Press Release No. 14/512

Press Release No. 14/512
November 12, 2014

On October 31, 2014, the Executive Board of the International Monetary Fund (IMF) concluded its Article IV consultation with Fiji.¹

With elections in September 2014, Fiji took a decisive stride toward returning to democratic government for the first time since 2006. The elections are expected to solidify the recent improvements in relationships with traditional development partners, improve access to concessional development finance, and boost confidence in the economy.

Growth in 2013 accelerated to 4.6 percent. The latest available consumption and investment indicators suggest continued strength in 2014, with economic growth projected at 3.8 percent. Headline inflation is currently low as imported commodity and food prices have remained stable. The Reserve Bank of Fiji (RBF) lowered its policy rate to 0.5 percent in 2011 and monetary policy has been on hold since then. The lower policy rate and persistent excess liquidity in the banking system have slowly been transmitted to lower lending rates. In response to lower rates and improved confidence, net domestic credit accelerated in the first half of 2014. The fiscal deficit was smaller than expected in 2013, but the 2014 budget was expansionary. The authorities have provided for a large increase in expenditures in the 2014 budget, with the bulk of the increase financed from privatization receipts. Since large parts of the planned privatization financing are not expected to materialize in 2014, the authorities have implemented expenditure and revenue contingency plans aimed at containing the deficit. Based on developments in the first half of 2014, the deficit financing target is on track to be met.

The authorities have accelerated economic reforms in recent years, such as in the sugar sector and pension schemes, but key policy challenges remain to raise potential growth, reduce unemployment, improve financial inclusion, and increase resilience to shocks. Following the elections, continued structural reform momentum is needed to improve the business environment, address the infrastructure backlog, and raise the capacity to take full advantage of a potential increase in investments.

Executive Board Assessment²

Executive Directors welcomed Fiji’s successful national elections, which are expected to boost confidence in the economy, solidify relationships with traditional development partners and improve access to concessional development finance. Directors encouraged the authorities to take advantage of the post-election environment to accelerate the pace of structural reforms in order to support sustainable, higher and broad-based growth, and reduce vulnerability to shocks.

Directors agreed that near-term macroeconomic management needs to be carefully calibrated, with the economy now growing above potential. They noted that fiscal policy has been prudent and well focused in recent years, but that the 2014 budget is a departure from trend. While welcoming the contingency plans developed by the authorities, Directors cautioned against financing an expansion of recurrent expenditure with one-off asset sales. To enhance buffers and create space for needed public investment, they stressed that base-broadening revenue measures are needed, alongside current spending restraint. These measures should include a significant reduction in income-tax holidays and tax incentives, within a general improvement in the investment climate.

Directors called for the adoption of a tightening bias in the monetary stance to curb demand pressures, given strong credit growth and the positive output gap. They advised a policy mix of targeted prudential measures, open market operations, increased reserve requirements, and if needed, a gradual adjustment of the policy rate. Directors viewed the post-election environment as a window of opportunity to lay the foundation for moving toward a more flexible exchange rate designed to enhance external competitiveness and resilience to shocks. They encouraged the authorities to bring exchange restrictions in compliance with Article VIII requirements.

Directors acknowledged the soundness of the banking system, but called for enhanced financial oversight to mitigate risks stemming from rapid credit expansion. They recommended strengthening the financial sector’s supervisory and macroprudential frameworks, monitoring banking sector risks through regular stress testing, and further improving the AML/CFT regime. Directors commended the success in increasing financial inclusion and encouraged further efforts in this regard.

While welcoming recent progress, Directors supported deeper and faster structural reforms to lift Fiji’s potential growth, reduce external vulnerabilities, and alleviate poverty. Priority should be given to improving the investment climate by streamlining government regulations, relaxing price controls while protecting the most vulnerable, further enhancing the efficiency of land use, and upgrading infrastructure. Efforts are also needed to boost the energy supply and ensure the viability of the sugarcane industry. Directors also looked forward to continued improvements in data quality.

Fiji: Selected Economic Indicators, 2009–15
	Nominal GDP (2011): US$3,753 million
	Population (2011): 894,500 (est.)
	GDP per capita (2011): US$4,196
	Quota: SDR 70.3 million
	2009		2010	2011	2012	2013	2014	2015
					Est.	Est.	Proj.	Proj.
Output and prices (percent change)
Real GDP (at constant factor cost)		-1.4	3.0	2.7	1.8	4.6	3.8	2.5
GDP deflator		2.6	2.5	3.8	2.4	3.8	3.5	3.5
Consumer prices (average)		3.7	3.7	7.3	3.4	2.9	1.2	3.0
Consumer prices (end of period)		6.8	5.0	6.4	2.5	3.4	2.7	3.0
Central government budget (percent of GDP)
Revenue		25.2	25.5	27.6	28.0	28.2	28.6	28.4
Expenditure		29.3	27.7	29.0	29.1	28.7	30.6	31.1
Fiscal deficit		-4.1	-2.5	-1.4	-1.1	-0.5	-2.1	-2.7
Fiscal deficit in national convention 1/		-4.1	-2.5	-1.4	-1.1	-0.5	-1.9	-1.5
Total debt outstanding		55.8	56.2	54.5	53.3	51.4	49.4	48.5
Money and credit (percent change)
Net domestic credit		7.2	-0.6	0.5	2.7	11.4	…	…
Private sector credit		0.7	3.5	3.9	6.3	8.8	…	…
Broad money (M3)		7.1	3.5	11.5	5.9	13.2	…	…
Monetary base		50.5	22.0	19.6	11.4	20.0	…	…
Reserve Bank of Fiji's discount rate		3.5	3.0	1.0	1.0	1.0	…	…
Commercial bank lending rate		7.5	7.4	7.4	6.6	6.0	…	…
External sector (in millions of U.S. dollars)
Trade balance 2/		-628	-733	-850	-786	-1,569	-1,064	-1,028
(In percent of GDP)		-21.9	-23.3	-23.3	-20.4	-38.9	-25.2	-23.4
Exports, f.o.b.		615	824	1,061	1,191	1,046	1,094	1,153
Imports, f.o.b. 2/		1,242	1,557	1,911	1,976	2,615	2,158	2,181
Current account balance 2/		-119	-140	-193	-69	-835	-424	-383
(In percent of GDP)		-4.2	-4.5	-5.3	-1.8	-20.7	-10.0	-8.7
Capital/financial account balance		454	293	478	339	423	419	396
Errors and omissions		-62	-42	-168	-201	252	0	0
Overall balance		272	111	117	69	-160	-5	13
Gross official reserves (in millions of U.S. dollars)		565	716	831	915	755	750	764
(In months of retained imports) 2/		4.4	4.7	5.2	5.7	4.4	4.0	4.0
External central government debt (in millions of U.S. dollars)		274	324	523	570	626	671	721
(In percent of GDP)		9.4	9.1	13.6	14.6	14.6	15.1	15.6
Miscellaneous
Real effective rate (average)		102.9	100.0	104.7	107.9	95.5	…	…
Exchange rate (Fiji dollars per U.S. dollar; period average)		1.96	1.92	1.79	1.79	1.84	…	…
GDP at current market prices (in millions of Fiji dollars)		5,614	6,024	6,539	6,891	7,428	7,984	8,470
Oil price (U.S. dollars per barrel)		61.8	79.0	104.0	105.0	104.1	104.2	97.9
Sources: Reserve Bank of Fiji; Ministry of Finance; and IMF staff estimates and projections.
1/ Including privatization receipts as revenue.
2/ Includes purchase of aircraft by Fiji Airways in 2013.

Fiji: Selected Economic Indicators, 2009–15     Nominal GDP (2011): US$3,753 million Population (2011): 894,500 (est.) GDP per capita (2011): US$4,196 Quota: SDR 70.3 million     2009 2010 2011 2012 2013 2014 2015         Est. Est. Proj. Proj.   Output and prices (percent change) Real GDP (at constant factor cost) -1.4 3.0 2.7 1.8 4.6 3.8 2.5 GDP deflator 2.6 2.5 3.8 2.4 3.8 3.5 3.5 Consumer prices (average) 3.7 3.7 7.3 3.4 2.9 1.2 3.0 Consumer prices (end of period) 6.8 5.0 6.4 2.5 3.4 2.7 3.0   Central government budget (percent of GDP) Revenue 25.2 25.5 27.6 28.0 28.2 28.6 28.4 Expenditure 29.3 27.7 29.0 29.1 28.7 30.6 31.1 Fiscal deficit -4.1 -2.5 -1.4 -1.1 -0.5 -2.1 -2.7 Fiscal deficit in national convention 1/ -4.1 -2.5 -1.4 -1.1 -0.5 -1.9 -1.5 Total debt outstanding 55.8 56.2 54.5 53.3 51.4 49.4 48.5   Money and credit (percent change) Net domestic credit 7.2 -0.6 0.5 2.7 11.4 … … Private sector credit 0.7 3.5 3.9 6.3 8.8 … … Broad money (M3) 7.1 3.5 11.5 5.9 13.2 … … Monetary base 50.5 22.0 19.6 11.4 20.0 … … Reserve Bank of Fiji's discount rate 3.5 3.0 1.0 1.0 1.0 … … Commercial bank lending rate 7.5 7.4 7.4 6.6 6.0 … …   External sector (in millions of U.S. dollars) Trade balance 2/ -628 -733 -850 -786 -1,569 -1,064 -1,028 (In percent of GDP) -21.9 -23.3 -23.3 -20.4 -38.9 -25.2 -23.4 Exports, f.o.b. 615 824 1,061 1,191 1,046 1,094 1,153 Imports, f.o.b. 2/ 1,242 1,557 1,911 1,976 2,615 2,158 2,181 Current account balance 2/ -119 -140 -193 -69 -835 -424 -383 (In percent of GDP) -4.2 -4.5 -5.3 -1.8 -20.7 -10.0 -8.7 Capital/financial account balance 454 293 478 339 423 419 396 Errors and omissions -62 -42 -168 -201 252 0 0 Overall balance 272 111 117 69 -160 -5 13                 Gross official reserves (in millions of U.S. dollars) 565 716 831 915 755 750 764 (In months of retained imports) 2/ 4.4 4.7 5.2 5.7 4.4 4.0 4.0                 External central government debt (in millions of U.S. dollars) 274 324 523 570 626 671 721 (In percent of GDP) 9.4 9.1 13.6 14.6 14.6 15.1 15.6                 Miscellaneous Real effective rate (average) 102.9 100.0 104.7 107.9 95.5 … … Exchange rate (Fiji dollars per U.S. dollar; period average) 1.96 1.92 1.79 1.79 1.84 … … GDP at current market prices (in millions of Fiji dollars) 5,614 6,024 6,539 6,891 7,428 7,984 8,470 Oil price (U.S. dollars per barrel) 61.8 79.0 104.0 105.0 104.1 104.2 97.9   Sources: Reserve Bank of Fiji; Ministry of Finance; and IMF staff estimates and projections. 1/ Including privatization receipts as revenue. 2/ Includes purchase of aircraft by Fiji Airways in 2013. 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.