Savenaca Narube: Overview of Fiji's economy
Summary of a presentation by Mr Savenaca Narube, Governor of the Reserve Bank of Fiji, to the
19th Australia Fiji Business Forum on The Fiji Economy, Sunshine Coast, Australia, 9 October 2006.
* * *
1. Economic performance
•
Economic growth has averaged around 2.4 percent over the past 5 years and is expected to
average around 2.7 percent in the next 3 years.
•
Investment performance has increased since 2001, with the momentum coming from the
private sector.
2. What are our key challenges?
•
Challenge 1: Underperforming resource based sectors
o Gold production has performed poorly in spite of favourable international prices
recorded in recent years
o Forestry showing signs of recovery in the medium term
Fisheries sector has shown some growth but is still below potential
o
o Mitigating factors:
 A company restructure is underway at the Vatukoula gold mine

Incentives are being offered by Government for investment in agricultural
production

Greater public-private partnership is being encouraged
 Government is looking at ways to improve market access for these
sectors
 Value adding initiatives are also being promoted
•
Challenge 2: Sugar
o Sugar production is far below its potential with sugar exports performing poorly
when compared to previous years
o Preferential pricing is gradually being withdrawn:

60 percent of Fiji's sugar is exported to the EU market

EU preferential price will undergo a 36 percent reduction over a period of
4 years, beginning in 2006
o Expiring land leases also pose a challenge for the sector:

Around 2,800 farm leases will expire by 2008

About 10,300 farm leases will be expiring over the next 25 years
o Mitigating factors:

Sugar reforms are underway with support from the Indian Government

ADB support through the Alternative Livelihoods Programme is ensuring
that those displaced by the reforms have assistance

EU support has also been promised

The multi-party system will facilitate the passage of land tenure legislation
through Parliament

Diversification within the industry to produce ethanol is also being
considered
•
Challenge 3: Debt
o Increasing Government debt is becoming an issue of sustainability
o While, the higher fiscal deficits in the past worked well to raise economic growth,
we now need to relook at our strategy to secure sustainability
o Mitigating factors:

Strategic Development Plan 2007-2011 has a strong commitment to
lower deficits to around 2 percent in any year of the SDP plan period

This is expected to help bring the level of Government debt down to 49
percent of GDP by 2009
•
Challenge 4: Balance of payments
Strong demand is leading to an increase in imports
o
o Unfortunately, this is happening at a time when our exports are performing poorly
This is unsustainable given that it is leading to a widening trade gap
o
o While a surplus from the services and transfers accounts are growing, the surplus
generated is still insufficient to offset the trade gap
o As a result, our current account imbalance is worsening, thus placing pressure on
Fiji's balance of payments
o Mitigating factors:
 RBF has raised interest rates to quell the surge in consumption driven
demand
 Fiscal consolidation plans is a part of the SDP commitment

This means that there will be greater policy coordination between
monetary and fiscal policy

Government has successfully conducted an international bond issue
 National Exports Strategy has been developed in order to raise Fiji's
exports
 Alternative sources of energy are being pursued to reduce our
dependence on fuel imports
 Import substitution is being considered for relevant and viable areas
3. What are our key strengths?
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Strength 1: Low external debt
o Government external debt has been on a declining trend since 1999 and was
around 3.6 percent of GDP or 6.8 percent of total Government debt by 2005
o This declining trend in external debt has also led to lower debt servicing
commitments over the years with debt servicing ratio at 0.5 percent
o International bond issue by Government:

This was to finance government capital projects and avoid crowding out
the private sector at a time when liquidity conditions are tight

With very low external debt, there is much room for government to
diversify its sources of borrowing externally

Requirement of US$150 million

Fiji received a Ba2 rating by Moodys and a BB rating by Standard &
Poors - reflecting a stable outlook for the Fiji economy

Results: 5 year tenure; initial price guidance of 7.25 percent was
announced; 10 times oversubscribed (US$1.4 billion); finally priced with a
coupon rate of 6.875 percent to yield 7.000 percent

This very successful debut bond issue reflects confidence in the Fiji
economy
•
Strength 2: Low inflation
o Inflation in Fiji has been low, averaging around 3 percent over the last 10 years
o Reasons for low inflation:

Fiji has a fixed exchange rate that serves as an anchor on prices

Wage demands are relatively modest

Good inflation management is practised by our major trading partners all
of whom either explicitly or implicitly target inflation

Good supply conditions for local market produce
•
Strength 3: Robust tourism sector
o The tourism industry is currently being touted as Fiji's flagship industry, with future
prospects looking very bright
o Fiji has been able to attract significant investment through this industry from major
international hotel name brands
o Other supporting factors for this growing sector are:
 Increases in airline seat capacity with Air Pacific

Introduction of low cost carriers
 Development of new markets
o This industry has also spurred growth in other sectors like the wholesale and retail
trade and building and construction
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Strength 4: Strong and stable financial system
o Independent central bank
o Sound financial system
o Favourable report from the Financial Sector Assessment Programme conducted by
the World Bank/IMF
o Financial Intelligence Unit has been set up
o Development of a Real Time Gross Settlement System
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Strength 5: Sustainable political stability
o 2 elections since 2000 and both were declared free and fair by international
observers
o Formation of a multi party cabinet
o Strong investor and consumer confidence
o Affirmative action policies are addressing the needs and concerns of the
marginalised and disadvantaged
o Clarification of the role of the military