IMF Executive Board Concludes 2017 Article IV Consultation with the Republic of Fiji
February 8, 2018
On February 5, 2018, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Fiji. [1]
Background
The economy is recovering well after Tropical Cyclone Winston and is expected to record its eighth consecutive year of expansion in 2017. Growth is expected to pick up to about 4 percent in 2017, underpinned by reconstruction activities, a vibrant tourism sector, and the recovery of agriculture production. The growth momentum is projected to continue in the coming years. Inflation declined sharply in recent months as the supply of food items started to normalize and is projected to remain around 3 percent.
Risks to the economic outlook are largely related to external developments. The economy is vulnerable to natural disasters that weigh on growth. A tightening of global financial conditions could affect capital inflows. In addition, a possible growth slowdown in China could affect Fiji through its trading partners, especially Australia and New Zealand. On the domestic side, a stalling of structural reform momentum could discourage private sector development and investment.
Sustaining strong growth will depend on maintaining financial stability, rebuilding fiscal policy buffers, and boosting private sector development. Improving the business environment will propel private investment and growth as fiscal and monetary policy support is gradually withdrawn.
Executive Board Assessment [2]
Executive Directors commended the authorities’ prompt and effective response to Cyclone Winston with well‑designed policies that supported the economy’s strong recovery. Directors noted that, while the medium‑term growth outlook is favorable, downside risks remain including from natural disasters, tighter global financial conditions, and vulnerabilities in the financial sector. Against this background, they emphasized the need to rebuild fiscal buffers, and press ahead with structural reforms to foster private sector development and maintain the growth momentum in the medium term.
Directors commended the structural reforms undertaken by the authorities, and emphasized the importance of implementing measures to boost private investment. They encouraged continued efforts in improving the business environment, including re‑establishing a credit bureau with an adequate regulatory framework, upgrading leasing mechanisms to use land more efficiently, and rationalizing price controls to improve the allocation of resources. Directors welcomed the steps taken to build climate change resilience and encouraged the authorities to continue their efforts in this area. A few Directors supported the authorities’ call to the Fund and other IFIs to enhance financial and TA support to vulnerable small states, in their efforts to build climate change resilience and access available climate financing.
Directors noted that the pickup in headline inflation was driven by temporary food shortages and that, since April 2017, inflation has been on a downward trend. However, they considered that underlying inflation pressure is likely to increase as the recovery becomes firmer and encouraged the authorities to stand ready to gradually tighten monetary policy. Directors also underscored the need to strengthen macroprudential policies and intensify financial supervision, including on non‑bank institutions, to contain financial stability risks given the rapid credit growth in recent years. Efforts to continue strengthening the AML/CFT framework were also recommended.
Directors encouraged the authorities to pursue fiscal consolidation over the medium term to reduce procyclicality and maintain fiscal sustainability. While they considered the expansionary fiscal stance in fiscal year 2017‑18 as appropriate to support the reconstruction efforts, they noted that fiscal buffers, including pension savings, should be rebuilt in the medium term to help Fiji remain resilient to adverse shocks and to place debt on a downward path.
Directors underscored the importance of improving data quality and its timely dissemination to better guide policymaking. They recommended broadening the coverage of government operations in the budget and increasing the reporting frequency of fiscal outturns. Directors encouraged the authorities to further relax exchange restrictions to meet requirements under Article VIII.
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Table 1. Fiji: Selected Economic Indicators, 2013–18 |
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[1] Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.
[2] At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here: http://www.imf.org/external/np/sec/misc/qualifiers.htm .
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