Public Information Notice: IMF Concludes Article IV Consultation with Fiji
IMF News, October 1, 1998
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- Published: October 1, 1998
Background and recent developments
- On September 14, 1998 the Executive Board concluded the Article IV consultation with Fiji.1
- The Fiji economy maintained macroeconomic stability but GDP growth averaged less than 2 percent per annum in 1991–97; low growth attributed mainly to sharply falling investment rates.
- Gross domestic investment fell from an average of 25 percent during 1980–85 to less than 13 percent in recent years.
- Private investment was less than 5 percent of GDP in the last five years and constrained by long-standing structural factors.
- Economic activity weakened in 1997–98 due to weather-related shocks to sugar production, the Asian crisis, and policy uncertainty.
- Real GDP declined by nearly 2 percent in 1997 and is expected to decline by 4 percent in 1998.
- A severe drought in 1998 and reduced tourist arrivals compounded the downturn.
- Key structural impediments include unresolved renewal of agricultural land leases and regulation of foreign direct investment.
- Inflation fell in 1996–97 to the 3–4 percent range but the January 20, 1998 devaluation of the Fiji dollar by 20 percent increased price and wage pressures; end-period annual inflation in the first half of 1998 was nearly 5 percent and is expected to rise to 9–10 percent by end-year.
- The fiscal position worsened during 1996–98, excluding privatization receipts and NBF restructuring costs underlying fiscal deficit rose to 6.5 percent in 1998 from 2.2 percent in 1997; privatization receipts roughly equal to 3 percent of GDP expected in 1998 from sales of two state-owned enterprises.
- Government expenditures rose in 1996–98 reflecting higher wages, transfers, interest costs, and discretionary agriculture spending in 1998.
- Progress on public enterprise reforms since 1997 enabling legislation: completed reform of radio broadcasting and partial divestiture of the national airline; reforms continuing in forestry, telecommunications, energy, civil aviation, water, and ports. Privatization receipts used to retire public debt. Government debt expected to be 45 percent of GDP at end-1998.
- Monetary policy generally accommodative during 1996–98; RBF 91-day benchmark rate declined from over 3 percent in Q1 1996 to 2 percent in May 1998.
- Broad money grew moderately in 1996 but contracted sharply in 1997 due to recession and fall in money multiplier from NBF restructuring.
- Banking sector health improved after NBF restructuring and cessation of its commercial activities; authorities adopted tighter prudential requirements and strengthened supervision.
- External debt low at 11 percent of GDP by end-1997; external debt-service was 2.9 percent of exports of goods and services; foreign exchange cover at 3.4 months of imports.
- Current account recorded a surplus in 1996–97 but expected to be in deficit (2 percent of GDP) in 1998 as major export earnings decline.
- Real effective exchange rate appreciated by almost 7 percent during 1996–97 and depreciated by nearly 14 percent in the year to June 1998, reflecting the January devaluation.
Executive Board assessment
- Directors commended Fiji’s historical record: low inflation rates, fiscal deficits, and external debt; attention to sustaining external position; RBF independence.
- Directors viewed the fixed exchange rate regime as having provided macro stability and monetary policy effective in containing inflation; welcomed decision to announce currency basket weights by year-end.
- Commended authorities’ flexibility in resolving the NBF crisis and enactment of the new constitution.
- Directors expressed concern that the external environment had substantially worsened, fiscal balance had deteriorated sharply, and key structural reforms were long stalled.
- Warned of real danger of a prolonged recession and stressed that decisive policy action could no longer be postponed.
- Urged reversal of recent fiscal deterioration as soon as possible to preserve macro stability and prevent crowding out of private investment; highlighted importance of the 1999 budget in setting the pace for coming years.
- Stressed need to curtail discretionary and unproductive spending and to reduce the public sector wage bill.
- Noted significant real appreciation of the Fiji dollar during the 1990s, particularly versus Australia and New Zealand; supported the January 1998 devaluation as appropriate given appreciation and adverse terms-of-trade shock.
- Emphasized that devaluation gains require containment of wage growth and further deregulation; recommended tightening monetary stance if the economy heats up, inflation picks up, or external reserves come under pressure.
- Cautioned that the apparent absence of short-term external liabilities of the RBF and current adequate import cover could be threatened if policy uncertainty persisted.
- Urged implementation of a credible structural reform agenda to temper adverse effects of global environment and weather shocks and to raise potential growth.
- Key reforms listed: renewal of land leases; removal of uncertainty regarding labor laws; reduction of the public sector via accelerated privatization; deregulation of the real and financial sectors.
- Noted data gaps hinder policy formulation and Fund surveillance; urged regular compilation and publication of reliable data on terms of trade, exports and imports, and capital items in the balance of payments.
- Encouraged conducting surveys on wages, unemployment, consumption, and investment; recommended construction of GDP deflators to estimate GDP in constant prices.
Key statistics and projections (1993–98)
- Real GDP (at constant factor cost): 1993: 2.6; 1994: 5.1; 1995: 2.5; 1996: 3.4; 1997: -1.8; 1998 Proj.: -3.7
- Sugar production: 1993: 3.8; 1994: 17.0; 1995: -12.2; 1996: 0.0; 1997: -23.6; 1998 Proj.: -48.1
- Tourist arrivals: 1993: 3.2; 1994: 10.9; 1995: -0.1; 1996: 6.6; 1997: 5.8; 1998 Proj.: -3.2
- Consumer prices (period average): 1993: 5.3; 1994: 0.6; 1995: 2.2; 1996: 3.0; 1997: 6.5
- Consumer prices (end-period): 1993: 2.9; 1994: 1.2; 1995: 2.4; 1996: 10.0; 1997: (not listed)
- Gross national saving (percent of GDP): 1993: 11.2; 1994: 10.4; 1995: 12.2; 1996: 13.9; 1997: 12.6
- Gross domestic investment (percent of GDP): 1993: 15.8; 1994: 13.1; 1995: 11.0; 1996: 12.4; 1997: 12.0
- Foreign saving (current account deficit, percent of GDP): 1993: 4.6; 1994: 3.5; 1995: 0.9; 1996: -2.9; 1997: -0.2; 1998 Proj.: 2.0
- Central government revenue and grants (percent of GDP): 1993: 25.9; 1994: 26.1; 1995: 25.7; 1996: 25.1; 1997: 26.5; 1998 Proj.: 31.1 (Of which: Privatization 3.1)
- Total expenditure (percent of GDP): 1993: 29.2; 1994: 27.4; 1995: 30.0; 1996: 33.0; 1997: 34.5 (Of which: NBF restructuring 4.3)
- Overall balance1 (percent of GDP): 1993: -3.3; 1994: -1.3; 1995: -0.5; 1996: -1.5; 1997: -2.2; 1998 Proj.: -6.5
- Domestic credit (percent change; end-period)2: 1993: 12.8; 1994: 4.4; 1995: 1.4; 1996: 4.2; 1997: -10.1; 1998 Data (May): -13.5
- Of which: Private sector (percent change): 1993: 12.9; 1994: 8.7; 1995: 4.8; 1996: -13.0; 1997: -14.5
- Broad money (M2) (percent change; end-period): 1993: 6.7; 1994: 2.7; 1995: -8.7; 1996: -4.0
- 91-day annualized interest on RBF note: 1993: 2.3; 1994: 3.3; 1995: 2.8; 1996: 1.9
- Current account balance (US$ mns.): 1993: -75; 1994: -63; 1995: -19; 1996: 61; 1997: 4; 1998 Proj.: -33
- Capital account balance3 (US$ mns.): 1993: 13; 1994: 28; 1995: 72; 1996: -14; 1997: -7; 1998 Proj.: 1
- Overall balance/deficit (-) (US$ mns.): 1993: -46; 1994: -11; 1995: 77; 1996: 70; 1997: -29; 1998 Proj.: -13
- Gross official reserves (US$ mns.; end-): 1993: 270; 1994: 273; 1995: 349; 1996: 427; 1997: 360; 1998: 3574 (June 16, 1998)
- Gross official reserves (in months of imports): 1993: 4.1; 1994: 3.9
- External debt (US$ mns.; end-period): 1993: 292; 1994: 283; 1995: 269; 1996: 256; 1997: 227; 1998 Proj.: 205
- External debt (In percent of GDP): 1993: 17.9; 1994: 15.5; 1995: 13.5; 1996: 12.1; 1997: 10.8; 1998 Proj.: 12.7
- Debt service (US$ mns.): 1993: 63; 1994: 79; 1995: 52; 1996: 54; 1997: 34; 1998 Proj.: 30
- Debt service (In percent of exports of goods and): 1993: 7.1; 1994: 4.7
- Real effective rate (period average)6: 1993: 107.6; 1994: 107.1; 1995: 105.0; 1996: 106.9; 1997: 112.2; 1998 Proj.: 92.32
- F$ per US$ (end-period): 1993: 1.54; 1994: 1.41; 1995: 1.43; 1996: 1.38; 1997: 1.55; 1998 Proj.: 2.084
International Monetary Fund — Public Information Notice: IMF Concludes Article IV Consultation with Fiji (October 1, 1998)