriate. - Wide-ranging and likely permanent reductions in taxes, tariffs, and excises embedded in the FY20-21 budget and continued in FY21-22 reduced the government’s overall revenue envelope by about 5 percent of GDP. - Fiscal outcomes and debt: - Overall fiscal deficit reached about 13 percent of GDP in FY2020-21, up nearly 10 percentage points from pre-pandemic levels. - Debt-to-GDP ratio jumped 32 percentage points to 81 percent. - Structural impact: measures created a structural reduction in Fiji’s revenue profile for the medium-term (assuming policies remain unchanged). - Without revenue reforms: - Staff simulations show the fiscal deficit would remain above 7 percent throughout the forecast horizon, and public debt would rise above 94 percent of GDP by FY2026-27. - This trajectory would be unsustainable or require draconian expenditure cuts damaging to growth. - Short-term support remains necessary while the pandemic persists, but a clear roadmap for fiscal reform is essential for medium-term fiscal and debt sustainability. ### Staff-proposed fiscal roadmap and targets - Target: a sustainable primary budget surplus of 1-2 percent of GDP by the end of the medium-term. - Roadmap components: - Phased increases in selected tax and excise rates. - Scale back tax holidays and broaden the tax base. - Increase efficiency of revenue collection. - Undertake analysis of government capital spending, including a Public Investment Management Assessment (PIMA). - Develop a financing plan for climate adaptation and integrate it with the medium-term macro-fiscal framework. - Estimated revenue impact: - Full implementation of reforms would raise government revenue by about 4.3 percentage points of GDP—somewhat less than policy-related revenue losses in FY20 and FY21. - Implementation approach: - Phase measures to target those with greatest revenue gains and least direct impact on household incomes first; broader reforms left to FY23-24 or beyond. - Suggested measures include VAT increases, elimination of tax expenditures, expanding the PIT base. - Rationale: roadmap uses instruments already part of Fiji’s revenue framework and guided by past experience, implying high confidence in feasibility and revenue gains. ### Roadmap implementation — detailed measures and fiscal projections (IMF staff estimates) - Text Table 1: Revenue measures (in percent of GDP) by FY: - FY22-23: Simplify PIT Structure; Lower Threshold to F$20,000: 0.16 - FY23-24: PIT Structure: Lower Threshold to F$15,000: 0.26 - Raise VAT from 9% to 10%: 0.66 - FY24-25: Raise VAT from 10% to 12%: 1.32 - Raise Fringe Benefit Tax to 35%: 0.15 - Introduce Dividend Witholding Tax at 10%: 0.29 - Increase Excise Tax on Alcohol: 0.37 - Cut Film Tax Rebate by 50%: 0.68 - Discontinue Export Incentive: 0.13 - Raise Departure Tax from F$100 to F$125: 0.16 - Raise Departure tax from F$125 to F$150: 0.16 - Total FY Increase in Revenue: FY22-23: 1.78; FY23-24: 1.98; FY24-25: 0.42; FY25-26: 0.16 - Direct Taxes by FY: FY22-23: 0.68; FY23-24: 0.29; FY24-25: 0.26; FY25-26: 0.00 - Indirect Taxes by FY: FY22-23: 1.1; FY23-24: 1.69; FY24-25: 0.16; FY25-26: 0.16 - Reduced Current Spending by FY: FY22-23: 0.1; FY23-24: 0.3; FY24-25: 0.4; FY25-26: 0.3; FY26-27: 0.2 - Text Table 2: Decomposition of Fiscal Consolidation (in percent of GDP) - Revenue Measures by FY: FY22-23: 1.8; FY23-24: 2.0; FY24-25: 0.4; FY25-26: 0.2; FY26-27: 0.0 - Expenditure Measures by FY: FY22-23: 0.1; FY23-24: 0.3; FY24-25: 0.4; FY25-26: 0.3; FY26-27: 0.2 - Unwinding of Pandemic Expenditure Measures: FY22-23: 1.9; FY23-24: 0.8; FY24-25: 0.0; FY25-26: 0.0; FY26-27: 0.0 - Cyclical Improvement (incl. Denominator Effect): FY22-23: 1.3; FY23-24: 0.8; FY24-25: 0.4; FY25-26: 0.2; FY26-27: 0.2 - Other Factors by FY: FY22-23: -0.2; FY23-24: 0.1; FY24-25: 0.0; FY25-26: -0.1; FY26-27: 0.2 - Total Change in Primary Balance: FY22-23: 4.9; FY23-24: 4.0; FY24-25: 1.2; FY25-26: 0.5; FY26-27: 0.6 - Primary Balance Forecast by FY: FY22-23: -4.9; FY23-24: -0.9; FY24-25: 0.3; FY25-26: 0.8; FY26-27: 1.4 - Staff assessment: these adjustments are feasible in the absence of large new shocks; incomplete implementation is a key risk. ### Risks, contingent liabilities, and public financial management - Debt sustainability and financing risks: - Even with full implementation, debt sustainability risks remain high. - DSA indicates high risk from recent surge in public debt and sizeable gross financing needs in the near term that could be associated with budget financing risks. - Concentration of domestic financing: - Domestic financing remains heavily concentrated on the Fiji National Provident Fund (FNPF), with limited absorption capacity in the private financial sector. - FNPF is assessed to have a robust financial position with comfortable cash reserves and healthy financial performance thus far in the pandemic. - Contingent liabilities: - Total contingent liabilities rose nearly 70 percent over the last four years, reaching about 19 percent of GDP in October 2021. - Significant guarantees: - In May 2020, the government announced it would guarantee F$455 million in loans to Fiji Airways (about 4.2 percent of GDP) for a period of three years (extended until the loan is discharged under the FY21-22 budget). - In May 2021, a government guarantee for $170 million (1.8 percent of GDP) was extended to Fiji Development Bank. Total guarantees to FDB were 3.5 percent of GDP as of July 2021. - Guarantees to Fiji Airways and Fiji Development Bank are sizeable; contingent liabilities in problem sectors could increase if tourism recovery is slower than projected. - Staff recommendations on contingent liabilities and SOEs: - Manage public guarantees transparently and prepare contingency plans in case liabilities need to be taken onto the public balance sheet. - Further strengthen SOE management, clarify relationships vis-à-vis government, and set a high bar for transparency and governance. ### Authorities’ views on fiscal policy - Authorities reiterated commitment to support recovery in the near term and to fiscal consolidation over the medium term. - They intend to maintain an accommodative fiscal stance in the current fiscal year if financing conditions allow, to bolster private sector confidence as international tourism reopens. - Agreed that fiscal consolidation must be central post-pandemic due to high public debt and domestic financing constraints. - Highlighted consolidation objectives in the medium-term framework accompanying the FY21-22 budget and agreed that a small primary surplus target is a desirable anchor. - Agreed measures to expand the revenue base combined with tight control on current spending will be needed. - Appreciated staff’s roadmap recommendations and favored a growth-friendly, broad-based revenue framework to protect competitiveness of tourism and other key sectors. - Emphasized moving deliberately with attention to vulnerable households. - Noted expansion of public support to key enterprises (e.g., Fiji Airways and Fiji Development Bank) raises risks but was essential given the unprecedented impact of the pandemic. ### B. Monetary and exchange rate policies — key findings and recommendations - Monetary stance: - At low inflation and a negative output gap, the RBF should continue an accommodative monetary stance. - RBF reduced the policy interest rate from 0.5 percent to 0.25 percent in March 2020. - Financial conditions remained loose; private sector credit contracted through the pandemic. - Liquidity in the banking system increased significantly due to large inflow of foreign exchange from bilateral and multilateral loans and grants. - With inflation likely subdued for at least the remainder of 2021, maintaining the current stance is appropriate; careful review needed as growth resumes and commodity prices shift. - Exchange rate and reserves: - Fiji dollar pegged to a basket of currencies amid capital mobility. - Real effective exchange rate changes: depreciated by about 4 percent in 2020 and by about 1.5 percent as of August 2021. - External position in 2020 assessed as substantially weaker than the level implied by fundamentals and desirable policies (External Balance Assessment). - Reserves reached record highs: reserve cover hit a record high (7.7 of prospective imports) and is adequate for credit-constrained economies. - IMF’s 2021 SDR allocation to Fiji of about USD 133.8 million further boosted foreign reserves. - Foreign reserves expected to decline over the medium-term towards the adequate level once Fiji’s vulnerability to natural disasters is considered. - Fiscal adjustment will contribute to restoring external balance. - Exchange controls and capital flow measures: - Fiji maintains various exchange controls constituting capital flows measures (CFMs) and some exchange restrictions subject to approval under Article VIII, Section 2(b). - At the onset of COVID, changes to exchange controls (effective April 2, 2020) included reductions to delegated limits and replacement of some delegated limits with RBF approval requirements. - Staff assessed these as an intensification of exchange restriction and tightening of CFMs; no new measures were introduced. - Recommendation: tightening of exchange controls and exchange restriction should be phased out as crisis conditions abate because they are not consistent with Fiji’s Fund obligations and hinder trade and FDI. - Staff judged the April 2020 changes appropriate given the crisis but recommends phasing them out as conditions allow. ### Authorities’ views on monetary and exchange rate policy - RBF views current monetary stance as appropriate and comfortable with current liquidity given subdued inflation. - Noted balance of payments effects: loss of tourism reduced receipts while influx of foreign financing increased reserves. - No plans to change the exchange rate peg framework; regular review of the currency basket and reserve allocation is conducted to ensure competitiveness. - Broad agreement with staff’s assessment of the external sector and need to maintain higher reserves due to vulnerability to external shocks. - Recent SDR allocation will be maintained with the RBF to further boost foreign reserves. - On exchange controls: authorities noted April tightening was precautionary, pandemic was the first crisis in recent history without exchange rate pressure, and there has been no significant application of the tightened measures given large capital inflows and a resilient exchange rate. Easing will be considered cautiously as recovery takes shape. ### C. Financial sector stability — summary (beginning) - Banking sector remains sound overall, but pandemic increased risk. - Stability underpinned by dominance of large foreign banks operating as branches with access to parent banks for capital and liquidity. - Pandemic effects: sharp contraction in economic activity visible in banks’ balance sheets; NPLs as a share of total loans have risen to a record high (text ends here). *Source: https://www.imf.org/-/media/files/publications/cr/2021/english/1fjiea2021001.pdf* ### 7.5 percent as of June 2021 compared to 3 percent at end-2019 (and to 30 percent for credit ### 1fjiea2021001 - 7.5 percent as of June 2021 compared to 3 percent at end-2019 (and to 30 percent for credit ### Financial sector resilience and supervision - NPLs rose to 7.5 percent as of June 2021 compared to 3 percent at end-2019 (and to 30 percent for credit institutions, compared to 25.7 percent at end-2019). - Commercial banks and the FNPF account for about 80 percent of total financial system assets. - Other financial system institutions include credit institutions, credit unions, Fiji Development Bank, Housing Authority, and insurance companies. - The four credit institutions have restricted banking licenses that forbid them to open checking accounts, offer demand deposits, and conduct foreign exchange business. - Banking sector capital adequacy strengthened to 20.8 percent—well above the prudential minimum of 12 percent. - Banks have made significant provisions and, to date, can withstand moderate credit risk shocks while complying with minimum capital requirements. - Under a “severe” shock scenario where the entire COVID relief portfolio (almost 19 percent of banks’ total loans) is added to existing NPLs, four banks would need to strengthen their capital adequacy. Recommendations and supervisory actions - The RBF needs to continue to bolster its off-site and on-site supervisory framework and closely monitor the asset portfolio and liquidity positions of all banks and ensure sufficient provisioning. - Enhance microprudential supervision by consulting banks bilaterally to help mitigate idiosyncratic shocks. - RBF has enhanced on-site examination of banks and credit institutions—prioritizing asset quality and provisioning standards—and has mandated prudential reporting specifically on loans under repayment holidays. - RBF should deploy macroprudential tools to address potential systemic issues arising from the pandemic. - Additional efforts are needed to implement Financial Sector Assessment Program 2018 recommendations, particularly with respect to crisis management. Correspondent banking and AML/CFT - Fiji is not facing pressure on CBRs; most banks are branches of large overseas banks with good AML/CFT track records. - Banking sector operates under prudential regulations and compliance with the AML/CFT requirements of the Financial Transaction Reporting (FTR) Act; all remittance transactions are reported in the FTR system and compliance is monitored. - Fiji has been in discussions with European authorities regarding blacklisting Fiji as a non-cooperative jurisdiction for tax matters. Authorities’ views on financial supervision - Supervisory standards have not been loosened except for regulatory space accommodating loans subject to repayment holidays. - On-site examinations re-established (albeit virtual); more detailed prudential reporting required for exposures offered repayment holidays. - Authorities acknowledge that the full extent of problem assets is yet to be revealed; credit growth has declined and banks have adopted a conservative stance. - Authorities view the rise in the NPL ratio to 7.5 percent as not alarming, low compared with historical levels, and manageable without significant hit to capital adequacy. ### Macro-structural issues and reforms - Continued emphasis on structural reforms needed to support recovery and diversification. - Recent passage of the new Investment Act 2021 is highlighted as a welcome step. - Opportunities to improve competitiveness and business environment include: - Development of a digital national payment system to broaden financial inclusion, enhance government transfer efficiency, and reduce corruption risks. - Further development of the domestic debt market to broaden investor base and fund medium and long-term investments. - Addressing skills gaps and labor mismatches and simplifying labor market regulations to boost employment and facilitate SMEs. Gender and labor force participation - Continued focus recommended on raising female labor force participation to support sustained recovery. - Women are a growing majority in higher education but participate less in the labor force than males; the gap is wider than in neighboring Pacific Island countries and countries with similar GDP per capita. - Staff recommend focus on early childhood care and education to facilitate greater female participation. Authorities’ views on structural reforms - Pandemic temporarily slowed progress on some macro-structural reforms due to resource diversion. - Authorities note passage of the new Investment Act and progress under “Digital Fiji” for digitalization of tax, fee and license payments and issuance of permits and government documents. - Work continues on easing processes for starting new businesses and encouraging foreign investment. - A National Taskforce on Early Childhood Care and Education has been established to develop policy and regulatory framework and expand supply of childcare services. ### Transparency, governance, and AML/CFT - Authorities have provided detailed information on crisis-related expenditures; majority were transfers under the unemployment assistance scheme with periodic granular publications on beneficiaries and amounts disbursed. - Procurement contract information is available via a web portal with certain access restrictions. - Staff encourages making crisis-related expenditure details publicly available, including companies winning procurement contracts and their beneficial owners, and undertaking independent audits of COVID-related expenditures. AML/CFT progress and gaps - Fiji upgraded its legal framework to address gaps identified by the Asia/Pacific Group on Money Laundering (APG) in the 2016 Mutual Evaluation Report (MER). - Remaining legal issues relate to terrorism and proliferation financing; APG assistance recommended to enhance regulation and monitoring of the non-profit sector. - Authorities are reviewing the Companies Act and related regulations to meet Financial Action Task Force requirements for beneficial ownership transparency. - Effectiveness of AML/CFT framework assessed as weak; FIU, RBF, and external donors engaged with financial institutions to provide guidance and training to enhance reporting and due diligence. - RBF is enhancing its AML/CFT risk-based supervision of banks. Governance in NBFIs and SOEs - Authorities should improve governance and supervisory framework in non-bank financial institutions (NBFIs) and strengthen anti-corruption framework. - Steps recommended: make boards independent and clarify tenure, qualifications, and selection procedures for board members in NBFIs. - Progress noted: changes in the Public Enterprise Act and Companies Act to strengthen Board of Directors regulations and align conflict of interest and governance with international best practices. - Further work needed on asset declaration mechanism for government officials and meeting requirements of the United Nations Convention against Corruption. - A separate, specialized anti-corruption court has been created within the judicial system. ### Capacity development - Fiji is an intensive user of IMF capacity development, especially through PFTAC, where it is the second largest user among PICs. - Recent technical assistance focused on revenue administration, public financial management, government financial statistics, and financial sector supervision. - Current work plan includes capacity development in macroeconomic programming and analysis, real sector statistics, and payment systems and infrastructure. ### Staff appraisal, macroeconomic outlook, and policy recommendations Economic impact and outlook - Fiji heavily reliant on tourism; among the hardest hit by the pandemic in the Pacific Islands. - The Delta variant outbreak beginning in the spring likely causes another economic contraction this year. - Pandemic led to widespread layoffs, surge in estimated unemployment, displacement of labor from tourism to other sectors and subsistence agriculture, and deep livelihood impacts. - Economic scars, productivity effects, and impact on potential output likely will not be understood until well into next year. - Rapid vaccination rollout (supported by bilateral donations and public and private mandates) has placed Fiji among leaders in the Pacific and made it the first Pacific Island to reopen its borders to international tourism and inter-island travel. - A rebound in economic growth in 2022 and beyond is expected if border reopening is successful, but uncertainty is high with both downside and upside risks. Fiscal policy recommendations - Fiscal, monetary, and financial support should continue short-term; as recovery takes hold, policy adjustments needed to address macroeconomic imbalances and reduce vulnerability. - Large fiscal response was timely; however, heavy emphasis on permanent cuts to taxes, tariffs, and excises was not entirely appropriate from staff’s perspective given need to preserve revenue framework and debt sustainability. - Fiscal consolidation needed to put public debt on sustained downward path, accompanied by normalization of monetary policy and removal of support measures. - Staff see merit in a phased series of measures to boost public revenue by an estimated 4.3 percent of GDP, aiming to bring total tax revenue up to at least 22.5 percent of GDP by the end of the medium-term. - VAT increases have greatest potential for overall revenue gain; staff favor near-term measures with less impact on domestic demand such as eliminating tax expenditures, taxing dividend income, and raising the fringe benefit tax. - Careful management of public expenditure (recurrent and capital) is critical. - Fiscal policy should be anchored around generating and sustaining a small primary budget surplus. Contingent liabilities - Recent spike in government guarantees—particularly to Fiji Airways and Fiji Development Bank—reflects pandemic stress; these increases linked to COVID response and support for Fiji Airways and Fiji Development Bank. - New contingent liabilities add to fiscal vulnerability. - Staff recommend a systematic and transparent approach to reducing or eliminating need for government guarantees, including contingency plans if liabilities cannot be repaid and must be taken onto government books or otherwise resolved. Monetary policy - Monetary policy is appropriately accommodative given low inflation and a large output gap. - Continued close supervision of financial risks is needed in the months ahead. - Careful review of monetary policy will likely be needed as economic growth resumes and in the face of shifting commodity prices. *REPUBLIC OF FIJI — INTERNATIONAL MONETARY FUND* ### 39. Close financial sector supervision is needed as Fiji enters the post-pandemic. The ### Close financial sector supervision is needed as Fiji enters the post-pandemic. ### Financial sector supervision and bank soundness - Close monitoring of the evolution of NPLs is needed and the financial supervision framework should be bolstered. - Follow-up on key recommendations of the 2018 FSAP is advised—particularly those related to corrective action, and bank recovery, coordination with home authorities, and bank resolution. - The expansion of RBF’s financial sector supervision to include the Fiji Development Bank is welcome. - Financial soundness indicators (ratios in percent): - NPLs to Total Loans: 1.9 (2017), 2.6 (2018), 3.0 (2019), 4.6 (2020), 7.5 (Jun-21). - Provision to NPLs: 55.2 (2017), 36.2 (2018), 38.9 (2019), 45.0 (2020), 30.4 (Jun-21). - Net NPLs to Net Loans: 0.9 (2017), 1.7 (2018), 1.8 (2019), 2.6 (2020), 5.4 (Jun-21). - Risk Weighted CAR: 14.7 (2017), 16.6 (2018), 18.3 (2019), 19.3 (2020), 20.8 (Jun-21). - Return on Assets (Before Tax): 2.1 (2017), 2.1 (2018), 2.2 (2019), 2.0 (2020), 1.6 (Jun-21). ### Exchange restrictions and external payments - Further tightening of exchange restrictions for payments on current international transactions should be avoided, and existing restrictions should be phased out as the recovery gains ground. - 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. ### Macro-structural reforms and labor market - Macro-structural reforms should continue to underpin the recovery and strengthen prospects for economic diversification. - The recent passage of the new Investment Act is a welcome step. - Further development of the domestic debt market will be needed to support a broadening of the investor base and funnel capital to new medium and long-term investments. - Addressing skills gaps and labor mismatches and simplifying labor market regulations would help boost employment and facilitate the creation of new small and medium-size enterprises. - Staff welcome continued efforts to raise the female labor force participation rate, including through a focus on early childhood care and education. ### Institutional and consultation timing - It is recommended that the next Article IV Consultation take place on the standard 12-month consultation cycle. ### Risk Assessment Matrix — key risks and policy responses - Resurgence of the Covid-19 pandemic - Relative Likelihood: Medium. - Expected Impact: High. - Recommended Policy Responses: Increase investment in public health infrastructure, strengthen safety nets targeting affected populations, and secure additional multilateral and donor support. - Rising commodity prices amid bouts of volatility - Relative Likelihood: Medium. - Expected Impact: Medium. - Recommended Policy Responses: Finance temporary shocks, adjust to permanent shocks, revisit subsidies on fuel and energy, and preemptively adjust policy mix as needed. - Uncontrolled Covid-19 local outbreak and subpar/volatile growth - Relative Likelihood: Medium. - Expected Impact: High. - Recommended Policy Responses: Accelerate vaccine rollout and provide fiscal / social welfare support to affected households. - Higher frequency and severity of natural disasters related to climate change - Relative Likelihood: High. - Expected Impact: High. - Recommended Policy Responses: Invest in infrastructure resilience and adaptation in line with the National Adaptation Plan; rebuild fiscal and external buffers. - Widespread social discontent and political instability - Relative Likelihood: Medium. - Expected Impact: High. - Recommended Policy Responses: Continue targeted fiscal and financial measures for the most vulnerable and communicate transparently on pandemic and economic policies. - Confidence falters due to Debt to GDP ratio - Relative Likelihood: Medium. - Expected Impact: High. - Recommended Policy Responses: Implement a credible fiscal consolidation strategy focused on rebuilding revenues and rationalizing current spending. ### Debt Sustainability Analysis — Public debt (key findings and projections) - COVID-19 impact and recent debt levels: - Public debt increased to 70.8 percent of GDP by end-2020—an increase of about 22 percentage points. - A further rise to 86 percent of GDP is expected by end-2021. - Baseline scenario assumptions: - GDP will contract by 4 percent in 2021 but rebound to about 6 and 8 percent growth in 2022 and 2023. - Tax and tariff cuts enacted in March and August 2020 are assumed to be partially sustained. - Authorities implement a phased revenue reform plan over 2022 to 2026, raising revenue by approximately 4.3 percent of GDP relative to FY2021-22. - Recurrent spending is projected to be 2.2 percentage points of GDP lower in 2026 than pre-covid (2019). - Baseline debt path: - Debt-to-GDP ratio peaks at 89 percent of GDP in 2022 before receding to 77 percent by 2026. - Projected robust economic growth averaging 5.6 percent over 2023–2026 drives much of the decline. - Gross financing needs exceed the MAC DSA threshold of 15 percent of GDP for three consecutive years (2020-22). - Investor base and composition: - Public debt held by non-residents by end of FY2020/21 was 32 percent; 68 percent held by domestic residents. - About 41 percent of total public debt (68 percent of domestic debt) was held by the Fiji National Provident Fund. - Short-term public debt was about 3.6 percent of the total and was held by domestic residents. - Fiji was approved as IDA-eligible in March 2019. - Authorities replaced their global bond of USD 200 million in October 2020 with loans from the ADB and the World Bank. - Stress test scenarios (selected results): - Constant primary balance scenario: debt-to-GDP would increase rapidly, reaching 123 percent of GDP in 2026 (unsustainable trajectory). - Historical scenario (2011-20 averages for growth and primary balances): public debt-to-GDP reaches 91 percent of GDP in the medium term—about 14 percentage points higher than baseline. - Natural disaster scenario: - Assumes a shock in 2021 reducing GDP growth by 4 percentage points and increasing the primary deficit to 8.9 percent of GDP in 2022 and 4.8 percent of GDP in 2023. - Debt-to-GDP reaches 95 percent of GDP in 2022 and eases to 84 percent by 2026. - Highlights the importance of rebuilding fiscal buffers given vulnerability to frequent natural disasters. - Contingent liability shock: - Central government guaranteed state-owned enterprises’ debt was 16.8 percent of GDP as of April 2021, up from 11 percent pre-pandemic. - Scenario assumes 70 percent of these contingent liabilities materialize over 2022–2023, with GDP growth about 6 percentage points lower in both years relative to the baseline. - Under these assumptions the debt-to-GDP ratio jumps to 110 percent of GDP in 2023 and reaches 101 percent of GDP by 2026. - Gross financing needs rise to 23 and 20 percent of GDP in 2022 and 2023, respectively—well above the benchmark of 15 percent. - Policy recommendation: - Authorities are urged to steadfastly implement fiscal consolidation to reduce public debt vulnerability, rebuild buffers, broaden the revenue base, and streamline recurrent expenditures. ### Debt Sustainability Analysis — External debt (key point) - Under the baseline scenario, external debt is projected to decline from 55.3 percent of GDP in 2022 to 45.8 percent of GDP in 2026. - Fiji’s total external debt increased by 15.5 percentage points of GDP in the last 5 years. *Source: IMF staff report excerpt.* ### 39.0 percent of GDP in 2020. But some mitigating factors include a limited share of debt in foreign ### 1fjiea2021001 - 39.0 percent of GDP in 2020. But some mitigating factors include a limited share of debt in foreign ### Background: external debt and assets - External debt increased from 23.4 percent of GDP in 2016 to 39.0 percent of GDP in 2020. - External loans account for about 81 percent of the external debt in 2020. - External debt securities account for another 10 percent of external debt in 2020. - Fiji holds a substantial stock of foreign assets (about 37.4 percent of GDP in 2020). ### Assessment: baseline and historical scenarios - Baseline projection: - External debt-to-GDP ratio peaks at 55.3 percent of GDP in 2022. - Declines to 45.8 percent of GDP by 2026. - Improvement helped by a favorable growth-interest rate differential and an improvement in the projected non-interest current account balance. - Historical scenario: - Total external debt is expected to increase to 63.2 percent of GDP under the historical scenario (key macroeconomic variables set equal to their historical averages). - Vulnerabilities: - External debt is more vulnerable to a real depreciation and a non-interest current account shock. - The effect of a growth shock seems manageable. - Mitigating factors: - Limited share of debt in foreign currency. - High amount of foreign assets. ### Public debt dynamics and fiscal indicators (selected figures) - Nominal gross public debt (percent of GDP by year): - 2019: 46.3 - 2020: 48.9 - 2021: 70.8 - 2022: 86.0 - 2023: 88.7 - 2024: 85.3 - 2025: 81.7 - 2026: 79.3 - 2026 (another line): 77.4 - Public gross financing needs (in percent of GDP): 9.3, 7.6, 20.4, 18.8, 16.7, 11.6, 8.9, 7.7, 6.9 (years aligned with table). - Real GDP growth (in percent): 3.7, -0.4, -15.7, -4.0, 6.2, 8.3, 6.4, 4.5, 3.4 (annual sequence as presented). - Inflation (GDP deflator, in percent): 4.0, 2.4, -2.6, 1.2, 2.5, 3.0, 2.8, 2.7, 2.5. - Effective interest rate (in percent): 6.8, 6.1, 6.2, 5.3, 5.1, 4.9, 4.8, 4.9, 5.1. - Change in gross public sector debt (cumulative figures): -0.6, 2.5, 21.9, 15.2, 2.7, -3.4, -3.6, -2.4, -1.8, 6.6. - Primary (noninterest) revenue and grants (percent of GDP, cumulative): 25.2, 25.5, 20.3, 20.6, 22.2, 23.8, 25.0, 25.4, 25.7, 142.6 (table cumulative). - Primary (noninterest) expenditure (percent of GDP, cumulative): 24.7, 27.1, 29.5, 31.8, 29.2, 26.3, 25.2, 24.7, 24.5, 161.6 (table cumulative). ### Composition of public debt and alternative scenarios (high-level) - Scenarios shown: Baseline, Historical, Constant Primary Balance. - Baseline primary balance sequence (percent of GDP): -11.2, -7.0, -2.5, -0.2, 0.6, 1.2. - Historical scenario primary balance sequence (percent of GDP): -11.2, -0.7, -0.7, -0.7, -0.7, -0.7. - Constant Primary Balance scenario primary balance: constant at -11.2 (years shown). - Effective interest rate sequences differ slightly across scenarios (examples provided in table). ### Stress tests and shocks (selected outcomes and assumptions) - Stress tests considered: - Primary Balance Shock - Real GDP Growth Shock - Real Interest Rate Shock - Real Exchange Rate Shock - Combined Shock - Contingent Liability Shock - Natural Disaster Shock - Example baseline and shock parameter snippets: - Baseline real GDP growth: -4.0, 6.2, 8.3, 6.4, 4.5, 3.4 (annual sequence). - Real GDP growth under Real GDP Growth Shock: -4.0, -0.1, 1.9, 6.4, 4.5, 3.4. - Effective interest rate under Real Interest Rate Shock: 5.3, 5.1, 5.9, 6.5, 7.0, 7.6. - Effective interest rate under Real Exchange Rate Shock: 5.3, 5.7, 5.0, 4.9, 5.0, 5.2. - Combined Shock effective interest rate example: 5.3, 5.7, 6.1, 6.7, 7.3, 7.8. - Stress test outputs: - Gross Nominal Public Debt (in percent of GDP) shown across 2021–2026 under each stress test and baseline (charts displayed in source). ### Risk assessment and heat map highlights - Risk-assessment benchmarks cited: - Bond spreads: 200 and 600 basis points. - External financing requirement: 5 and 15 percent of GDP. - Annual change in short-term debt share: 0.5 and 1 percent. - Public debt held by non-residents: 15 and 45 percent. - Share of foreign-currency denominated debt: 20 and 60 percent. - Indicators (2020 values shown in heat map): - Bond spread: 20 (basis points) and 60 in different contexts; "no data" also noted. - External financing requirement: 12 (in percent of GDP) with benchmarks 5 and 15. - Annual change in short-term public debt: -0.1 percent (benchmarks 0.5 and 1). - Public debt in foreign currency: 27 percent (benchmarks 20 and 60). - Public debt held by non-residents: 22 percent (benchmarks 15 and 45). ### External debt sustainability framework (Table 1, 2016–26 highlights) - Baseline external debt (percent of GDP by year): - 2016: 23.4 - 2017: 23.4 - 2018: 25.5 - 2019: 29.1 - 2020: 38.8 - 2021: 51.2 - 2022: 55.3 - 2023: 53.5 - 2024: 50.7 - 2025: 48.5 - 2026: 45.8 - Change in external debt (percent of GDP): -1.8, 0.0, 2.0, 3.7, 9.7, 12.4, 4.1, -1.8, -2.8, -2.2, -2.7. - Identified external debt-creating flows (4+8+9, percent of GDP): -5.9, -2.4, -1.0, 6.5, 14.9, 9.6, 0.5, -3.0, -3.5, -1.9, -0.9. - Current account deficit, excluding interest payments (percent of GDP): 1.9, 5.5, 7.2, 11.1, 11.1, 13.2, 6.3, 4.7, 4.7, 5.5, 6.3. - Net non-debt creating capital inflows (negative, percent of GDP): -8.2, -7.2, -8.5, -6.5, -5.0, -7.5, -5.4, -5.9, -7.1, -7.2, -7.2. - Automatic debt dynamics (percent of GDP): 0.5, -0.7, 0.3, 1.9, 8.8, 4.0, -0.4, -1.8, -1.1, -0.2, 0.0. - External debt-to-exports ratio (percent): 50.2, 51.0, 53.1, 60.5, 141.1, 222.0, 145.6, 121.8, 111.5, 105.3, 97.7. - Gross external financing need (in billions of US dollars): 0.7, 0.7, 0.9, 1.1, 1.2, 1.3, 1.2, 1.2, 1.3, 1.4, 1.5. - Gross external financing need (in percent of GDP): 13.3, 13.2, 16.3, 20.1, 27.4, 27.4, 23.1, 21.8, 21.3, 21.3, 21.2. - Scenario with key variables at their historical averages: external debt rises to 51.2, 56.2, 59.4, 62.2, 63.7, 63.2 (years shown). ### Key macroeconomic assumptions underlying baseline (selected) - Real GDP growth (in percent): 2.4, 5.4, 3.8, -0.4, -15.7, -4.0, 6.2, 8.3, 6.4, 4.5, 3.4. - GDP deflator in US dollars (change in percent): 2.8, 3.1, 0.4, -1.1, -3.0, 7.6, 2.5, 3.0, 2.8, 2.7, 2.5. - Nominal external interest rate (in percent): 7.3, 5.5, 5.5, 5.7, 6.5, 6.6, 5.3, 4.6, 4.1, 4.0, 3.4. - Growth of exports (US dollar terms, in percent): 0.6, 7.0, 8.6, -1.1, -53.3, -13.3, 79.4, 28.8, 13.4, 8.6, 7.8. - Growth of imports (US dollar terms, in percent): 1.6, 9.5, 13.6, 3.6, -38.6, 2.9, 21.5, 15.0, 11.2, 8.5, 8.0. - Current account balance, excluding interest payments (percent of GDP): -1.9, -5.5, -7.2, -11.1, -11.1, -13.2, -6.3, -4.7, -4.7, -5.5, -6.3. - Net non-debt creating capital inflows (percent of GDP): 8.2, 7.2, 8.5, 6.5, 5.0, 7.5, 5.4, 5.9, 7.1, 7.2, 7.2. ### External sector assessment: current account and reserves - Pre-pandemic (2015–19) current account deficit averaged 7 percent of GDP. - Current account deficit widened to 13.4 percent of GDP in 2020 due to the large drop in tourism receipts and despite import compression and GDP contraction of -15.7 percent in 2020. - NIIP deficit reached 123.7 percent of GDP in 2020 from 72.6 percent of GDP in 2015; deterioration driven by large capital inflows in the form of equity and investment fund shares (72 percent of total international liabilities). - Reinvested earnings play a primary role in driving the current account deficits. - A recent outbreak of the COVID-19 Delta variant and protracted closure of borders is expected to lead to a further contraction of real GDP in the assessment year and a further deterioration of the current account deficit in 2021; medium-term projection is a slow recovery to pre-pandemic levels. - EBA-lite CA model estimates: - Cyclically adjusted CA balance at -11.6 percent of GDP. - CA norm at -3.7 percent of GDP. - CA gap of -7.8 percent of GDP in 2020. - Policy gap accounts for 7 percent of GDP of the CA gap. - Adjusted CA incorporates a 4.9 percent of GDP adjustment due to the exceptional COVID-19 shock. *Source: IMF staff.* ### 3. Background. The Fijian dollar is officially determined on the basis of a weighted basket of ### 3. Background ### Exchange rate regime and REER developments - The Fijian dollar is officially determined on the basis of a weighted basket of currencies comprising the Australian dollar, the Japanese yen, New Zealand dollar, Euro, and U.S. dollar. - The real effective exchange rate (REER) depreciated by about 4 percent on average in 2020 reflecting Fiji’s lower inflation relative to its trading partners. - The REER remains appreciated by about 16 percent relative to its value in April 2009—when a large devaluation of the Fijian dollar was undertaken by the Reserve Bank of Fiji to stem the loss of foreign exchange reserves. ### Current account (CA) and REER assessment - CA gap model implied a REER overvaluation of 22.5 percent (applying an estimated elasticity of the trade balance with respect to changes in the REER of -0.35). - The assessment is consistent with recent developments in nominal exchange rate and inflation rate. - Emergence of CA and REER gaps does not automatically imply a need for nominal exchange rate adjustment; gaps can be attributed to increasing fiscal deficits, indicating the need for tighter fiscal policy to maintain external balance. - Policy guidance to realign the REER with fundamentals: - Fiscal consolidation (about 5-6 percent of GDP by 2026) - Improving productivity and competitiveness ### International reserves: levels, projections, and adequacy - Gross official reserves stood at US$1,011 million (7.7 months of imports) in 2020, compared to US$1,027 million (7.3 months of imports) in 2019. - Reserves remained at a comfortable level thanks to the inflow of foreign loans and a notable increase in inward remittances. - Reserves’ coverage is projected to stay high in 2021 (6.9 months of imports), before gradually going back to the pre-pandemic trend over the medium term. - CA model estimates for 2020 (in percent of GDP): - CA-Actual-13.4 - Cyclical contributions (from model) (-)1.9 - COVID-19 adjustor (+) 1/4.9 - Natural disasters and conflicts (-)1.1 - Adjusted CA-11.6 - CA Norm (from model) 2/-3.7 - Adjusted CA Norm-3.7 - CA Gap-7.8 - o/w Relative policy gap-7.0 - Elasticity-0.35 - REER Gap (in percent)22.5 - Source: IMF staff estimates. - Footnotes in model: - 1/ Additional cyclical adjustment to account for the temporary impact of the pandemic on oil trade balances (-1.0 percent of GDP), on tourism (5.5 percent of GDP) and remittances (0.4 percent of GDP). - 2/ Cyclically adjusted, including multilateral consistency adjustments. - Reserves adequacy assessment: - A cost-benefit analysis suggests an optimal level between 3.3 and 5.3 months of imports. - If the probability of a large shock is set at the sample average of 50 percent, the estimated optimal level of reserves would be 3.3 months of imports – below the RBF’s minimum threshold of 4 months of retained imports. - Incorporating Fiji’s high vulnerability to natural disasters raises the estimated adequate level of reserves to 5.3 months of imports. ### Fiscal policies during the pandemic — overview - Fiji’s policy response to the pandemic was primarily fiscal and quasi-fiscal support, announced in three policy packages: March 2020 supplemental budget, FY2020-21 budget (July 2020), and FY2021-22 budget (July 2021). - Stimulus measures focused on reducing tax burden on businesses and households, supporting health response, and providing financial assistance to vulnerable populations. ### March 2020 Supplemental Budget - Announced March 26; total envelope of the announced stimulus package amounts to FJD 1 billion, equivalent to 8.7 percent of GDP. - Stimulus composition: - Revenue measures (FJD 152 million) - Additional spending and transfers (FJD 100 million) - Non-budgetary support including FNPF and the central bank (FJD 918 million) - Key provisions included: - Additional funds for the Ministry of Health - Reductions in employer and employee pension contributions - Transfer payments to workers - Loan repayment holidays - Tax and tariff reductions - Concessional loans to banks from the RBF - Table 1 (authorities' cost estimate; staff estimate of fiscal cost (FY)) — selected items (in millions of Fiji dollars): - Reduced employer/employee pension contributions from April to December 2100 - Lump sum assistance payments from FNPF; transfer payments to informal sector; employer reimbursements 30060 - Additional health budget procurement, public information, and infection control 4040 - Loan repayment holidays on principal and interest for up to 6 months; student loan repayment holiday 4100 - Tax and tariff reductions 150150 - RBF concessional loans to banks at 1 percent interest 600 - Reduced spending on capital projects and non-essential programs -405-405 - Total766-155 - Sources: Ministry of Economy and IMF staff calculations. ### FY2020-21 Official Budget measures - July 2020 budget overhauled Fiji’s tax regime to provide stimulus and bolster business competitiveness. Key revenue features: - Removal of the Services Turnover Tax. - Removal of the Stamp Duty. - Repeal of VAT reverse charges on supplies received from abroad. - Reduction of the Social Responsibility Tax (SRT) from 10 percent to 5 percent. - Reduction of the Environmental and Climate Adaptation Levy (ECAL) from 10 percent to 5 percent together with an increase in the business turnover threshold for ECAL from F$1.25 million to F$3 million. - Making permanent the 100 percent write-off for purchase of fixed assets up to F$10,000 for business purposes and the 100 percent write-off for construction of new commercial and industrial buildings. - Airport departure tax halved from F$200 to F$100. - Reduction in tariffs on vehicles, consumer goods, and a 50 percent reduction in local excise duties on alcohol. - FY2020/21 revenue loss resulting from policy changes is estimated at F$483 million (5 percent of GDP), mainly reflecting customs duties (F$190 million), the departure tax (F$90 million), and the Environment & Climate Adaptation Levy (F$90 million). - Table 2 — staff estimates (in millions of Fiji dollars): - Tax and tariff reductions: Staff estimate of total amount 483; Staff estimate of fiscal cost 483 - Tourism subsidy: 600 - Additional unemployment benefits & social protection: 9014 - Additional capital spending: 110110 - MSME loan program: 300 - Total: 773607 - Budget reallocations included expanded unemployment benefits (with FNPF), a COVID-19 contingency fund, funding for Digital Fiji and capital projects, and cuts to operating grants to several public agencies. ### FY2021-22 Official Budget fiscal indicators (F$ million) - Table 3: Authorities’ Fiscal Indicators in the FY2021-2022 Budget - Revenue: 2019-20 (Actual) 2,717; 2020-21 (Actual) 2,111; 2021-22 (Budget) 2,085 - As a % of GDP: 25.3; 22.0; 21.1 - Tax Revenue: 2,194; 1,411; 1,598 - Non-Tax Revenue: 523; 700; 487 - Expenditure: 3,354; 3,217; 3,691 - As a % of GDP: 31.2; 33.5; 37.3 - Net Deficit: -637; -1105; -1605 - As a % of GDP: -5.9; -11.5; -16.2 - Debt: 6,686; 7,606; 9,061 - As a % of GDP: 62.3; 79.2; 91.6 - Nominal GDP: 10,740; 9,598; 9,889 - FY2021-22 budget implications: - Budget envisions an increase in the deficit (government’s definition) by 4.7 pp to 16.2 percent of GDP in FY2021-22, driven by higher spending and a slight drop in revenues. - Public debt is projected to reach 92 percent of GDP in July 2022. - Increase in spending mainly from additional transfer payments (+F$200m), purchases of outputs (+F$100m), personnel (+F$50m), and transfers (+F$40m). - Off-budget provisions include incentives for vaccination and a new private sector loan program of F$200m with low-interest RBF funding; government guarantees 75 to 90 percent of these loans and pays interest for the first two years. ### 2018 FSAP Recommendations — status updates (selected) - Review supervisory ranking framework (SRF): Completed; revised SRF approved by FSPC in August 2019 and fully implemented. - Conduct a broad review of the Banking Act and seek amendments (related parties, consolidated supervision, major acquisitions, definitions of significant ownership and controlling interest): Review in progress; due for completion in Dec-2022. - Enhance microprudential supervisory stress tests with balance sheet and income projections: Completed. - Enhance quantitative analysis of branch reliance on parent groups: Research in progress; Discussion Paper to be finalized in Mar-2022. - Integrate supervisory knowledge into stress testing and link outputs to supervisory actions including EWIs: Partially completed; linkage work in progress to be completed in Dec-2021. - Assign macroprudential authority to the RBF with powers to implement macroprudential policies: Work in progress; proposed regulations drafted and expected to be finalized in June 2022. - Develop detailed macroprudential toolkit: Work in progress; confirmation on way forward expected by Dec-2022. - Strengthen domestic coordination via a Financial Stability Committee (FSC): Work in progress; expected to be complete by Dec-2022. - Assess costs and benefits of deposit insurance and design options: Ongoing research; expected to confirm way forward by Sep-2022. - Develop comprehensive bank resolution policies, recovery planning, ELA policy and processes, and enhance cross-border crisis management coordination: Work in progress with various expected completion dates between Mar-2022 and Jun-2022. - Strengthen oversight of nonbank financial sector; place FDB and Housing Authority of Fiji under full supervision of RBF and commence normal supervision. ### Climate adaptation and finance issues - Fiji is highly vulnerable to climate change owing to geography, coastal population/asset locations, and reliance on natural-resource-dependent sectors (agriculture and tourism). - Tropical Cyclone Winston (2016) caused combined damage to assets and production of about 30 percent of GDP and slowed growth to 0.4 percent. - National Adaptation Plan (NAP, 2018): - Lays out vulnerabilities across food and nutrition security, health, human settlements, infrastructure, biodiversity, and the natural environment. - Catalogues barriers to climate adaptation: - (i) information, knowledge, and technology barriers; - (ii) governance and institutional barriers; - (iii) financial barriers, including increasing adaptation finance and incorporating risk transfer mechanisms and contingency finance; - (iv) economic barriers, including high prevalence of low incomes, geographic remoteness, reliance on climate-dependent activities, and relatively low levels of investment. - Cost of adaptation: - Government and World Bank estimates place the cost of climate adaptation and resilience building in Fiji at about 10 percent of GDP over the next 10 years. - Recurrent costs are estimated at an additional 2-4 percent of GDP. - Fijian government estimates actual expenditures on climate adaptation and resilience-building are currently only about ¼ of estimated needs. - Given limited fiscal space (sharply reduced in the pandemic), spending needs greatly outweigh Fiji’s revenue and borrowing capacity. - Fiji’s access to climate finance — challenges: - Fiji issued a Green Bond in 2017-18 for F$100 million; the Green Bond was relatively expensive, with the 13-year maturity well above the average rate paid on other external borrowing. - Fiji Development Bank (FDB) gained direct access accreditation with the Green Climate Fund (GCF) in October 2017; GCF approved its first project in August 2020. - FDB’s time to direct access accreditation with the GCF was about 3.7 years; time to project approval after accreditation was another almost 3 years, even using the Simplified Approval Process. - Given Fiji’s middle-income status, access to concessional loans is difficult, limiting the amount it can borrow for climate projects without risking debt sustainability. - Allowed projects under direct access are very small and ESS rating is low; FDB is only able to secure direct access accreditation for loans up to US$10 million, small compared to estimated adaptation needs of about US$4.5 billion. *Source: IMF staff estimates and IMF country report content.* ### 4. A comprehensive approach to climate adaptation in Fiji will require both an increase in ### 4. A comprehensive approach to climate adaptation in Fiji will require both an increase in ### Main findings and context - A comprehensive approach to climate adaptation in Fiji requires both an increase in capacity to evaluate and create a pipeline of projects, and a realistic approach to climate finance which takes into account Fiji’s borrowing constraints and debt sustainability. - The government has already established a stand-alone office for the strategic development of climate projects. - A long-term financing strategy has yet to be developed. - Given Fiji’s high public debt, limited fiscal space, and high spending needs for climate adaptation, new financing will need to be primarily in the form of grants and concessional loans. ### Macroeconomic outlook and COVID-19 impact - Real GDP: Estimated contraction of 15.7 percent in 2020. - Real GDP: Projected contraction of a further 4 percent in 2021 (staff projection). - Current account deficit: Projected to expand to 15.7 percent of GDP in 2021 compared to 13.7 percent in 2020 (staff projection). - Inflation: Consumer price inflation expected to rise to 1.4 percent by end-2021, compared to -2.8 percent at end-2020. - Growth outlook: GDP growth projected to rebound by 10-12 percent in 2022 and around 7-9 percent in both 2023 and 2024. - Risks: Downside risks include uncertainties in the full recovery of the tourism sector, natural disasters, and economic scarring. ### Fiscal policy, debt, and medium-term objectives - Fiscal deficit: Estimated to have increased to 10.9 percent of GDP in FY2020-21, compared to 5.9 percent in the previous fiscal year. - Government debt: Estimated to have increased to 79.8 percent of GDP in FY2020-21 compared to 62.3 percent in the previous fiscal year. - Staff estimate: Tax and tariff reductions in the national budget reduced the Government’s overall revenue envelope by about 5 percent of GDP. - Authorities’ medium-term anchors and targets: - Small primary surplus target of 1-2 percent of GDP as a desirable anchor for fiscal policy. - Medium-term fiscal framework aimed at reducing the fiscal deficit to below 3 percent of GDP within the next 5 years. - Bring down Government debt to around 60 percent of GDP in the next 15 years. - Policy stance: Authorities plan to maintain an accommodative fiscal stance until recovery is firmly entrenched, while reiterating commitment to fiscal consolidation over the medium-term. - Contingent liabilities: Fiscal risks noted from contingent liabilities, particularly guarantees to affected state-owned enterprises. - Debt management: Authorities have an inaugural Medium-Term Debt Management Strategy and plan revenue enhancement and expenditure rationalization measures. ### Monetary policy and reserves - Monetary policy: Reserve Bank of Fiji (RBF) implemented accommodative monetary policy to support recovery; calibration will depend on economic recovery progress. - Foreign reserves: Adequate—sufficient to finance 10.4 months of retained imports, well above the 3 months minimum level of the international reserve adequacy standard. - SDR allocation: IMF’s recent SDR allocation to Fiji of about USD 133.8 million will be maintained with the RBF to further boost foreign reserves. - Exchange rate: Fiji’s de jure and de facto exchange rate arrangement is a conventional peg; the exchange rate was F$2.07 per U.S. dollar as of October 25, 2021. - Exchange controls: Authorities emphasized a cautious approach with gradual easing of existing controls to be considered as recovery takes shape. ### External sector - Current account: Projected by staff to widen to 15.7 percent of GDP in 2021 from 13.4 percent in 2020, driven by declines in trade and services balances that more than offset increases in secondary income balances and improvement in the primary income deficit. - Outlook: Current account deficit expected to gradually recover to pre-pandemic levels over the medium-term as tourism resumes. ### Financial sector health and supervision - Non-performing loans (NPLs): Reached 7.5 percent in September 2021, compared to 3 percent at end-2019. - Capital adequacy: Banks’ capital adequacy ratio strengthened to 20.6 percent as of September 2021, well above the prudential minimum of 12 percent. - Correspondent banking relationships: While there has been a steady decline in the Pacific region, Fiji is not facing such pressures. - Supervisory actions: On-site examinations re-established; more detailed prudential reporting required for loans under repayment holidays; monitoring and supervision enhanced for institutions of concern. - Loan repayment holidays: Phasing out anticipated by March 2022; authorities monitoring NPL rates closely. ### Data, statistics, and capacity for surveillance - National accounts: Production-side estimates of GDP at current and constant 2014 prices available up to 2019; current price estimates of GDP by expenditure and income available to 2019. Estimates were rebased from 2011 to 2014 in 2019. - Experimental quarterly national accounts: Development started in 2020. - CPI: Published monthly using 2014 weights derived from the 2013/14 HIES; CPI weights should be updated based on the 2019/20 HIES finalized in August 2021. - Government finance statistics: Fiji compiles and submits annual GFS data for budgetary central government; most recent submission was in December 2019. Re-classification of BCG expenditure data is required to improve fiscal data integrity. - Monetary and financial statistics: Comprehensive and provided regularly; published on RBF’s website and International Financial Statistics. - External sector statistics: Quarterly balance of payments reported following BPM6; debt statistics reported to World Bank QEDS. - Data dissemination: Fiji participates in the IMF enhanced General Data Dissemination System (e-GDDS) and disseminates key macroeconomic data in its National Summary Data Page, hosted by the RBF since September 2018. ### Structural reforms and climate resilience investment - Investment Act: Passage of the new Investment Act 2021 expected to improve competitiveness and business environment. - Digitalization: Progress in digitalization of tax, fee and license payments and issuance of permits and government documents. - Labor and childcare: Emphasis on raising female labor force participation; National Taskforce on Early Childhood Care and Education established to expand childcare services. - Climate resilience investment plans: Authorities plan to invest around 8-9 percent of GDP in blue and green climate projects, including infrastructure investment projects. - International cooperation: Authorities working with the UN and UK Government to improve climate resilience and sustainable development. - Governance and AML/CFT: Ongoing efforts to strengthen AML/CFT framework, address gaps identified by the Asia/Pacific Group (APG) in the 2016 MER, and improve governance/supervisory frameworks in NBFIs with changes to the Public Enterprise Act and Companies Act. ### Policy recommendations and priorities implied in the text - Prioritize development of a long-term financing strategy for climate adaptation consistent with debt sustainability constraints. - Seek new climate finance primarily in the form of grants and concessional loans, given high public debt and limited fiscal space. - Enhance capacity to evaluate and create a pipeline of climate adaptation projects via the established stand-alone office. - Maintain accommodative fiscal and monetary policies until recovery is entrenched, while implementing medium-term fiscal consolidation toward a small primary surplus of 1-2 percent of GDP and reducing fiscal deficit to below 3 percent of GDP within 5 years. - Strengthen debt management and continue implementing the Medium-Term Debt Management Strategy. - Preserve and build foreign reserves, including retention of the IMF SDR allocation of about USD 133.8 million with the RBF. - Continue strengthening financial supervision, monitor NPLs closely as loan repayment holidays phase out, and require enhanced prudential reporting for loans under repayment holidays. - Advance structural reforms to diversify the economy, increase competitiveness, improve digitalization, and raise female labor force participation. - Invest around 8-9 percent of GDP in blue and green climate projects and coordinate with international partners (UN, UK Government) to improve climate resilience. *Prepared by Asia & Pacific Department; Staff Report for the 2021 Article IV Consultation — Informational Annex (November 8, 2021).* --- _Source: https://www.imf.org/-/media/files/publications/cr/2021/english/1fjiea2021001.pdf_