Country report - FIJI an export destination?

INTRODUCTION

1. It is expected the Fiji economy will grow by approximately   2 percent in 2011, this is the best result for the past five years, and it is in fact a bounce back after two years of contraction.

2. Medium term growth however does not look that good and would appear weak unless structural reforms are implemented in a timely fashion supported by an improvement in the business climate and political situation.

INFLATION

There has been a rise in inflation as a result of high food and oil prices and specific one off factors such as the Value Added Tax (VAT) and electricity tariff. It is expected to moderate to around  5 per cent  in 2012 and may move down in the medium term.

CURRENT ACCOUNT DEFECIT

The deficit continues to be high due to high import prices although foreign reserves are looking healthy and should remain so.

FINANCIAL SECTOR

This sector of the economy is sound although the Fiji National Provident Fund should carry out some urgent pension reform to structure appropriate transitional provision for pending retirees to ensure it is sustainable in the long term.

MACROECONOMIC POLICY

The Central Bank of Fiji has put in place accommodative monetary conditions which is intended to encourage banks to stimulate the economy by way of more lending. This policy would appear to be consistent with the current context of low underlying inflation and weak economic growth.  The financial system is awash with liquidity and therefore the Central Bank needs to be vigilant regarding the possible surfacing of inflationary pressures.

Debt is 55 per cent of GDP and this is high for a small open economy vulnerable to shocks, in addition the Government is facing contingent liabilities in excess of 15 per cent of GDP plus certain unfunded FNPF liabilities. The fiscal deficit  should remain stable this year at approximately  2.5 per cent  of GDP which is acceptable.

REFORMS

There are a number of promising initiatives regarding reform to spur investment and raise Fiji’s growth rate. Such initiatives have focussed on land policy, the sugar sector, and the civil service and public enterprises.  Continued effort here is critical for the future of the economy.

EXCHANGE CONTROLs

They have been relaxed and there is no doubt further moves in this direction could bring in more investment as this would  reduce uncertainty.

A major report on the economy will be available in January/February 2012.

Acknowledgement: selected data and statistics from the IMF and OECD.

John Brooks
Trade Economist
The Auspacific Institute
November 2011