## Selected excerpts — REPUBLIC OF FIJI — 2011 ARTICLE IV REPORT (_cr1244)

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### Context: growth, poverty, and political environment
- Growth performance:
  - Averaged nearly 2¾ percent during the 1990s and the first five years of the new millennium.
  - Dropped to under ¼ percent over the last five years (prior to the report).
  - In 2010, Fiji contracted by ¼ percent while developing Asia grew at 9½ percent.
- Poverty:
  - Expenditure-based poverty estimates: 35 percent of the Fijian population lived in poverty in 2008/09, down from 40 percent in 2002/03.
  - Poverty incidence (selected labels): 2002/03: Urban 34.5, Rural 44.1, Total 39.8; 2008/09: Urban 26.2, Rural 44.0, Total 35.2.
  - Urban poverty declined; rural poverty remains stubbornly high.
- Political context:
  - Current government took power in a 2006 coup; relations with traditional donors are strained and FDI has dropped sharply.
  - Elections expected for 2009 did not occur; government announced plans for an election in 2014 and provided an allocation in the 2012 budget for electoral preparations.
  - Consultations on a new constitution announced for 2012; lifting of emergency regulation expected to facilitate consultations.

### Recent economic developments and medium-term outlook
- Growth and sector performance:
  - Economy rebounded in 2011; annual growth could be about 2 percent.
  - Agriculture main contributor in 2011; sugarcane production rose sharply from prior year’s record low.
  - Growth should slow in 2012 as the 2009–10 natural bounce-back fades.
  - Trend growth could improve modestly with reforms; raising potential growth substantially above 2 percent requires accelerated structural reforms and an improved business and political climate.
- Risks:
  - Risks tilted to the downside: political uncertainties, structural weaknesses, and a fragile global economy.
  - External shock channels: declines in tourism, remittances, and FDI; partial offset from declines in oil and food prices.
- Inflation and monetary conditions:
  - Headline inflation hovered around 10 percent y/y for several months in 2011; core inflation remains moderate.
  - Projection: start 2012 at around 6 percent and fall toward 3½ percent over the medium term.
  - System awash with liquidity; credit growth slow; banks’ loan-deposit ratio below 90 percent.
  - Lending to the private sector rising at about 7 percent.
  - Reserve Bank of Fiji cut its policy rate in October by 100 basis points, to ½ percent.
- External balances and reserves:
  - Current account deficit estimated at 12 percent of GDP in 2011.
  - Medium-term: current account deficit could narrow to around 8 percent of GDP; overall balance could be in a small surplus.
  - Gross reserves should remain healthy despite increased dividend repatriation and some offshoring of FNPF investment.
  - Econometric estimates suggest the exchange rate is broadly in line with fundamentals.
- Fiscal stance and public debt:
  - Fiscal deficit estimated to have widened to 3½ percent of GDP in 2011 and projected to fall in 2012.
  - 2012 budget: capital expenditure boost; deficit budgeted to fall to around 2 percent of GDP in 2012.
  - Debt is currently above 50 percent of GDP.
  - Government faces contingent liabilities exceeding 15 percent of GDP, as well as unfunded FNPF liabilities.
  - Authorities’ planned fiscal trajectory: deficits at 1½ percent of GDP from 2013 onward.
- Financial sector and FNPF sustainability:
  - Banks well capitalized, low NPLs, adequate provisioning.
  - FNPF actuarially unsustainable: current pension annuitization rates vary from 15 to 25 percent and imply negative net cash flows by 2030 and depleted assets by 2056.

### Authorities’ views (summary)
- Authorities expect structural reforms to lift growth by around ½ percentage point on average above staff’s forecast.
- Authorities estimate potential growth at about 5 percent.
- Authorities expect average inflation to fall to 3½ percent by the end of 2012 and flatten out at 3 percent thereafter.

### Staff recommendations — macroeconomic policies
- Fiscal policy:
  - Staff suggested a lower fiscal deficit path than the authorities’ plan.
  - Staff view: structural reform, not fiscal stimulus, needed to boost potential growth; retain fiscal space for shocks.
  - 2012 budget measures (selected):
    - cut in the corporate tax from 28 to 20 percent;
    - substantial cut in personal income tax for most taxpayers, offset by a new levy of 23 percent or more on the highest earners;
    - broadening of the 5 percent Hotel Turnover Tax to cover restaurant and other services;
    - increases in the departure tax and tobacco and alcohol excises;
    - new levies on telecommunications, credit cards, insurance, and luxury cars.
  - Staff concerns: tax changes could threaten the revenue base; revenue projections appear overly optimistic; discretionary tax and customs concessions should be curbed.
- Monetary policy:
  - Staff did not object to accommodative stance given benign inflation outlook, but noted impaired transmission and low sensitivity of lending rates to policy rate.
  - RBF advised to communicate intent to tighten if inflation picks up.
  - Caution on credit-growth targets and SME credit-guarantee facilities.
- Exchange rate policy:
  - Mission recommended periodic review and adjustment of the peg level to prevent creeping overvaluation; fiscal and monetary policy must be consistent with the peg.
- Policy space:
  - Limited: high government debt constrains fiscal stimulus; weak monetary transmission limits monetary easing.
  - In extreme regional slowdown scenarios, some fiscal stimulus and exchange rate adjustment could be warranted.
- FNPF reform:
  - Adjustment in pension annuitization rate needed; transitional mechanisms for those near retirement.
  - Authorities’ earlier plan to cut annuitization rate from as high as 25 percent to 9 percent is on hold.
  - 2012 budget announced an actuarially sound pension rate, with transitional arrangements to be introduced on March 1, 2012.
  - Staff endorsed diversifying FNPF investments, including investing abroad.

### Structural policies — priorities and reforms
- Land reform:
  - 88 percent of land is native land; native land cannot be sold but can be leased with landowners’ consent.
  - TLTB typical rents: 2½ to 3 percent of UCV; legal maximum 6 percent of UCV.
  - Land Use Unit and Land Bank (established 2010) offer up to 10 percent of UCV, no 15 percent diversion to tribal chief, and leases up to 99 years.
  - Early outcomes: seven tracts registered (exceeding 2011 target of 2,000 hectares); 11,000 hectares volunteered; one lease issued to a Chinese company (bauxite mining).
  - Recommendations: strengthen Land Use Unit capacity; improve consultation with native landowners; rationalize multiple bureaucracies handling land issues.
- Price decontrol and competition policy:
  - Commerce Commission regulates: 24 food items, 460 hardware items, 74 pharmaceuticals, utility rates, wholesale cement and steel, fuel, and rental properties; maximum prices updated as often as weekly.
  - Staff view: scale back price controls faster and tackle anticompetitive practices directly, but moderate pace to protect the poor and smooth inflation.
- Sugar-sector reform:
  - Government assumed FSC debt and took full ownership in 2010.
  - Task Force strategy addresses farm productivity, mill efficiency, and pricing; sector contributes 2 percent of GDP and supports a large proportion of the population.
  - Option of privatization could be considered; staff: steadfast implementation needed.
- Civil service reform:
  - Wages increased between 3 and 9 percent in 2012 budget after a freeze of more than five years; hiring freeze with limited exceptions.
  - Need payroll and establishment-control reforms; attract more senior talent for land transactions and investment applications.
- SOE reform:
  - Extensive reform plans focused on divestment, corporatization, or other reforms to improve services and reduce fiscal costs.
  - Implementation slow; SOEs face soft budget constraints and generate very low returns; staff urged acceleration.
- Infrastructure:
  - Acceleration of public-sector investment viewed positively to enhance productivity and growth.
- Exchange control liberalization:
  - Recent relaxations: banks allowed net forward contracts up to F$20 million; individuals can take out up to F$10,000 for overseas investment; restrictions on dividend repatriation reported less binding.
  - Remaining restriction: capital transactions require FRCA tax clearance.
  - Staff view: some exchange restrictions are subject to Fund approval under Article VIII and should be eliminated.

### Upside scenario (mission-constructed)
- Assumptions:
  - Improved investment climate leads to an investment boom.
  - Realization of all mining and other projects in the pipeline.
  - Increase in tourism investment on the scale seen in 2006-07.
- Projected outcomes:
  - Investment and growth rise substantially in 2013.
  - Current account balance improves in outer years once mining production starts.
  - Reserves build up and debt ratio falls.
  - Inflation rises temporarily before potential growth picks up.

### Staff appraisal — key conclusions
- Macroeconomic policies generally appropriate.
- Fiscal policy: planned deficit path should help lower public debt ratio, but costs of tax rate reductions likely exceed budget estimates; more fiscal effort needed to meet targets.
- Monetary policy: easing understandable given benign inflation; credit-growth targets undesirable.
- Exchange rate: broadly in line with fundamentals but should be reviewed and adjusted more frequently.
- Financial sector: stable; FNPF reform is key priority.
- Growth and investment climate: boosting growth is top priority; political uncertainties have chilled investor relations; lifting emergency regulation and national consultations in 2012 are positive steps.
- Structural reforms recommended (priority actions):
  - Strengthen land reform consultation and Land Bank operations.
  - Steadfastly implement sugar-sector reform strategy.
  - Accelerate civil service, SOE, and public enterprise reforms.
  - Scale back price controls sharply and enforce antitrust measures.
  - Remove exchange restrictions linked to tax certification and limits on large payments.
  - Increase social transfers and refine targeting of the Family Assistance Program.

### FNPF (Box 3) — indicators and reform priorities
- FNPF affects monetary policy given fund size (approximately 60 percent of GDP).
- Investment portfolio (Investment Portfolio, $ billions): FY2006* 3.15; FY2007 3.16; FY2008 3.12; FY2009 3.21; FY2010 3.43.
- Interest rate credited to Members: 6.5%, 6.3%, 6.0%, 5.0%, 5.0%.
- Members Funds ($ billions): 2.32; 2.47; 2.61; 2.68; 2.85.
- Total Assets ($ billions): 3.25; 3.38; 3.5; 3.33; 3.54.
- FNPF aims to increase offshore investments to 25 or 30 percent of the portfolio.
- FNPF is actuarially unsustainable at current annuitization rates (15 to 25 percent); 2012 budget to implement a new age-based pension rate from March 1, 2012.

### Pension annuity changes (implementation detail)
- New annuity rates: "8.7 percent for single life annuities and from 11 percent to 7.5 percent for joint life annuities".
- Effective date: "from March 1, 2012."
- Existing pensioners "will be given the option to withdraw from the scheme or rejoin at the reduced level of pension."

### Selected quantitative indicators and projections (2007–12) — selected entries (as presented)
- Real GDP (at constant factor cost, percent change): 2007: -0.9; 2008: 1.0; 2009: -1.3; 2010: -0.2; 2011 Est.: 2.0; 2012 Proj.: 1.5.
- Consumer prices (average, percent change): 2007: 4.8; 2008: 7.7; 2009: 3.7; 2010: 5.5; 2011: 8.6; 2012: 4.9.
- Central government net lending (+)/borrowing (–) (percent of GDP): 2007: -1.1; 2008: -0.1; 2009: -4.5; 2010: -2.4; 2011 Est.: -3.5; 2012 Proj.: -1.9.
- Total debt outstanding (percent of GDP): 2007: 49.9; 2008: 50.5; 2009: 55.6; 2010: 55.6; 2011 Est.: 54.2; 2012 Proj.: 53.8.
- Current account balance (millions of U.S. dollars): 2007: -484; 2008: -649; 2009: -219; 2010: -358; 2011 Est.: -421; 2012 Proj.: -361.
- Gross official reserves (millions of U.S. dollars): 2007: 519; 2008: 317; 2009: 565; 2010: 716; 2011 Est.: 761; 2012 Proj.: 738.
- External central government debt (millions of U.S. dollars): 2007: 256; 2008: 270; 2009: 274; 2010: 324; 2011 Est.: 538; 2012 Proj.: 571.

### Debt sustainability (Appendix Table 1 — selected series, percent of GDP)
- Public sector debt (baseline): 2006: 53.5; 2007: 49.9; 2008: 50.5; 2009: 55.6; 2010: 55.6; 2011: 54.2; 2012: 53.8; 2013: 52.6; 2014: 51.2; 2015: 50.4; 2016: 47.2.
- Foreign-currency denominated debt (percent of GDP): 2006: 7.7; 2007: 7.1; 2008: 7.9; 2009: 9.4; 2010: 9.0; 2011: 12.8; 2012: 14.1; 2013: 14.5; 2014: 14.4; 2015: 14.5; 2016: 14.4.
- Gross financing need (percent of GDP): 2006: 9.6; 2007: 8.8; 2008: 5.8; 2009: 11.5; 2010: 7.3; 2011: 12.6; 2012: 6.4; 2013: 5.3; 2014: 5.5; 2015: 4.5; 2016: 7.6.
- Key baseline assumptions (selected):
  - Real GDP growth (percent): 2006: 1.9; 2007: -0.9; 2008: 1.0; 2009: -1.3; 2010: -0.2; 2011: 2.0; 2012: 1.5; 2013: 1.7; 2014: 1.9; 2015: 2.3; 2016: 2.3.
  - Inflation rate (GDP deflator, percent): 2006: 6.2; 2007: 3.3; 2008: 4.3; 2009: 0.4; 2010: 7.6; 2011: 10.2; 2012: 4.7; 2013: 4.2; 2014: 4.0; 2015: 3.0; 2016: 3.3.
  - Average nominal interest rate on public debt (percent): 2006: 5.8; 2007: 6.3; 2008: 6.2; 2009: 6.6; 2010: 7.0; 2011: 8.0; 2012: 7.0; 2013: 7.1; 2014: 6.8; 2015: 6.4; 2016: 6.1.

### Data and capacity-strengthening, and Fund/partner engagement
- Data adequacy: core economic and financial data generally adequate for surveillance though shortcomings exist (notably GDP and balance of payments).
- National accounts: production-side GDP available up to 2010; expenditure-side constant-price data not available.
- Balance of payments: revised annual BOP data published June 2010; errors and omissions reduced from over 10 percent of GDP to about 6 percent of GDP for 2008.
- PFTAC engagement: significant TA in revenue modernization, statistics, PFM, and macro modeling; Fiji largest user of PFTAC TA.
- Bank–Fund collaboration: identified macro-critical structural reforms (land reform, price decontrol, sugar reform, FNPF reform, civil service reform, public enterprise reform, exchange decontrol, social safety net review, tax policy and administration reform, debt management, statistical strengthening).

*Source: REPUBLIC OF FIJI — 2011 ARTICLE IV REPORT (Selected excerpts, _cr1244).*

### 1. Selected Economic Indicators, 2007–12 _______________________________________________________ 26

### 1. Selected Economic Indicators, 2007–12

### Context: growth and political environment
- Fiji’s growth performance:
  - Averaged nearly 2¾ percent during the 1990s and the first five years of the new millennium.
  - Dropped to under ¼ percent over the last five years (prior to the report).
  - In 2010, Fiji contracted by ¼ percent while developing Asia grew at 9½ percent.
- Poverty:
  - Urban poverty has declined; rural poverty remains stubbornly high.
- Political context:
  - Current government took power in a 2006 coup; relations with traditional donors are strained and FDI has dropped sharply.
  - Elections expected for 2009 did not occur; government announced plans for an election in 2014 and provided an allocation in the 2012 budget for electoral preparations.
  - Consultations on a new constitution announced for 2012; lifting of emergency regulation expected to facilitate consultations.

### Recent economic developments and medium-term outlook
- Growth and sector performance:
  - After contracting for two years, the economy rebounded in 2011; annual growth could be about 2 percent (broadly in line with the Authorities’ Macroeconomic Committee).
  - Agriculture was the main contributor, with sugarcane production rising sharply from the prior year’s record low and other subsectors recovering from cyclone damage.
  - Growth should slow in 2012 as the 2009–10 natural bounce-back fades.
  - Trend growth could improve modestly if reforms continue; raising potential growth substantially above 2 percent would require accelerated structural reforms and an improved business and political climate.
- Risks:
  - Risks tilted to the downside: political uncertainties, structural weaknesses, and a fragile global economy.
  - Potential channels for external shock: declines in tourism, remittances, and FDI; partial offset from declines in oil and food prices.
- Inflation:
  - Headline inflation hovered around 10 percent y/y for several months in 2011, driven by imported food and fuel, VAT increases, administered price increases, and electricity tariff restructuring.
  - Core inflation remains moderate.
  - Projection: start 2012 at around 6 percent and fall toward 3½ percent over the medium term.
- Monetary conditions:
  - System is awash with liquidity due to foreign exchange inflows; credit growth slow; banks’ loan-deposit ratio remains below 90 percent.
  - Lending to the private sector rising at about 7 percent.
  - Reserve Bank of Fiji (RBF) cut its policy rate in October by 100 basis points, to ½ percent.
  - RBF considering an SME loan guarantee scheme.
- External balances and reserves:
  - Current account deficit estimated at 12 percent of GDP in 2011.
  - Over the medium term, current account deficit could narrow to around 8 percent of GDP with modest export and remittance growth and flattening oil imports; overall balance could be in a small surplus.
  - Gross reserves should remain healthy despite increased dividend repatriation and some offshoring of Fiji National Provident Fund (FNPF) investment.
  - Econometric estimates suggest the exchange rate is broadly in line with fundamentals.
- Fiscal stance and public debt:
  - Fiscal deficit estimated to have widened to 3½ percent of GDP in 2011 and projected to fall in 2012.
  - 2012 budget plans a substantial capital expenditure boost; deficit budgeted to fall to around 2 percent of GDP in 2012.
  - Debt is currently above 50 percent of GDP.
  - Government faces contingent liabilities exceeding 15 percent of GDP, as well as unfunded FNPF liabilities.
  - Authorities’ planned fiscal trajectory: deficits at 1½ percent of GDP from 2013 onward, which would reduce the debt ratio steadily, though additional measures may be needed.
- Financial sector and FNPF sustainability:
  - Banks are well capitalized, with low NPLs and adequate loan loss provisioning.
  - FNPF is actuarially unsustainable: current pension annuitization rates (varying from 15 to 25 percent for different pensioners) imply negative net cash flows by 2030 and depleted assets by 2056.

### Authorities’ views (summarized)
- Authorities had a more positive outlook than staff:
  - Expect structural reforms already in train to lift growth by around ½ percentage point on average above staff’s forecast over the medium term.
  - See the economy’s potential growth rate at about 5 percent (substantially above staff’s estimate).
  - Expect average inflation to fall to 3½ percent by the end of 2012 and flatten out at 3 percent thereafter.

### Policy discussions — Macroeconomic policies (staff recommendations and assessment)
- Fiscal policy:
  - Mission suggested a lower fiscal deficit path than the authorities’ plan.
  - Authorities planned to move from an expected 2½ percent of GDP deficit in 2011 to 3 percent in 2012, then reduce the deficit by ½ percent in 2013 and again in 2014 toward balancing the budget (staff viewed this as implying a substantial widening of the underlying deficit in 2012, excluding FSC costs).
  - Staff view: structural reform, not fiscal stimulus, needed to boost potential growth; retain fiscal space for shocks.
  - 2012 budget measures included:
    - cut in the corporate tax from 28 to 20 percent;
    - substantial cut in personal income tax for most taxpayers, offset by a new levy of 23 percent or more on the highest earners;
    - broadening of the 5 percent Hotel Turnover Tax to cover restaurant and other services;
    - increases in the departure tax and tobacco and alcohol excises;
    - new levies on telecommunications, credit cards, insurance, and luxury cars.
  - Staff concerns:
    - Tax changes could threaten the revenue base and require compensating measures; authorities’ revenue projections seem overly optimistic; achieving deficit targets would be difficult without further fiscal measures.
    - Discretionary tax and customs concessions should be curbed to improve transparency and create fiscal space; 2012 budget contained no steps to tighten concessions.
- Monetary policy:
  - Staff did not object to RBF’s accommodative stance given benign inflation outlook, but questioned likely effectiveness because transmission is impaired and lending rates are not highly sensitive to policy rate.
  - Mission emphasized RBF should clearly communicate intent to tighten policy if inflation picks up.
  - Mission expressed concerns about RBF’s credit-growth targets (risk to asset quality and distorted lending decisions).
  - Mission cautioned about SME credit-guarantee facilities given spotty international experience.
- Exchange rate policy:
  - Mission recommended periodic review and adjustment of the peg level to prevent creeping overvaluation given partner-country inflation differentials; fiscal and monetary policy must be consistent with the peg.
  - Authorities agreed; trading band and other options were discussed.
- Policy space for global downturn:
  - Limited policy space: high government debt constrains fiscal stimulus; weak monetary transmission limits monetary easing.
  - In extreme regional slowdown scenarios, some fiscal stimulus and exchange rate adjustment could be warranted.
- FNPF reform:
  - Mission agreed with authorities that FNPF reform is the key financial-sector priority.
  - Adjustment in pension annuitization rate needed to preserve fund sustainability; transitional mechanisms could be offered for those already in or near retirement.
  - Authorities’ earlier plan to cut annuitization rate from as high as 25 percent to 9 percent is on hold.
  - 2012 budget announced an actuarially sound pension rate, with transitional arrangements to be introduced on March 1, 2012; no details available in the report.
  - Staff endorsed FNPF efforts to rehabilitate and diversify its investment portfolio, including investing abroad.

### Policy discussions — Structural policies (priorities and reforms)
- General:
  - Removing structural impediments to growth is critically important; relaxing the emergency regulation and establishing a clear path toward a 2014 election would boost investor confidence.
  - Concerns about ad hoc and inconsistent policymaking; improving consultation and lead times would improve the business climate.
  - Staff urged expediting sector-specific reforms; Appendix III summarizes progress and plans regarding structural reforms.
- Land reform:
  - Widely perceived as among the most important measures to boost the economy.
  - Reforms undertaken: maximum allowable lease tenures extended; a Land Bank set up to better deploy assets.
  - Issues: complex bureaucracy across land policy functions; complaints about inadequate consultation with native landowners.
  - Rationalizing bureaucracy and improving consultation would help sustain reforms.
- Price decontrol and competition policy:
  - Current price-control system seen as overly extensive and a deterrent to investment.
  - Commerce Commission regulates: 24 food items, 460 hardware items, 74 pharmaceuticals, utility rates, wholesale cement and steel, fuel, and rental properties; maximum prices tailored to each retailer’s costs and updated as often as weekly.
  - Staff view: scale back price controls faster, tackle anticompetitive practices directly; however, pace of decontrol should be moderated to smooth the inflation path and protect the poor.

*Source: REPUBLIC OF FIJI — 2011 ARTICLE IV REPORT (Selected excerpts).*

### 23.      Sugar-sector reform, which is

### _cr1244 - 23.      Sugar-sector reform, which is

### Sugar-sector reform
- Reform already underway. In 2010, the government committed to reforming the industry and returning FSC to profitability by assuming FSC debt and taking full ownership and control of the company.
- A Task Force has laid out a comprehensive strategy addressing farm productivity, mill efficiency, and pricing strategy to turn around the sugar sector.
- The sugar sector:
  - Contributes only two percent of GDP.
  - Still supports a large proportion of Fiji’s population.
- Assessment and options:
  - The strategy is described as sensible and could help the industry survive in a post-preferential-price era.
  - The option of privatization could also be considered.
- Staff recommendation: steadfast implementation is now needed.

### Labor relations and Essential National Industries Decree
- Recent Essential National Industries Decree cancelled existing labor agreements in several sectors.
- Effects and concerns:
  - Strained labor relations and sparked boycott threats from Australian unions.
  - Could lead to a perception of a worsening investment climate and a fall-off in demand for some key industries.
- Authorities' view: the decree was needed to resolve outdated and anomalous agreements that hampered productivity and dampened growth.
- Staff noting: an improved environment for labor relations could have broad-ranging positive impacts on the economy.

### Civil service reform
- Status and measures:
  - Reforms are in train but more remains to be done.
  - Wages increased between 3 and 9 percent in the 2012 budget after a freeze lasting more than five years.
  - There is a hiring freeze with limited exceptions.
  - Authorities have tried to outsource certain functions, with mixed results.
- Needs:
  - Payroll and establishment-control reforms are needed.
  - Need to attract and retain more senior talent to handle land transactions and investment applications.
  - Reforms should be part of a comprehensive strategy with widespread buy-in.
- Authorities agreed with this assessment.

### State-owned enterprises (SOE) reform
- Government has extensive reform plans for public enterprises focused on divestment, corporatization, or other reforms to improve services (many enjoyed by the poor) and reduce fiscal costs.
- Implementation has been slow; SOEs still face a soft budget constraint and generate very low returns.
- Staff urged acceleration of the pace of implementation.
- Authorities agreed that SOE reforms were critical.

### Infrastructure
- Government emphasis on building infrastructure throughout Fiji is well placed and should continue.
- Acceleration of public-sector investment in infrastructure is viewed positively and expected to enhance productivity and boost economic growth.

### Exchange control liberalization
- Further liberalization would be desirable.
- Recent relaxations:
  - Banks allowed net forward contracts of up to F$20 million.
  - Individuals can take out up to F$10,000 for overseas investment.
  - Restrictions on dividend repatriation reported to be less binding.
  - 2012 budget increased delegated limits, expanding banks’ authority to conduct various transactions without RBF approval.
- Remaining restrictions:
  - Capital transactions still allowed only if the Fiji Revenue and Customs Authority (FRCA) issues a tax clearance, which is sometimes delayed.
  - Trade transactions are always approved.
- Authorities agreed exchange control liberalization was desirable and said it would continue, especially now that RBF reserves are healthy.
- Staff view: some exchange restrictions are subject to Fund approval under Article VIII and should be eliminated; exchange restrictions are not appropriate means to promote tax compliance.

### "Upside scenario" constructed by the mission
- Assumptions:
  - Improved investment climate leads to an investment boom.
  - Realization of all mining and other projects currently in the pipeline.
  - Increase in tourism investment on the scale seen in 2006-07.
- Projected outcomes:
  - Investment and growth rise substantially in 2013.
  - Current account balance improves markedly in the outer years once mining production starts.
  - Reserves build up and the debt ratio falls.
  - Inflation rises temporarily before potential growth picks up.
- Authorities found the exercise useful.

### Staff appraisal — macroeconomic policies
- Overall assessment: Fiji’s macroeconomic policies are generally appropriate.
- Fiscal policy:
  - Planned deficit path should help lower the public debt ratio.
  - Costs of tax rate reductions are likely to exceed estimates in the budget; more fiscal effort will be needed if deficit targets are to be achieved.
  - Discretionary tax concessions need to be curbed.
- Monetary policy:
  - Against a benign inflation outlook, easing monetary policy to boost growth is understandable.
  - Attempts to force matters through credit growth targets are undesirable.
- Exchange rate:
  - Broadly in line with fundamentals but should be reviewed and adjusted more frequently to avoid big step devaluations.
- Policy space:
  - Little policy space to respond to a global downturn; in an extreme scenario, fiscal stimulus and possibly an exchange rate adjustment could be considered.
- Financial sector:
  - Stable; authorities appropriately focused on FNPF reform.

### Staff appraisal — growth and investment climate
- Growth outcomes:
  - Fiji’s performance: growth averaging under ¼ percent since 2007.
  - Urban poverty has declined significantly; rural poverty has scarcely moved.
  - Boosting growth is policymakers’ top priority.
- Investment climate:
  - Current political environment has chilled relations with some development partners and introduced uncertainty for investors.
  - Announced lifting of the emergency regulation on January 7 and plans for national consultations in 2012 on a new constitution are positive steps.
  - Plans toward the promised 2014 election and a more consultative policymaking approach would foster investor confidence.

### Staff appraisal — structural reforms and other recommendations
- Land and sugar:
  - Establishment and operation of the Land Bank is promising to facilitate development of idle lands, but landowner consultation needs improvement.
  - Sugar sector reform strategy is welcome; steadfast implementation needed.
- Civil service:
  - Continue reforms to reduce costs and increase effectiveness of service delivery.
- SOEs:
  - Reform and restructure loss-making state enterprises without delay.
- Price controls:
  - Price controls are pernicious and should be scaled back sharply.
  - Current regime is excessive and likely to deter investment.
  - Price fixing and other anticompetitive behaviors should be monitored and punished directly rather than relying on crude price restrictions.
- Exchange restrictions:
  - Restrictions arising from tax certification requirements before foreign companies can remit profits, and direct limits on large payments, should be eliminated.
- Consultation timing:
  - Recommended that the next Article IV consultation take place on the standard 12-month cycle.

### Box 1 — Poverty in Fiji and policy responses
- Poverty estimates:
  - Expenditure-based poverty estimates suggest that 35 percent of the Fijian population lived in poverty in 2008/09, down from 40 percent in 2002/03.
  - Considerable improvement in urban areas; rural areas showed none.
- Correlates of poverty: old age, number of children, education and employment status of household heads.
- Government social assistance:
  - Spending is quite small, at around ½ percent of GDP.
  - Impact on poverty at the national level is limited.
  - Eligibility criteria for targeted social assistance need clearer definition.
  - Access to the Family Assistance Program should be widened while targeting the extremely poor.
  - An increase in the social assistance budget would be desirable, but transfers are one instrument in a multipronged approach to reducing poverty.
- Poverty incidence data (excerpted chart labels):
  - 2002/03: Urban 34.5, Rural 44.1, Total 39.8
  - 2008/09: Urban 26.2, Rural 44.0, Total 35.2

### Box 2 — Exchange rate assessment (summary)
- Staff estimates: Fiji dollar broadly in line with fundamentals; three standard methods show overvaluation ranging from 1 to 6 percent.
- MB approach:
  - Current account deficit norm estimated at 6¾ percent of GDP.
  - Projected current account deficit lies slightly above this norm.
  - Assuming a semi-elasticity of -0.3, a 4½ percent real depreciation would be sufficient to bring the projection in line with the norm.
- ERER approach:
  - Model explains REER largely on tourism-based terms of trade using average expenditure per tourist as price proxy.
  - Assuming slight improvement in terms of trade and import prices declining as per the WEO, exchange rate estimated to be 6 percent overvalued.
- ES approach:
  - Implies exchange rate roughly in equilibrium assuming nominal GDP growth of just over 7 percent on average over the medium term and stabilization of net foreign liabilities (NFL) at 120 percent of GDP.
- Tabulated results (excerpt):
  - MB approach: Current account balance (CAB) -6.8 -8.2 4.6
  - ERER approach: ......6.0
  - ES approach: NFA stabilizing CAB -7.9 -8.2 1.1
- Note: All results are expressed in percent.

### Box 3 — Fiji National Provident Fund (FNPF)
- Structure and issues:
  - Public pension fund; formal-sector employees required to participate.
  - Member contributions retained in individual accounts and pooled for investment.
  - Pre-retirement withdrawals allowed for specified purposes; retirement at 55 with choice between lump-sum and lifetime annuity.
  - FNPF suffers from a substantial actuarial imbalance due to high annuitization rates (from 15 to 25 percent), depleting the Pension Buffer Fund.
  - According to the 2012 budget, a new age-based pension rate will be implemented in March 2012.
- Investment portfolio:
  - Fiji government securities account for nearly two-thirds of the portfolio.
  - Substantial restrictions on overseas investments.
  - Funds not in government bonds have often been funneled into low-yielding domestic tourism and real estate projects.
  - FNPF aims to boost profits by increasing offshore investments to 25 or 30 percent of the portfolio.
- Implications:
  - Given fund size (approximately 60 percent of GDP), FNPF affects monetary policy by keeping Treasury yields down and by deposits in banks and lending to private and quasi-government agencies.
- Summary of key indicators (from FNPF 2010 Annual Report):
  - Investment Portfolio ($ billions): FY2006* 3.15, FY2007 3.16, FY2008 3.12, FY2009 3.21, FY2010 3.43
  - Interest rate credited to Members: 6.5%, 6.3%, 6.0%, 5.0%, 5.0%
  - Interest paid to members ($ millions): 124.57, 128.35, 131.07, 113.63, 121.17
  - Employers: 622, 766, 476, 701, 694, 471, 05  (note: original table formatting preserved as in source)
  - Membership: 331,050; 343,453; 352,358; 357,662; 364,717
  - Contributions ($ millions): 267.66; 289.63; 281.68; 288.49; 292.27
  - Members Funds ($ billions): 2.32; 2.47; 2.61; 2.68; 2.85
  - Investment Income ($ millions): 240.04; 199.29; 194.04; 227.39; 219.53
  - Total Assets ($ billions): 3.25; 3.38; 3.5; 3.33; 3.54
  - Withdrawals ($ millions): 250.62; 292.33; 297.70; 352.30; 277.49
- Source: FNPF 2010 Annual Report. Summary indicator note: * FY is July 01 to June 30.

*International Monetary Fund — 2011 Article IV Report for the Republic of Fiji*

### Box 4. Land Reform

### Box 4. Land Reform

### Context and land ownership
- Eighty-eight percent of land in Fiji is “native land,” owned by tribal groups; another eight percent is individually owned; and the remaining four percent is state land.
- Native land cannot be sold but can be leased with the landowners’ consent.

### Leasing framework and the iTaukei Land Trust Board (TLTB)
- The iTaukei Land Trust Board (TLTB) handles native-land lease transactions and sets rents.
- Typical rents under TLTB: 2½ to 3 percent of the land’s unimproved capital value (UCV).
- Legal maximum rent under TLTB: no more than 6 percent of UCV.
- Obtaining a TLTB lease is described as fairly cumbersome, and much native land has sat idle.

### Land Use Unit and the Land Bank (established 2010)
- The government established a Land Use Unit in 2010 which essentially competes with TLTB.
- The Unit operates a Land Bank in which native landowners (as well as the Government for state land) can voluntarily register land for the Unit to administer.
- Once land is transferred from TLTB to the Land Bank, the Unit must survey and value the land and advertise its availability.
- The Land Bank offers native landowners more beneficial terms than TLTB, including:
  - A higher rental rate (up to 10 percent of UCV).
  - No diversion of 15 percent of the rent to the tribal chief (as occurs with TLTB).
  - Longer lease periods (up to 99 years for any type of land, versus a maximum of 30 years for TLTB’s agricultural land).

### Early outcomes and scale
- So far, seven tracts of land have been registered with the Unit, exceeding the 2011 target of 2,000 hectares.
- A further 11,000 hectares have been volunteered for registration.
- One lease has been issued, to a Chinese company pursuing bauxite mining.
- Note: These registrations and the single lease represent a very small portion of total native land, but are characterized as a positive start and appear to have pushed TLTB to improve its competitiveness.

### Institutional and implementation considerations (policy recommendations / next steps)
- Institutional capacity at the Land Use Unit must be strengthened.
- More consultation with native landowners will be necessary to ensure their buy-in and thus the reform’s sustainability.
- In due course, some rationalization of the multiple bureaucracies handling land issues would also be desirable.

*Source: Box 4. Land Reform, _cr1244 - Box 4. Land Reform*

### Appendix Table 1. Fiji: External Debt Sustainability Framework, 2006-2016

### Appendix Table 1. Fiji: External Debt Sustainability Framework, 2006-2016

### External debt and public sector debt trajectory (baseline)
- Baseline: Public sector debt 1 (percent of GDP) by year:
  - 2006: 53.5
  - 2007: 49.9
  - 2008: 50.5
  - 2009: 55.6
  - 2010: 55.6
  - 2011: 54.2
  - 2012: 53.8
  - 2013: 52.6
  - 2014: 51.2
  - 2015: 50.4
  - 2016: 47.2
- Of which: Foreign-currency denominated (percent of GDP):
  - 2006: 7.7
  - 2007: 7.1
  - 2008: 7.9
  - 2009: 9.4
  - 2010: 9.0
  - 2011: 12.8
  - 2012: 14.1
  - 2013: 14.5
  - 2014: 14.4
  - 2015: 14.5
  - 2016: 14.4

### Debt dynamics and identified flows
- Change in public sector debt (percent of GDP):
  - 2006: 5.8
  - 2007: -3.6
  - 2008: 0.6
  - 2009: 5.1
  - 2010: 0.0
  - 2011: -1.4
  - 2012: -0.4
  - 2013: -1.2
  - 2014: -1.3
  - 2015: -0.9
  - 2016: -3.2
- Identified debt-creating flows (4+7+12) (percent of GDP):
  - 2006: -0.9
  - 2007: 0.3
  - 2008: -1.8
  - 2009: 5.8
  - 2010: -2.2
  - 2011: -1.1
  - 2012: -0.7
  - 2013: -0.9
  - 2014: -1.0
  - 2015: -0.8
  - 2016: -1.1
- Primary deficit (percent of GDP):
  - 2006: 0.8
  - 2007: -1.2
  - 2008: -3.1
  - 2009: 1.2
  - 2010: -1.4
  - 2011: -0.5
  - 2012: -1.1
  - 2013: -1.5
  - 2014: -1.4
  - 2015: -1.3
  - 2016: -1.3
- Revenue and grants (percent of GDP):
  - 2006: 25.6
  - 2007: 25.3
  - 2008: 25.4
  - 2009: 25.1
  - 2010: 25.3
  - 2011: 25.2
  - 2012: 25.6
  - 2013: 24.3
  - 2014: 24.2
  - 2015: 24.1
  - 2016: 24.1
- Primary (noninterest) expenditure (percent of GDP):
  - 2006: 26.4
  - 2007: 24.1
  - 2008: 22.3
  - 2009: 26.2
  - 2010: 23.8
  - 2011: 24.7
  - 2012: 24.6
  - 2013: 22.8
  - 2014: 22.8
  - 2015: 22.8
  - 2016: 22.8

### Automatic debt dynamics and contributions
- Automatic debt dynamics 2/ (percent of GDP):
  - 2006: -1.2
  - 2007: 1.5
  - 2008: 1.3
  - 2009: 4.6
  - 2010: -0.7
  - 2011: -2.1
  - 2012: 0.3
  - 2013: 0.6
  - 2014: 0.4
  - 2015: 0.5
  - 2016: 0.2
- Contribution from interest rate/growth differential 3/ (percent of GDP):
  - 2006: -1.1
  - 2007: 2.1
  - 2008: 0.4
  - 2009: 3.8
  - 2010: -0.2
  - 2011: -2.1
  - 2012: 0.3
  - 2013: 0.6
  - 2014: 0.4
  - 2015: 0.5
  - 2016: 0.2
- Of which: Contribution from real interest rate (percent of GDP):
  - 2006: -0.2
  - 2007: 1.6
  - 2008: 0.8
  - 2009: 3.2
  - 2010: -0.3
  - 2011: -1.2
  - 2012: 1.1
  - 2013: 1.4
  - 2014: 1.3
  - 2015: 1.6
  - 2016: 1.3
- Of which: Contribution from real GDP growth (percent of GDP):
  - 2006: -0.8
  - 2007: 0.4
  - 2008: -0.5
  - 2009: 0.6
  - 2010: 0.1
  - 2011: -1.0
  - 2012: -0.8
  - 2013: -0.9
  - 2014: -1.0
  - 2015: -1.1
  - 2016: -1.1
- Contribution from exchange rate depreciation 4/ (percent of GDP):
  - 2006: -0.1
  - 2007: -0.5
  - 2008: 1.0
  - 2009: 0.8
  - 2010: -0.5
  - 2011: ... (ellipsis in source)
  - 2012: ... (ellipsis in source)

### Other identified debt-creating flows and residuals
- Other identified debt-creating flows (percent of GDP):
  - 2006: -0.5
  - 2007: 0.0
  - 2008: 0.0
  - 2009: 0.0
  - 2010: 0.0
  - 2011: 1.5
  - 2012: 0.0
  - 2013: 0.0
  - 2014: 0.0
  - 2015: 0.0
  - 2016: 0.0
- Privatization receipts (negative) (percent of GDP):
  - 2006: -0.5
  - 2007–2016: 0.0 each year
- Recognition of implicit or contingent liabilities (percent of GDP):
  - 2006–2010: 0.0 each year
  - 2011: 1.5
  - 2012–2016: 0.0 each year
- Residual, including asset changes (2-3) (percent of GDP):
  - 2006: 6.7
  - 2007: -3.9
  - 2008: 2.4
  - 2009: -0.7
  - 2010: 2.2
  - 2011: -0.3
  - 2012: 0.3
  - 2013: -0.3
  - 2014: -0.3
  - 2015: -0.1
  - 2016: -2.1

### Ratios and financing needs
- Public sector debt-to-revenue ratio 1/:
  - 2006: 209.2
  - 2007: 196.9
  - 2008: 198.5
  - 2009: 221.7
  - 2010: 220.0
  - 2011: 214.8
  - 2012: 209.7
  - 2013: 216.3
  - 2014: 211.9
  - 2015: 208.9
  - 2016: 195.7
- Gross financing need 6/ (percent of GDP):
  - 2006: 9.6
  - 2007: 8.8
  - 2008: 5.8
  - 2009: 11.5
  - 2010: 7.3
  - 2011: 12.6
  - 2012: 6.4
  - 2013: 5.3
  - 2014: 5.5
  - 2015: 4.5
  - 2016: 7.6
- Gross financing need in millions of U.S. dollars:
  - 2006: 296.5
  - 2007: 299.8
  - 2008: 209.8
  - 2009: 331.3
  - 2010: 232.6
  - 2011: 447.4
  - 2012: 233.7
  - 2013: 200.6
  - 2014: 217.0
  - 2015: 185.6
  - 2016: 325.9

### Scenario outcomes reported
- Scenario with key variables at their historical averages 7/ (percent of GDP):
  - 2006: 54.2
  - 2007: 55.4
  - 2008: 56.1
  - 2009: 56.8
  - 2010: 57.7
  - 2011: 56.6
  - 2012: 0.5 (value in source appears on separate line; retained exactly as presented)
- Scenario with no policy change (constant primary balance) in 2011-2016 (percent of GDP):
  - 2006: 54.2
  - 2007: 54.4
  - 2008: 54.2
  - 2009: 53.8
  - 2010: 53.8
  - 2011: 51.5
  - 2012: 0.4 (value in source appears on separate line; retained exactly as presented)

### Key macroeconomic and fiscal assumptions underlying the baseline
- Real GDP growth (in percent):
  - 2006: 1.9
  - 2007: -0.9
  - 2008: 1.0
  - 2009: -1.3
  - 2010: -0.2
  - 2011: 2.0
  - 2012: 1.5
  - 2013: 1.7
  - 2014: 1.9
  - 2015: 2.3
  - 2016: 2.3
- Average nominal interest rate on public debt (in percent) 8/:
  - 2006: 5.8
  - 2007: 6.3
  - 2008: 6.2
  - 2009: 6.6
  - 2010: 7.0
  - 2011: 8.0
  - 2012: 7.0
  - 2013: 7.1
  - 2014: 6.8
  - 2015: 6.4
  - 2016: 6.1
- Average real interest rate (nominal rate minus change in GDP deflator, in percent):
  - 2006: -0.4
  - 2007: 3.0
  - 2008: 1.8
  - 2009: 6.2
  - 2010: -0.6
  - 2011: -2.2
  - 2012: 2.3
  - 2013: 2.9
  - 2014: 2.7
  - 2015: 3.4
  - 2016: 2.8
- Nominal appreciation (increase in U.S. dollar value of local currency, in percent):
  - 2006: 4.8
  - 2007: 7.3
  - 2008: -12.1
  - 2009: -8.5
  - 2010: 6.0
  - 2011: ... (ellipsis in source)
- Inflation rate (GDP deflator, in percent):
  - 2006: 6.2
  - 2007: 3.3
  - 2008: 4.3
  - 2009: 0.4
  - 2010: 7.6
  - 2011: 10.2
  - 2012: 4.7
  - 2013: 4.2
  - 2014: 4.0
  - 2015: 3.0
  - 2016: 3.3
- Growth of real primary spending (deflated by GDP deflator, in percent):
  - 2006: 5.9
  - 2007: -9.6
  - 2008: -7.4
  - 2009: 15.3
  - 2010: -8.9
  - 2011: 5.8
  - 2012: 0.8
  - 2013: -5.6
  - 2014: 1.9
  - 2015: 2.3
  - 2016: 2.3

### Stress tests and scenario notes (as presented)
- Figures and bound tests include:
  - Individual shocks: permanent one-half standard deviation shocks.
  - For historical scenarios: historical averages calculated over the 10-year period and used to project debt dynamics five years ahead.
  - Permanent 1/4 standard deviation shocks applied to real interest rate, growth rate, and current account balance (external debt figure notes).
  - One-time real depreciation of 30 percent occurs in 2010; the middle line corresponds to a 30% real depreciation with an associated improvement in the current account, assuming a semi-elasticity of 0.3 (external debt figure notes).
  - For public debt bound tests: permanent one-half standard deviation shocks; permanent 1/4 standard deviation shocks applied to real interest rate, growth rate, and primary balance; one-time real depreciation of 30 percent and 10 percent of GDP shock to contingent liabilities occur in 2010 (public debt figure notes).

*Source: Appendix Table 1. Fiji: External Debt Sustainability Framework, 2006-2016 (from the provided content).*

### 2011. Banks have also been allowed to have net

### _cr1244 - 2011. Banks have also been allowed to have net

### Exchange and capital restrictions; controls on investment
- Banks have been allowed to have net forward contracts of up to F$20 million.
- Individuals are allowed to take out up to F$10,000 for overseas investment.
- There are restrictions in Fiji dollars on offshore portfolio and direct investments by:
  - the Fiji National Provident Fund (FNPF),
  - other nonbank financial institutions,
  - companies, and
  - individuals.

### Article IV consultation, safeguards, and resident representation
- Last Article IV consultation:
  - Discussions held in Suva during October 28–November 12, 2010.
  - Consultation documented in Country Report No. 11/85.
  - Completed by the Executive Board on February 2, 2011.
  - Fiji is on a 12-month cycle with the concurrence of the authorities.
- Safeguards Assessment of the Reserve Bank of Fiji (RBF):
  - First-time safeguards assessment finalized in January 2011.
  - Found key safeguards elements in place.
  - RBF publishes annual financial statements prepared and audited in accordance with internationally recognized standards.
  - Assessment confirmed very low level of autonomy of the RBF; legislation supports a wide scope of political interference.
  - Proposed amendments would address some but not all weaknesses; alternative measures were recommended by staff.
  - An action plan has been put in place where there is capacity to prepare IFRS financial statements and commenced with the financial statements for the year ended 2010 during 2011.
- Resident Representative:
  - Regional Resident Representative Office for Pacific Islands based in Suva opened on September 13, 2010.
  - Office covers Fiji, Kiribati, Marshall Islands, Micronesia, Palau, Papua New Guinea, Samoa, Solomon Islands, Tonga, Tuvalu, and Vanuatu.
  - Mr. Yongzheng Yang is the resident representative.

### World Bank–IMF collaboration and identified macro-critical structural reforms
- Bank and Fund country teams led by:
  - Mr. Vivek Suri (World Bank Lead Economist, East Asia and the Pacific)
  - Mr. Koshy Mathai (IMF Mission Chief for Fiji)
- Main agreed macroeconomic challenges:
  - Safeguard fiscal and external stability.
  - Address structural obstacles impeding growth.

- Structural reforms identified as macro-critical:
  - Land reform:
    - Critical for growth prospects and economic diversification.
    - Need to streamline administration of land policy.
  - Price decontrol:
    - Re-establish price signals and encourage investment.
  - Sugar reform:
    - Revitalize a key sector.
    - Fiji Sugar Corporation (FSC) needs restructuring and return to profitability.
    - Wide ranging sugar sector reforms required to make industry viable.
    - Poor performance of FSC has created a large burden on the budget and significantly reduced Fiji’s growth.
  - FNPF reform:
    - Key to financial sector stability.
    - FNPF should be made actuarially sound, including through reducing the conversion rates of benefits to annuities.
    - FNPF’s investment portfolio would benefit from greater diversification and more profitable investments.
  - Civil service reform:
    - Authorities have made some progress but further work required to ensure the wage bill is fiscally sustainable and civil service is efficient and effective.
    - Wage restraint necessary to increase fiscal space for essential non-wage public expenditure and realign public sector salaries with private sector comparators.
    - Maintain the partial hiring freeze—with exceptions for essential positions—to facilitate employment reductions through attrition and rebalance toward higher-skilled personnel.
    - Over the medium term, functional reviews required to identify core service areas and help rationalize overall size and structure of the public sector.
  - Public enterprise reform:
    - Pace of implementation of reforms of other public enterprises needs to be accelerated to improve services and reduce fiscal costs.
    - Reforms will help reduce government direct and contingent liabilities, ensure fiscal sustainability, and promote growth.
  - Exchange decontrol:
    - To enhance attractiveness of the business climate and encourage more foreign investment.
  - Review of the social safety net:
    - Enhance definition of eligibility criteria and protection of most vulnerable segments.
    - A stronger safety net will help ensure success of Fiji’s reform agenda.
  - Tax policy and administration reform:
    - VAT and income tax legislation should be strengthened and simplified to increase efficiency, transparency and broaden the tax base.
    - Tighten scope for discretionary concessions to make the system more transparent while creating fiscal space.
    - Fiji continues to benefit from TA provided by the Pacific Financial Technical Assistance Center (PFTAC) located in Suva.
  - Debt management:
    - Debt management procedures should be followed strictly and Fiji should develop a debt-management strategy to prevent a rapid build-up of public debt.
  - Strengthening statistical capacity and statistics:
    - Ensure continued development of personnel to produce accurate and timely economic statistics.
    - Good statistics important for macro policy formulation and public financial management (e.g., establishment payroll and wage bill control).
    - Fiji continues to benefit from statistical advice from PFTAC.

### Bank and Fund planned activities (November 2011–November 2012)
- Bank Work Program (Products and Expected Delivery):
  - Poverty mapping — November 2011
  - Options for Reform of Family Assistance Program — November 2011
  - Telecommunications Regulatory Strengthening — Ongoing FY2011/12
  - PIC Payments Systems Reform TA (with IFC) — Ongoing FY2011/12
- Fund Work Program (Products and Expected Delivery):
  - Tax policy and administration TA — Ongoing
  - Debt management TA — FY2013
  - Statistics TA — Ongoing

### Relations with the Pacific Financial Technical Assistance Centre (PFTAC)
- Context and background:
  - Fiji has faced a difficult macroeconomic environment: anemic growth for a number of years, vulnerable external position.
  - Reserves recovered since the 2009 devaluation but high public debt and contingent liabilities from state-owned enterprises constrain fiscal stimulus.
  - Financial sector is sound but monetary policy transmission has been weak—credit growth is slow despite reductions in policy rates and high liquidity in the banking sector.
  - Political developments have meant few development partners are active in PFTAC’s focus areas.
- Fiji has been PFTAC’s largest user of TA in recent years.
  - Revenue sector main area of focus.
  - PFTAC supported FIRCA in a comprehensive modernization process including enhanced corporate planning, simplified income tax legislation and streamlined personal income taxation policies and procedures.
  - Significant progress in Statistics: improved national accounts, balance of payments and price statistics.
  - PFM support focused on building internal audit and accounting capacity.
  - Macroeconomics support focused on building modeling skills, including for potential natural resource revenues.
- PFTAC Strategy 2011–13:
  - Guided by APD regional strategy note and planned within results framework for current PFTAC funding cycle.
  - Aim: support authorities to sustain progress on fiscal consolidation and enhance framework for macroeconomic policy making.
  - Fiscal area: majority of inputs continue to be in revenue area with support on PFM systems and fiscal forecasting.
  - Enhanced statistics to support strengthened modeling capacity in RBF and Ministry of Finance.
- Planned PFTAC assistance areas and objectives:
  - Public Financial Management:
    - Discuss assisting with a PEFA assessment in mid-2012 (1.1).
    - Follow-up assistance influenced by action plan drawn up after PEFA (1.2).
    - Likely focus on accounting and budget execution (1.4).
    - Assistance in cash and debt management (1.6) if resources available.
    - Coordinate closely with AsDB’s PEM TA project.
  - Revenue area:
    - Focus on modernization and simplification of income tax law to enable effective self-assessment.
    - Implementation of PAYE as a final tax (2.1, 2.4).
    - Potential support for implementation of new corporate plan (2.2, 2.5).
    - Contribute to development of a fiscal regime for the mining sector (2.1) with HQ-financed resources needed for policy and drafting.
    - Potential future assistance in transfer pricing capacity building (2.6) and implementing 2009 FAD recommendations on streamlining tax incentives (2.1).
    - Customs support expressed interest but unlikely given resource constraints.
  - Statistics:
    - Further development of national accounts with ultimate aim of producing quarterly national accounts by 2013 (4.4).
    - Support implementation of recommendations from recent review of national accounts methodology, including the rebase planned in 2012 (4.1, 4.2).
    - Support HQ-financed work on further development of GDP-E (4.1).
    - Contingent support for enhancing balance of payments statistics and additional price indices (4.9).
  - Financial sector supervision:
    - PFTAC advisor to continue consultations with RBF staff and regional work with RBF’s head of bank supervision (executive director of AFSPC).
    - No substantive TA anticipated as Fiji largely self-reliant and receives APRA support.
  - Macroeconomics:
    - Focus on building macroeconomic modeling and analysis capacity in RBF (5.1, 5.2) to improve inflation and external forecasts for monetary policy.
    - Continue work on developing fiscal forecasts, including for natural resource sector with Ministry of Finance (5.3, 5.5).
    - Subject to PEM TA inputs, capacity building in debt-sustainability analysis may occur in 2012 (5.4).
    - Recent support provided in modeling and exchange rate issues.

### Relations with the Asian Development Bank (AsDB)
- As of December 30, 2011:
  - AsDB has approved 18 loans totaling $303.6 million.
  - AsDB has approved 80 TA projects, totaling $27.0 million since 1970.
  - AsDB opened a Pacific sub-regional office in Suva in June 2004, servicing Fiji and five other Pacific nations.
- Post-2006 coup context:
  - Following the military coup of December 2006, AsDB’s disbursements and TA operations were suspended.
  - In April 2007, AsDB adopted an Approach to Reengagement for Fiji allowing completion of activities ongoing at the time of the December 2006 coup, but not approval of a new country partnership strategy or new operations until Management judges that five criteria have been met.
  - Three criteria have clearly been met; the stance of some AsDB member countries toward the government and Fiji’s suspension from the Pacific Islands Forum and the Commonwealth remain problematic.
  - Periodic reports prepared in line with the Approach to Reengagement.
- Ongoing AsDB operations and financing:
  - Three ongoing loan projects:
    - Two ongoing at time of 2006 coup.
    - Emergency Flood Recovery Project for $17.5 million approved in 2009 as an exception to the Approach to Reengagement.
  - Supplementary financing approved in 2009:
    - Third Fiji Road Upgrading Project — $26.8 million.
    - Suva-Nausori Water Supply and Sanitation Project — $23.0 million.
  - Implementation status:
    - Road and water/sanitation projects expected to be substantially complete by end 2013.
    - Flood recovery loan expected to be completed by 2014.
  - Opportunities for private sector operations continue to be considered.
  - Fiji has continued to benefit from a limited amount of regional technical assistance (TA) on a case-by-case basis; there are no ongoing country program TAs.
  - AsDB undertook a review of country portfolio performance in 2010; sustainability of absorptive capacity is a long-term concern due to migration of skilled staff to implement programs.
  - When conditions for reengagement are in place, a Country Partnership Strategy will be prepared with government.
  - Future operations would likely include poverty alleviation focus areas within AsDB’s traditional sectors and areas prioritized under AsDB’s Strategy 2020.
  - Grant co-financing and capacity building technical assistance likely to play important roles in any future strategy.

*Source: REPUBLIC OF FIJI 2011 ARTICLE IV REPORT—INFORMATIONAL ANNEX (excerpts).*

### ANNEX V. FIJI: STATISTICAL ISSUES

### ANNEX V. FIJI: STATISTICAL ISSUES

### I. Assessment of Data Adequacy for Surveillance
- General assessment
  - Core economic and financial data provided to the Fund are generally adequate for surveillance despite significant shortcomings in some areas, especially GDP and balance of payments data.
  - Macroeconomic data are slowly improving, owing in part to technical assistance provided by the Fund and PFTAC.

- Data dissemination and publications
  - RBF publications: Annual Report, Quarterly Review, Monthly Economic Review (received by APD regularly).
  - FBOS publications: quarterly Current Economic Statistics and monthly Statistical News (received by APD regularly).
  - MoF publications: Budget Address and Supplement to the Budget Address annually.
  - Formal GDDS participation commenced on May 9, 2000; metadata last updated in November 2002.

- National accounts
  - Production-side estimates of GDP at current and constant prices available up to 2010.
  - Revised data published in September 2010 using the 2002 Household Income and Expenditure Survey, a new business census, and estimates of the informal sector.
  - Expenditure-side GDP data in constant prices are not available; expenditure-side GDP data in current prices and GDP by income are only available through 2005.

- Price statistics
  - FBOS is updating CPI weights from the 1993 base using 2002 Household Expenditure and Income survey results.
  - Persistent difficulties compiling export and import unit value indexes due to switch to ASYCUDA late in 1999; FBOS plans to re-introduce trade price indexes with a starting period of 2002.

- Government finance statistics (GFS)
  - Public debt data remain weak.
  - After a PFTAC supervised project, reporting for the GFS Yearbook has resumed; data for 2006 in GFS Manual 2001 format are available.
  - Some inconsistencies remain between GFS data and fiscal data provided to APD (areas: nontax revenue, wages and salaries, other purchases of goods and services, subsidies and transfers).
  - Other problems: lack of transparency in budget reporting (some agencies outside the budget, including Fiji Revenue and Customs Authority); absence of published updates on budget outcome and financing sources.

- Monetary statistics
  - Monetary authorities and deposit money banks: comprehensive data provided to APD and STA regularly and timely.
  - Nonbank financial institutions, including the Fiji National Provident Fund (FNPF), have less regular, timely, and reliable data; lack of consolidated financial survey hampers analysis.
  - RBF is broadening its monetary survey into a depository corporation survey and compiling a financial survey covering nonbank financial institutions.
  - Technical assistance: November 2005 expert mission and follow-ups in February 2008 and July 2011 to introduce SRFs and develop integrated monetary database.

- Balance of payments
  - FBOS near completion of a major PFTAC-assisted project to compile new balance of payments and revise historical data.
  - Revised annual BOP data published June 2010 reduced errors and omissions in 2008 from over 10 percent of GDP to about 6 percent of GDP.
  - Initial estimates of quarterly BOP data and annual investment position published June 2010.
  - Project to publish international trade in services data nearing completion; assistance on capital and financial accounts to start shortly.
  - Problems remain in measurement of external debt due to absence of consistent framework and insufficient coordination among RBF, FBOS, and MoF.

### II. Data Standards and Quality
- Fiji is a GDDS participant.
- The statistics advisor based at PFTAC in Suva is the GDDS Project Manager for the Pacific region.

### Key Findings, Projections, and Policy Conclusions (from PIN and Staff Analysis)
- Growth and poverty
  - Growth history and outlook:
    - After averaging 2¾ percent during the 1990s and first five years of the 2000s, growth dropped to under ¼ percent on average over the last five years.
    - The economy rebounded in 2011, growing by about 2 percent (highest in past five years), but sustained growth likely limited to 1½ to 2 percent without accelerated structural reforms.
  - Poverty: urban poverty declined; rural poverty remains stubbornly high.

- Inflation and monetary conditions
  - Headline inflation hovered around 10 percent year-on-year for several months in 2011 driven by imported food and fuel and one-off VAT and administered price increases; core inflation remains moderate.
  - Inflation projection: around 6 percent by the beginning of 2012 and falling toward 3½ percent over the medium term.
  - Monetary conditions described as accommodative with system awash with liquidity from foreign exchange inflows; credit growth slow and banks’ loan-deposit ratio below 90 percent.
  - Policy action: RBF cut its policy rate in late October by 100 basis points to ½ percent.

- External sector
  - 2011 current account deficit expected to be around 12 percent of GDP.
  - Medium-term outlook: current account deficit could narrow to around 8 percent of GDP as remittances, tourism receipts, and goods exports grow while oil imports flatten and non-oil imports grow moderately.
  - Gross reserves remain healthy despite increased dividend repatriation and some offshoring of FNPF investment.
  - Econometric estimates suggest the exchange rate is broadly in line with fundamentals.

- Fiscal sector and public debt
  - Fiscal deficit expected to have widened to 3½ percent of GDP in 2011; projected to fall to around 2 percent of GDP in 2012 and to 1½ percent of GDP from 2013 onward under authorities’ planned trajectory.
  - Debt currently above 50 percent of GDP and contingent liabilities exceed more than 15 percent of GDP; unfunded FNPF liabilities also present.
  - Directors noted additional measures may be needed to achieve deficit targets; curbing discretionary tax concessions recommended to raise revenue and improve transparency and efficiency.

- Financial sector and FNPF
  - Banking sector is stable: banks well capitalized, low NPLs, adequate provisioning.
  - FNPF is actuarially unsustainable: current pension annuitization rates vary from 15 to 25 percent for different pensioners, implying negative net cashflows by 2030 and depleted assets by 2056.
  - Directors and authorities emphasized reform of FNPF as key priority; introduction of actuarially sound pension rates supported.

- Structural reforms and policy recommendations
  - Top priority: boost sustainable growth and reduce poverty through structural reform.
  - Specific recommendations and supportive actions:
    - Accelerate structural reforms to improve the investment climate.
    - Resolve political uncertainties and adopt a more consultative approach to policymaking.
    - Rapidly scale back the price control regime and strengthen antitrust enforcement.
    - Increase social transfers to cushion adverse impacts on the poorest.
    - Remove remaining exchange restrictions.
    - Reform plans supported for land policy, the sugar sector, the civil service, and public enterprises; encourage faster progress.
  - Directors cautioned against credit growth targets that could distort lending and lower credit quality.
  - In an extreme global downturn scenario, some fiscal stimulus—and possibly exchange rate adjustment—could be justified.

### Selected Quantitative Indicators and Projections (2007–12)
- Output and prices (percent change)
  - Real GDP (at constant factor cost): 2007: -0.9; 2008: 1.0; 2009: -1.3; 2010: -0.2; 2011 Est.: 2.0; 2012 Proj.: 1.5
  - GDP deflator: 2007: 3.3; 2008: 4.3; 2009: 0.4; 2010: 7.6; 2011: 10.2; 2012: 4.7
  - Consumer prices (average): 2007: 4.8; 2008: 7.7; 2009: 3.7; 2010: 5.5; 2011: 8.6; 2012: 4.9
  - Consumer prices (end of period): 2007: 4.3; 2008: 6.6; 2009: 6.8; 2010: 5.0; 2011: 7.0; 2012: 4.8

- Central government budget (percent of GDP) 1/
  - Revenue: 2007: 25.3; 2008: 25.4; 2009: 25.1; 2010: 25.3; 2011 Est.: 25.2; 2012 Proj.: 25.6
  - Expenditure: 2007: 27.4; 2008: 24.9; 2009: 29.2; 2010: 27.4; 2011 Est.: 28.7; 2012 Proj.: 28.1
    - Of which: Net acquisition of nonfinancial assets, excluding FSC: 2007: 3.5; 2008: 3.7; 2009: 5.9; 2010: 4.9; 2011 Est.: 6.0; 2012 Proj.: 6.7
  - Net lending (+)/borrowing (–): 2007: -1.1; 2008: -0.1; 2009: -4.5; 2010: -2.4; 2011 Est.: -3.5; 2012 Proj.: -1.9
  - Total debt outstanding: 2007: 49.9; 2008: 50.5; 2009: 55.6; 2010: 55.6; 2011 Est.: 54.2; 2012 Proj.: 53.8

- Money and credit (percent change)
  - Domestic credit: 2007: 3.2; 2008: 4.8; 2009: 4.2; 2010: -1.7; 2011 Est.: 4.4; 2012 Proj.: 8.1
    - Government (net): 2007: -15.0; 2008: -38.0; 2009: 65.0; 2010: -37.3; 2011 Est.: -14.0; 2012 Proj.: 3.4
  - Broad money (M2): 2007: 10.4; 2008: -6.9; 2009: 7.4; 2010: 3.9; 2011 Est.: 11.6; 2012 Proj.: 9.5
  - Reserve money: 2007: 37.4; 2008: -30.0; 2009: 50.5; 2010: 21.8; 2011 Est.: 13.6; 2012 Proj.: 7.2
  - Reserve Bank of Fiji's minimum lending rate 2/: 2007: 5.8; 2008: 6.3; 2009: 3.0; 2010: 3.0; 2011 (as of August): 2.0
  - Commercial bank lending rate 2/: 2007: 8.5; 2008: 7.7; 2009: 7.5; 2010: 7.4; 2011 (as of August): 7.5

- External sector (in millions of U.S. dollars)
  - Trade balance: 2007: -956; 2008: -1,177; 2009: -677; 2010: -773; 2011 Est.: -856; 2012 Proj.: -816
    - (In percent of GDP): 2007: -28.1; 2008: -32.8; 2009: -23.5; 2010: -24.3; 2011: -24.1; 2012: -22.2
  - Exports, f.o.b.: 2007: 599; 2008: 803; 2009: 565; 2010: 769; 2011 Est.: 904; 2012 Proj.: 941
  - Imports, f.o.b.: 2007: 1,556; 2008: 1,980; 2009: 1,242; 2010: 1,541; 2011 Est.: 1,759; 2012 Proj.: 1,757
  - Current account balance: 2007: -484; 2008: -649; 2009: -219; 2010: -358; 2011 Est.: -421; 2012 Proj.: -361
    - (In percent of GDP): 2007: -14.2; 2008: -18.1; 2009: -7.6; 2010: -11.3; 2011: -11.9; 2012: -9.8
  - Capital/financial account balance: 2007: 589; 2008: 319; 2009: 489; 2010: 304; 2011 Est.: 416; 2012 Proj.: 288
  - Errors and omissions: 2007: 83; 2008: 153; 2009: -72; 2010: 190; 2011 Est.: 50; 2012 Proj.: 50
  - Overall balance: 2007: 188; 2008: -177; 2009: 197; 2010: 136; 2011 Est.: 45; 2012 Proj.: -23
  - Gross official reserves (in millions of U.S. dollars): 2007: 519; 2008: 317; 2009: 565; 2010: 716; 2011 Est.: 761; 2012 Proj.: 738
    - (In months of retained imports): 2007: 3.2; 2008: 1.8; 2009: 4.4; 2010: 4.4; 2011 Est.: 4.6; 2012 Proj.: 4.4
  - External central government debt (in millions of U.S. dollars): 2007: 256; 2008: 270; 2009: 274; 2010: 324; 2011 Est.: 538; 2012 Proj.: 571
    - (In percent of GDP): 2007: 7.2; 2008: 8.3; 2009: 9.4; 2010: 9.0; 2011 Est.: 14.1; 2012 Proj.: 14.5

- Miscellaneous
  - Real effective rate (average), 2005 REER = 100: 2007: 99.4; 2008: 102.1; 2009: 90.3; 2010: 87.9; 2011 (period average through June): 91.3
  - Exchange rate (Fiji dollars per U.S. dollar; period average): 2007: 1.61; 2008: 1.59; 2009: 1.96; 2010: 1.92; 2011 Est.: 1.93; 2012 Proj.: 1.98
  - GDP at current market prices (in millions of Fiji dollars): 2007: 5,483; 2008: 5,722; 2009: 5,636; 2010: 6,087; 2011 Est.: 6,837; 2012 Proj.: 7,271
  - Oil price (U.S. dollars per barrel): 2007: 71.1; 2008: 97.0; 2009: 61.8; 2010: 79.0; 2011 Est.: 103.2; 2012 Proj.: 100.0

### Authorities’ Policy Actions and Commitments (summarized)
- Fiscal measures and reforms
  - 2012 Budget: corporate tax rate cut from 28 percent to 20 percent; personal income tax reductions for most taxpayers; introduction of a social responsibility levy of 23 percent or more on highest earners; inclusion of Section 10 concessions into tariff code and narrowing eligibility criteria.
  - Target fiscal deficits: 2012: 1.9 percent of GDP; from 2013: 1.5 percent of GDP.
  - $3 million allocated in 2012 Budget for a Credit Guarantee Scheme for SMEs administered by RBF.

- Monetary stance and measures
  - RBF cut policy rate in October 2011 after holding steady for six months to spur bank lending to priority sectors; authorities emphasize maintaining credit standards while increasing SME access.

- FNPF reforms
  - FNPF Decree 2011 issued to require more robust governance, solvency requirements for each fund, and reduced annuity rates; Decree to take effect from March 1, 2012.
  - Reform plan since April 2010 includes reducing pension conversion rate to sustainable level, rehabilitating non-performing assets, modernizing the FNPF Act, upgrading IT systems, and increasing overseas investment limits (FNPF invested around 4 percent of assets through a foreign fund manager; seeks up to 20 percent).

- Structural reforms
  - Measures to enhance competition and regulate prices where necessary; price controls narrowed to basic hardware items.
  - Land policy reforms: extended maximum lease tenures and establishment of a Land Bank; focus on strengthening institutional capacity for leasing native lands.
  - Sugar sector reforms: institutional arrangements, cane production, harvesting and transport, milling operations; FSC organizational review in 2012 and revision of Sugar Cane Growers Fund Act (Cap. 207) to allow establishment of a Farmers Bank (Grameen model).
  - Contingent liabilities management: government guarantees restricted to selected entities with strengthened performance criteria; removal of guarantees as entities improve.

*Source: _cr1244 - ANNEX V. FIJI: STATISTICAL ISSUES (As of December 30, 2011); Public Information Notice No. 12/13, February 8, 2012; IMF staff tables and statements contained therein.*

### 8.7 percent for single life annuities and from 11 percent to 7.5 percent for joint life annuities

### _cr1244 - 8.7 percent for single life annuities and from 11 percent to 7.5 percent for joint life annuities

### Pension annuity changes and implementation
- New annuity rates: "8.7 percent for single life annuities and from 11 percent to 7.5 percent for joint life annuities".
- Effective date: "from March 1, 2012."
- Options for existing pensioners:
  - Existing pensioners "will be given the option to withdraw from the scheme or rejoin at the reduced level of pension."

### Macroeconomic strategy and fiscal policy
- Authorities emphasize that "macroeconomic stability and structural reforms are key to the attainment of sustainable and higher economic growth path."
- Fiscal consolidation and structural reform commitments:
  - Authorities "will do their utmost efforts to implement their fiscal consolidation path and other important structural reform as envisaged to boost the economic growth and investment climate."
  - The "medium-term plan of fiscal deficit path, including the revenue reforms, as announced recently in the 2012 Budget framework will lay a strong foundation for the economy."
  - Revenue reforms aim to "allow policy room to sustain an appropriate level of public investments to promote competitiveness while optimizing its short term fiscal cost."

### Inflation, price stability, and structural impediments
- Price stability focus:
  - Authorities "are also committed to be vigilant for any buildup of inflationary pressures and proactive in promoting price stability."
- Structural reforms and political stability:
  - "The momentum to remove the structural impediments to growth will be sustained in the period ahead, along with promoting political stability."

*Source: _cr1244 - 8.7 percent for single life annuities and from 11 percent to 7.5 percent for joint life annuities*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2012/_cr1244.pdf_