IMF Executive Board Concludes 2023 Article IV Consultation with Fiji
IMF News, June 28, 2023
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Bibliographic details
- Published: June 28, 2023
Overview and timing
- Executive Board concluded the Article IV consultation with Fiji on June 1, 2023, and considered and endorsed the staff appraisal without a meeting on a lapse-of-time basis.
- Press Release No. 23/248 dated June 28, 2023.
Near-term macroeconomic developments and outlook
- 2022 rebound driven by rapid tourism recovery: tourist arrivals in 2022 reached 71 percent of 2019 levels, yielding GDP growth of an estimated 16.0 percent in 2022.
- Inflation: averaged 4.3 percent in 2022 and fell to 2 percent year-on-year in March 2023.
- Current account deficit: 17.5 percent of GDP in 2022.
- Fiscal outcomes: overall fiscal deficit declined slightly to 12.2 percent of GDP in FY2022 from 13.6 percent in FY2021.
- Public debt-to-GDP: 87 percent end-2022.
- Banking sector: ratio of non-performing loans to total loans stabilized recently but remains well above pre-pandemic levels.
- Growth projections:
- Real GDP growth projected at 7.5 percent in 2023 and 3.9 percent in 2024.
- Trend growth estimated at around 3¼ percent.
Executive Board assessment — key findings
- Recovery: With the rapid rebound in tourism, the economy is experiencing a strong recovery.
- Risks to growth:
- Demand-side risk: global outlook.
- Supply-side risks: capacity constraints and price competitiveness.
- Inflation risks: although inflation eased since end-2022, risks are tilted to the upside because of strengthening domestic demand, growing wage pressures, and volatile global commodity prices.
- Fiscal vulnerability: while the risk of debt distress is currently moderate, high debt levels leave Fiji vulnerable to future shocks with little fiscal space to respond.
- Monetary and external policy:
- Need to shift monetary policy toward a more neutral stance to manage inflation and foreign reserve pressures.
- Recommendation to reverse pandemic-era exchange restrictions and capital flow management measures and to gradually phase out long-standing restrictions on current transactions (an exchange restriction subject to approval under Article VIII, Section 2(b) of the Fund’s Articles of Agreement).
- Financial sector: soundness remains strong exiting the pandemic, but supervision should be reinforced; monitor NPLs and follow up on 2018 Financial Sector Stability Review recommendations.
- Medium-term growth: hinges on implementing a well-designed and comprehensive growth strategy to boost diversification, domestic value-added in tourism, and address skilled labor shortages.
- Climate plans: addressing implementation challenges of climate adaptation and mitigation plans requires increased efforts and financing; accelerate renewable energy investments to diversify energy sources and reduce external imbalances.
Policy recommendations (staff)
- Fiscal
- Use the upcoming budget to begin rebuilding fiscal space and reducing vulnerability.
- Set a fiscal rule — for example, an anchor based on debt-to-GDP.
- Pursue a front-loaded consolidation relying mostly on a comprehensive tax reform strategy which raises revenue, simplifies the tax system, and enhances efficiency.
- Accompany revenue mobilization with increased spending on inclusion (including targeted transfers to offset any impact of tax hikes on low-income households) and growth-enhancing reforms (such as cutting red tape).
- Maintain disciplined spending and gradually re-orient expenditures to boost growth, enhance resilience, and promote inclusion.
- Closely monitor and address fiscal risks, including contingent liabilities related to financially weak public companies.
- Monetary and external
- Shift monetary policy toward a more neutral stance as the output gap narrows.
- Reverse tightening of exchange restrictions and capital flow management measures introduced at the pandemic onset.
- Gradually phase out long-standing restrictions on current transactions.
- Financial sector
- Closely monitor NPLs and enhance efforts to address them.
- Strengthen the financial supervision framework and follow up on recommendations related to corrective action, bank recovery, coordination with home authorities, and bank resolution.
- Structural and labor market
- Implement pro-growth reforms to improve the business climate, encourage private investment, and enable diversification within and beyond tourism.
- Increase domestic value-added in tourism to promote agriculture and rural development, job creation, and inclusion.
- Enhance training, education, and health care programs to bolster skilled labor supply; consider sector-specific immigration to address skill shortages.
- Reduce the overall cost of doing business to attract private and foreign investment.
- Climate
- Intensify efforts with development partners and the private sector to mobilize financing, strengthen implementation capacity, and improve investment management for climate adaptation and mitigation.
Key quantitative projections and indicators (selected)
- Real GDP: -17.0 (2020), -5.1 (2021), 16.0 (2022), 7.5 (2023 proj.), 3.9 (2024 proj.), 3.7 (2025 proj.), 3.5 (2026 proj.), 3.3 (2027 proj.), 3.1 (2028 proj. as table continues).
- Consumer prices (average): -2.6 (2020), 0.2 (2021), 4.3 (2022), 2.5 (2023 proj.).
- Central government overall balance (percent of GDP): -12.9 (2020), -14.1 (2021), -10.4 (2022), -6.9 (2023 proj.), -6.0 (2024 proj.), -5.8 (2025 proj.), -5.6 (2026 proj.), -5.4 (2027 proj.), -5.3 (2028 proj.).
- Central government debt (percent of GDP): 71.1 (2020), 92.4 (2021), 87.2 (2022), 84.6 (2023 proj.), 85.1 (2024 proj.), 86.0 (2025 proj.), 86.7 (2026 proj.), 87.1 (2027 proj.), 87.3 (2028 proj.).
- Current account balance (percent of GDP): -13.6 (2020), -16.0 (2021), -17.5 (2022), -10.7 (2023 proj.), -9.6 (2024 proj.), -8.8 (2025 proj.), -8.3 (2026 proj.), -7.7 (2027 proj.), (2028 proj. continues).
- Trade balance (percent of GDP): -14.6 (2020), -22.0 (2021), -33.2 (2022), -29.9 (2023 proj.), -28.8 (2024 proj.), -27.8 (2025 proj.), -26.9 (2026 proj.), -25.9 (2027 proj.), -25.1 (2028 proj.).
- Services balance (percent of GDP): -1.9 (2020), -5.2 (2021), 11.9 (2022), 16.2 (2023 proj.), 16.6 (2024 proj.), 16.9 (2025 proj.), 16.8 (2026 proj.), 16.7 (2027 proj.).
- Gross official reserves (in months of prospective imports): 6.2 (2020), 5.8 (2021), 5.5 (2022), 4.9 (2023 proj.), 4.5 (2024 proj.), 4.4 (2025 proj.).
- Exchange rate, average (FJD/USD): 2.17 (2020), 2.07 (2021), 2.20 (2022), (2023 proj. continues).
- GDP at current market prices (in millions of Fiji dollars): 9,710 (2020), 8,896 (2021), 10,844 (2022), 12,047 (2023 proj.), 12,886 (2024 proj.), 13,717 (2025 proj.), 14,601 (2026 proj.), 15,572 (2027 proj.), 16,577 (2028 proj.).
- GDP at current market prices (in millions of U.S. dollars): 4,477 (2020), 4,296 (2021), 4,926 (2022), 5,558 (2023 proj.), 5,925 (2024 proj.), 6,277 (2025 proj.), 6,630 (2026 proj.), 7,002 (2027 proj.), 7,381 (2028 proj.).
- GDP per capita (in U.S. dollars): 4,970 (2020), 4,740 (2021), 5,403 (2022), 6,060 (2023 proj.), 6,422 (2024 proj.), 6,762 (2025 proj.), 7,129 (2026 proj.), 7,488 (2027 proj.), 7,849 (2028 proj.).
International Monetary Fund — Press Release No. 23/248 (June 28, 2023): IMF Executive Board Concludes 2023 Article IV Consultation with Fiji.
