Fiji WT/TPR/S/24
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I. THE ECONOMIC ENVIRONMENT
(1) Introduction
1. TheRepublic ofFiji,lying north ofNewZealand, comprises 332islands, ofwhich some 110
areinhabitated. Thecapital, Suva, issituated onthelargest island, VitiLevu. Theareaofthegroup
is18,333 square kilometres. Thecurrent population isapproximately 800,000 (Table I.1). Asof
1991, indigenous Fijians andIndian-Fijians were, respectively, 49.5and45.6percentofthepopulation.
Table I.1
Main economic andsocial indicators
Area
Population (1994)
Annual population growth
Lifeexpectancy atbirth(1993)
Total paidemployment (1994)
ofwhich:
-agriculture, fisheries, mining and
quarrying
-manufacturing andutilities
-construction andother services18,333 sq.km.
0.78million
1.4percent
72
95,345
4.4percent
27.2percent
68.4percentUrban population asashare oftotal
population (1993)
Percapita income (1994)
GDP atcurrent factor cost(1995)
ofwhich:
-agriculture, forestry, fisheries, mining
andquarrying
-manufacturing andutilities
-construction andother services40percent
US$1,884
US$1,672 million
22.7percent
17.8percent
59.5percent
Source: FijiBureau ofStatistics, Current Economic Statistics, January 1996; International Monetary Fund, International Financial
Statistics (various issues); World Bank, World Tables (STARS version 1995).
(2) Recent Economic Performance
2. Formostoftheperiod following itsindependence in1970, Fijipursued astrategy ofimport
substitution, self-sufficiency andaheavy involvement ofGovernment inbusiness. After strong growth
intheearly 1970s, economic performance weakened, withrealGDP expanding atanaverage rateof
about 2percentayearinthedecade upto1986. Theslowgrowth reflected theeconomic distortions
andrigidities induced bytheinward-looking development strategy. Theeconomy suffered asevere
setback in1987, largely asaconsequence ofsuccessive military coups. Business andconsumer
confidence deteriorated quickly. There wasasharp increase inthenumber ofresidents leaving Fiji,
andtourism, aneconomic mainstay, wasbadly affected.
3. Since late1987, Fijihasfollowed amore market-oriented, outward-looking economic
development strategy, particularly withaviewtoencouraging theprivate sector. Trade liberalization,
economic deregulation andinvestment promotion constitute keyelements ofthenewdevelopment
strategy. Thischange contributed toarecovery in1989, ledbysugar, tourism andthenewly emerging
garment industry. RealGDP grew by12percentin1989andby5percentin1990. However, with
investment lagging, economic growth slowed during the1990s, withrealGDP growth averaging less
than3percentayearduring 1991-1993. Economic growth recovered in1994, buoyed byrecord
production ofsugar andtourist arrivals, butslowed again in1995, withnogrowth intourism anda
decline insugarcane output (Table I.2). In1996, there wasacertain recovery inbothtourist arrivals
andintheproduction ofsugarcane, withtheresult thatrealGDP isprojected tohavegrown bysome
1.5percent. Bysectoral origin, theshare ofagriculture decreased alittlefrom 1990 to1995. ForWT/TPR/S/24
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thesame period, theshares ofmanufacturing, construction, transport andcommunications increased
(Table I.3).
Table I.2
Economic performance, 1980-95
1980-85a1986-90a1991 1992 1993 1994 1995
US$million
GDP atcurrent market prices 1,179 1,244 1,406 1,541 1,640 1,811 1,953
Annual percentage change
RealGDP (factor cost) 1.4 2.7 -0.3 4.9 2.2 3.9 1.4
Percent
Inflation (CPI)
Money market interest rate8.2
...6.7
4.56.5
4.34.9
3.15.2
2.90.6
4.12.2
4.0
PercentofGDP
Government deficit (-)orsurplus
Balance ofpayments
-Current account
-Overall balance
External debt
Gross domestic savings
Gross domestic investment-3.9
-5.0
-0.8
25.1
...
25.0-3.2
1.8
1.1
16.0
...
...-1.4
0.1
0.6
24.8
14.6
14.7-3.0
0.7
3.8
21.8
13.0
13.4-3.5
-5.1
-2.8
18.1
18.0
14.6-1.5
-3.8
-0.6
15.2
14.8
12.20.1
-0.7
4.0
14.2
13.5
13.0
Percentofexportsb
Debt service ... 11.1 10.1 8.3 7.2 7.2 4.7
Memorandum items
International reserves
(US$ million; endofperiod)
International reserves (months of
imports c.i.f.)132.2
2.7201.8
3.8272.3
5.5319.3
6.8270.4
4.5274.5
4.2350.4
5.1
... Notavailable.
a Annual average.
b Exports ofgoods andservices.
Source: Dataprovided bytheauthorities; International Monetary Fund, International Financial Statistics Yearbook (various issues); World
Bank, World Tables (STARS version 1995); World Bank, World DebtTables (1994/95); anddataprovided bytheGovernment.
4. Despite considerable liberalization andderegulation, Fiji'sgrowth prospects maybeconstrained
bylingering political andland-tenure uncertainties, which would appear tohaveshown upinlower
investment andcontinued emigration. Thus, theshare ofgross domestic investment inGDPwas13per
centin1995, significantly lower thanthe1980-1985 average rateofabout 25percent. TheGovernment
istrying toovercome partoftheproblem bystreamlining investment procedures andgranting tax
incentives toinvestment (Chapter III(4)(i)). Theaccelerated emigration since 1987 hasaffected the
stock oftrained manpower, especially intheareasofmanagerial andhighly specialized technical skills.1
1Government ofFiji(1993), p.35.Fiji WT/TPR/S/24
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Table I.3
GDP composition bysectoral origin, 1990 and1995
(PercentofGDP)
1990 1995
Agriculture 21.4 20.1
Sugar cane
Other crops
Livestock products
Fishing
Forestry
Subsistence8.2
3.3
0.9
1.4
1.5
6.18.5
2.3
1.0
1.2
1.1
6.0
Non-agriculture 78.6 79.9
Mining andquarrying
Manufacturing
Electricity andwater
Construction
Trade, restaurants andhotels
Transport andcommunication
Finance, insurance, realestate andbusiness services
Others3.5
13.1
3.4
3.6
16.5
10.5
14.5
13.52.6
13.8
4.0
4.9
17.1
12.0
14.5
11.0
GDP 100.0 100.0
Source: Dataprovided bytheFijiauthorities.
5. Therenewal oflandleases isanissue, especially inthesugar industry; most ofthelandis
indigenously owned while mostfarmers areIndian-Fijian, operating onalease-holding basis.2With
amajority ofleases settoexpire intheperiod 1996-2004, asolution isbeing sought. Thiselement
ofuncertainty combines withthepossibility thatboththeprice ofsugar -Fiji'smajor export -and
itspreferential market access might decline inthefuture (Chapter IV(2)). Inaddition, thegarment
industry, which isofgrowing export importance, maycome under pressure bothbecause oftheerosion
oftariff preferences forexports toAustralia andNewZealand, astheylower theirm.f.n. rates, and
thephasing outofrestrictions under theUruguay Round Agreement onTextiles andClothing
(Chapter IV(3)).
6. Inaddition toadopting more outward-oriented policies, theGovernment seeks tostrengthen
thelevel ofhuman capital. Thus, policy aimstophase incompulsory primary eduction by2000.
Though secondary school enrolment ratioreached 61percentofeligible persons in1991, only4per
centgoontotertiary training atanacademic orspecialist-skills facility.3
2Native lands, which cover 83percentofFiji,arecommunally owned bynative clans. These lands cannot
besoldbutmaybeleased forafixed period foraparticular use,suchasagriculture ortourism. TheNative
Land Trust Board (NLTB) manages allnative landonbehalf ofFijian landowners andreceives 25percentof
therevenue from leases. World Bank (1995), p.20.
3FTIB (1995/96a), pp.16-17.WT/TPR/S/24
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(i) Macroeconomic policies
7. Fijihassought toreduce theeconomic impact ofGovernment, especially through areduction
intheshare ofGovernment expenditure inGDP. After progress intheearly1990s, thebudget deficit
widened during the1993-1994 period. Subsequently, thebudget deficit wasreduced toapproximate
balance in1995, reflecting thecombined effect ofbuoyant revenue, anincrease inthecollection of
thevalue-added tax(VAT), andaslowdown inexpenditure.4
8. A10percentVAT wasintroduced on1July1992, replacing fourtaxes, i.e.aborder tax,
excise duty, hotel turnover taxandturnover taxonmiscellaneous services, aswellasanumber of
other indirect taxes. VAT islevied onalmost allgoods andservices. Imported goods thataretobe
re-exported areexempt from VAT. Theother main exemptions arebanking andinsurance services,
securities transactions, suppliers ofgambling services5,non-profit bodies ofdonated goods andservices,
education, andleased residential land. Rather thanbeing exempted, sugar canegrowers are'zero-rated '
forVAT purposes, which entitles them torefunds ontheVAT paidontheirinputs.6In1994, the
VAT contributed 30percentoftotaltaxrevenue. Theshare ofincome taxdecreased from 45per
centin1990 to36percentin1994 (Chart I.1).7In1993, current expenditures ongeneral public
services, education, health, economic services anddefence were14.6percent,15.8percent,7.3per
cent, 13.5percent, and6.2percentoftotalcentral government expenditure, respectively.
9. TheReserve Bank ofFiji(RBF), thenation 'smonetary authority, seeks tomaintain alow
inflation rate. Growth inthemoney supply (M2) hasbeenrelatively moderate forthepastseveral
years, contributing tosingle-digit inflation rates. UptoJune1987 interest rateswereregulated. In
early June1987 theywere completely deregulated.
4Reserve Bank ofFiji(1995), p.19.
5Thisissubject totheGambling Turnover Tax.
6Inland Revenue Department (1994), p.25.
7Thehighest income taxrateforindividuals is35percentonannual income exceeding F$15,000. For
corporate income tax,resident companies aretaxed at35percent; however, non-resident companies aretaxed
at45percent.Fiji WT/TPR/S/24
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(ii) Balance ofpayments andexchange rates
10. Theexchange rateoftheFijidollar islinked toabasket offivecurrencies, i.e.theAustralian
dollar, Japanese yen,NewZealand dollar, pound sterling, andtheU.S.dollar, which istheintervention
currency. Theweights ofthecurrencies inthebasket arebased onthevalue oftrade, tourist transactions
andexternal debtovertheprevious three years. TheRBFdaily publishes theexchange rateofthe
Fijidollar against theU.S.dollar, withaspread offivebasispoints foritsinterbank buying andselling
ratesinitsdealings withcommercial banks. Following the1987 military coups, theFijidollar was
twice devalued, byatotalof30percent, tohelpstemcapital flight. Since 1988, therealeffective
exchange rateoftheFijidollar hasappreciated byabout 10percent.8
11. Fijimaintains anexchange system freeofrestrictions onpayments andtransfers forcurrent
international transactions, having accepted theobligations ofArticle VIIIoftheInternational Monetary
Fund in1972. Exchange control inFijiisadministered bytheRBF, acting asagent fortheGovernment.
TheRBFdelegates toauthorized dealers theauthority toapprove normal import payments, which are
permitted upon application andsubmission ofdocumentary evidence. Authorized banks mayallow
advance payments ofuptoF$100,000 perapplication without approval fromtheRBFforallimports;
8World Bank (1995), p.10.WT/TPR/S/24
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forinvisibles certain differential limits areapplied.9Allforeign currency earnings mustberepatriated
andsoldtoanauthorized dealer within 6months oftheirreceipt. Exporters areallowed toretain 20per
centofthevalue ofexport earnings abroad, conditional uponthepriorapproval oftheRBF.10Anon-
resident mayopenandoperate anexternal account inFijidollars oraforeign currency account with
anauthorized dealer without specific approval from theRBF.
12. Fiji'stradebalance hasbeenindeficit throughout thedecade, butmuch ofthishasbeenoffset
byservices receipts, particularly fromtourism. Overall, thebalance ofpayments hasbeeninproximate
balance andthelevelofreserves hasremained relatively comfortable. Gross foreign exchange reserves
attheendof1995weresome US$350 million, equivalent toabout fivemonths ofimports.11Thelevel
ofinternational reserves has,according totheauthorities, permitted therelaxation ofexchange controls
since1992. Thisincludes increased foreign exchange allowances totravellers andmigrants, permission
forexporterstoretainsomeoftheirearningsinforeigncurrencyaccounts,andsomeeasinginrestrictions
onaccess todomestic finance byforeign investors.
(3) Merchandise Trade Performance
(i) Commodity pattern oftrade
13. Theshare ofmachinery inFiji'stotalimports hasdecreased significantly inrecent years, falling
from 31percentin1990 to23percentin1995, reflecting lowdomestic investment. Bycontrast,
theshare ofother manufactured goods inimports increased from 22percentin1990 to28percent
in1995(Chart I.2).Imports ofclothing increased rapidly, fromF$16 million in1991toF$29 million
in1995 andthose ofriceandbutter increased fromF$11 million toF$13 million andF$3million to
F$4million, respectively, between 1991 and1995.
14. Duringtheperiod1990to1995,theshareoffoodproductsinFiji'sexportsdecreased.However,
thatofmanufactures rosesignificantly, fromaround 22towellover31percent. In1994, theshare
ofsugar inFiji'sexports wasapproximately 38percent. Garment exports heldashare of22percent
in1994compared tosome 17percentin1990. Other important exports aregoldandfisheries products,
withshares of10and8percentrespectively inFiji's1994 exports.
9Theselimitsincludefamilymaintenanceexpenses,F$4,000ayear;travelallowances,F$6,000perapplicant,
pertrip; andF$10,000 perapplication. (Information provided bytheauthorities; andIMF, 1996.)
10Reserve Bank ofFiji(1993), p.31.
11FTIB (1995/96a), p.25.Fiji WT/TPR/S/24
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(ii) Regional pattern oftrade
15. Fiji'simports come mainly fromAustralia andNewZealand. Theshare ofAustralia inFiji's
totalimports hasincreased significantly inrecent years, from 28percentin1990 to39percentin
1995, while theshare ofNewZealand hasremained atabout 16percentduring the1990s (Chart I.3).
Theshares ofJapan andtheUnited States inFiji'simports havedeclined intheperiod 1990to1995,
from 11to7percentinthecaseofJapan and13to7percentfortheUnited States.
16. About halfofFiji'sexports gotoAustralia andtheUnited Kingdom. Theshares ofAustralia
andtheUnited States inFiji'sexports increased from 18and8percentto26and13percent,
respectively, intheperiod 1990-95. However, thoseoftheUnited Kingdom andNewZealand decreased
from 32and13percentto23and5percent, respectively, overthesame period.
(4) Outlook
17. Fiji'seconomy depends heavily onsugar, tourism andthenewly emerged garment industry.
Theneedtolessen dependence onthesugar industry maybecome more urgent asFiji'spreferential
status initssugar export markets iseroded inthelonger term. Similarly, thegarment industry, also
facing anerosion ofpreferential access, could require efficiency gains toremain competitive.
Diversification oftheeconomy will, however, require attention totheproblem ofshortages of
professional andtechnical personnel thathaveresulted from thehighratesofemigration ofskilled
labour overthepastdecade.12Theresult ofthediversification attempt willalsodepend ontherevival
ofsagging investment. Inthisrespect anearly startintheplanned privatization willbehelpful; this
could alsobeanimportant factor inupgrading theefficiency oftheeconomy, aswillthecontinuation
oftheliberalization andderegulation effort.
12Asian Development Bank (1995), pp.171-172.Fiji WT/TPR/S/24
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