Barry Whiteside: The Fiji economy
Speech by Mr Barry Whiteside, Governor of the Reserve Bank of Fiji, at the DFK Australia New
Zealand Annual Partners Conference, Suva, 26 May 2016.
* * *
The Chairman, DFK Australia New Zealand, Mr Stephen Bushell
Vice President DFK Asia Pacific, Mr Navin Patel
Delegates
Ladies and Gentlemen
Bula vinaka and warm greetings to you all! It is my pleasure this morning to share with you
some recent developments and our outlook for the Fiji economy.
But before I do so, I would like to especially thank you for choosing our beautiful country as
the venue for your annual meeting! You are part of a growing MICE market, the niche tourism
speak for "Meetings, Incentives, Conferences and Events", which never ceases to amaze me
in terms of its growth. What could be better than mixing a little business with a lot of fun and
relaxation!
I have noted from your program that you have set aside some down- time to sample what we
have to offer, which is excellent! If you want your golf game to be really challenged then you
should try the Natadola course! I assure you that you would need to travel far to find better
scenery. Whatever you do, spend as much as you can!!
That's my little spiel for tourism, now to the business at hand.
Introduction
Every month the Reserve Bank reviews the performance and prospects of the Fiji economy to
assess what impact recent developments would have on our key monetary policy objectives
of maintaining low inflation and adequate foreign reserves. These developments may or may
not warrant changes in policy depending on our outlook for macroeconomic and financial
stability at the time. Given Fiji's small size and associated vulnerabilities as a small island
developing state, as well as its dependence on the world economy1, our economic
performance is impacted by developments both domestically and globally, particularly in our
major trading partner economies.
Our latest assessments, as you would expect, have considered the economic impacts from
the recent natural disasters, the consequential reconstruction and rebuilding activities
postdisaster, as well as the ongoing slowdown in the global economy. External risks to our growth
outlook are largely associated with a bumpy transition in China's economy, financial market
turbulence and sharp movements in asset and commodity prices which, if realized, would
impact us mainly indirectly through our trading partners, including Australia and New Zealand.
Domestic risks are mostly related to our susceptibility to natural catastrophes and climate
change which, apart from damaging infrastructure and basic utilities and eroding years of
development in a few hours, can significantly affect domestic production, exports and our
services and tourism sector.
Nevertheless, a notable upside risk to our growth outlook is the still relatively low international
fuel prices which have resulted in windfall gains for Fiji through lower import costs and lower
inflation. This is particularly pertinent when you consider mineral fuels make up almost 30
percent of our total imports bill.
Recent developments in the Fiji economy
Ladies and gentlemen, despite the sizeable devastation from the category 5 Tropical Cyclone
(TC) Winston packing winds in excess of 300 kmph in February and the floods associated with
TC Zena in April, I am pleased to say that the Fiji economy is still poised to grow this year, by
2.4 percent, our seventh straight year of growth (something which we have not enjoyed since
the early 1970's). This growth reflects robust activity in our tourism-related industries, including
the transport, wholesale, retail, accommodation & food services industries, which were
relatively unscathed by TC Winston. Moreover, this growth also assumes a strong expansion
in the construction sector due to post cyclone reconstruction activity, which will also boost retail
activity.
However, on the downside, a significant decline is expected in agricultural output this year,
particularly for sugar, which had earlier also been impacted by El-Nino drought conditions.
Furthermore, the extreme devastation to many household dwellings and livelihoods especially
in the maritime areas, damage to schools and health facilities, water supply and power supply
disruptions which to date have not been fully restored, have exacerbated the situation.
Nevertheless, ladies and gentlemen, the quick response and immediate and tremendous
assistance by our development partners - including Australia and New Zealand, the business
community and family members and friends of Fiji both locally and abroad, are making a
tremendous difference in helping our people get back on their feet through inflows of
grantsin-aid and kind. Government efforts were nothing short of swift in facilitating access to the worst
affected areas and also in implementing measures to assist financially stricken businesses and
households. Some of these initiatives include the "Help for Homes" and "Adopt a School"
campaigns. We know that the many military and civilian personnel from your countries who
came in immediately after TC Winston played a huge role in turning the lives of many of our
people around and indeed they have made friends for life here.
Financial institutions also came on board to assist in the recovery efforts through the special
member withdrawals from the Fiji National Provident Fund and special loan arrangements and
payment holidays offered by banks and other financial institutions. The Reserve Bank also
contributed through its natural disaster and Micro, Small and Medium Enterprises (MSME)
funding facilities.
These measures are expected to benefit growth this year through higher consumption and
investment by businesses and government, although a pick-up in imports associated with the
higher domestic demand is likely to dent our foreign reserves a little.
Our official reserves are currently around $2.0 billion, enough to pay for 5.6 months of retained
imports, a level which is considered comfortable. While inflation spiked in April to 3.8 percent
on the back of price hikes in agricultural market items following the cyclones, this effect will be
temporary, as we expect inflation to remain subdued in the near term due to the low world
commodity prices. End of year forecasts for both these key macro-indicators (for which the
Reserve Bank is responsible) remain favorable at this time.
The medium term outlook for the Fiji economy is also expected to remain positive,
notwithstanding any further adverse shocks, with higher growth forecasts of 3.6 percent and
3.2 percent for 2017 and 2018, respectively. The major impetus for future growth is expected
to result from ongoing rebuilding efforts (similar, but on a smaller scale to what New Zealand
has experienced with the Christchurch rebuild), as well as the faster pace of government
capital spending and strong tourist numbers and remittance inflows.
Ladies and gentlemen, Government has in recent years been targeting its capital share of total
spending at around 40 percent, which is a notable increase from just 28 percent in 2013 and
well above the levels of a decade ago. The benefits of this higher capital spending are now
clearly seen in our improved roads and other infrastructure.
Tourism receipts and inward remittances, our number one and number two foreign exchange
earners at $1.5 billion and $492 million respectively in 2015 (both new records) are expected
to continue their positive growth trajectory.
As I alluded to in my opening, the Tourism sector is, and has been, key to our overall economic
performance for many years now and I thought I should say a little more about the industry. It
makes up around 34 percent of GDP and contributes significantly to employment. In 2015
visitor arrivals totaled a record 754,835 with Australians and New Zealanders accounting for
49 and 18 percent respectively. Despite the recent visits by TCs Winston and Zena, visitor
arrivals in the first four months of this year were still up by 6.8 percent on the same period last
year, a testimony to the untiring efforts of the industry and all those who support it. Efforts are
continually being made to grow our share of visitors. Niche markets targeted now include
MICE, weddings, sports, eco and adrenaline (surfing, sky diving, shark diving, white water
rafting etc) tourism. Plans are also in the pipeline to attract investors in medical "tourism" and
offshoot segments such as retirement villages. So people will hopefully soon be able to plan
their medical operations and cosmetic surgery with a recuperation package out in the islands!
While Australia and New Zealand epitomize the importance of short haul travel, our national
airline, Fiji Airways, has been steadily increasing its footprint into the longer haul markets like
Hong Kong/China, the USA west coast and just last month to Singapore. In June, they will
open with twice weekly flights into San Francisco to add to the daily Los Angeles flights. The
airline has invested in four brand new Airbus 330's in what has been an effective and efficient
transition to grow our market.
Ladies and gentlemen, monetary, financial and fiscal policies will continue to target
macroeconomic and financial stability while further structural reforms by the Government and
its agencies are set to raise potential growth and make it more inclusive. Specifically, the
Reserve Bank's own policies aim at ensuring a low interest rate environment that is conducive
for private investment, maintaining a strong and sound financial system and supporting the
development of key sectors in the economy that may need a little assistance. One such sector
is the Micro, Small and Medium Enterprises.
In support of the positive growth in the economy over the past 6 years, (growth which averaged
above 3.5 percent over this period), the Reserve Bank has maintained its overnight policy
interest rate at 0.5 percent. Consistent with this, lending rates of banks have remained low
while money and credit conditions have stayed favorable. This accommodative monetary
policy stance has resulted in the recovery in credit to the private sector. Average growth in
private sector credit increased from a little under 4 percent in 2011 to over 14 percent in 2015,
and was a little above 13 percent for the first 4 months of this year. Expansion in bank lending
continues to reflect the robust consumption and strong investment in the economy. Cumulative
data for the first 4 months, showed an average growth in new lending by banks of above 60
percent over the last 5 years. In fact, this masks much higher 3-digit growth rates in both
consumption and investment related lending especially to the wholesale & retail, private
individuals, real estate and building and construction sectors.
Aggregate demand in Fiji, as noted in the recent trends in the various partial indicators for
consumption and investment, remain positive. On the consumption side, vehicle registrations
continued to exhibit strength through the March quarter. Improved incomes from low taxes,
government financial support and remittance inflows from Fijians abroad continue to boost
consumer spending. Prospects for consumption growth also remain encouraging. The latest
RBF Retail Sales survey showed positive sentiments by retailers for higher sales expected in
2016. This is supported by the number of newly registered members with the Fiji National
Provident Fund and the number of job advertisements which have continued to grow.
In terms of investment and in line with the strong construction activity expected this year,
domestic cement sales are recording double digit growth. Investment imports are forecast to
pick up as the domestic economy strengthens and the reconstruction efforts post-cyclones
continue. The timely implementation of both public and private sector projects is critical to
raising our investment levels and strengthening the platform for further growth. Foreign direct
investment totaled just over $700 million in 2015 and is anticipated to rise further this year. In
the first four months to April new project registrations with Investment Fiji from abroad have
risen 194 percent in value terms, the bulk being in the tourism and services sectors. In regard
to investment, I must admit that in the past Fiji had been hit with concerns on the ease of doing
business here. A lot of this was to do with excess red tape and the multiple approvals required
from multiple authorities, which inevitably took time. While we haven't qute got there yet, it is
pleasing to note the recent efforts by Government and the relevant authorities to address the
issues and turn this around.
Ladies and gentlemen, the strength and soundness of our financial institutions and markets is
an important ingredient for growth in the economy. As such, our Reserve Bank policies
continue to aim at further developing the financial sector to ensure the effective intermediation
of funds towards growing priority sectors while maintaining financial stability. The latest
quarterly assessment by the Reserve Bank showed the overall condition of banks trading in
Fiji remains satisfactory as capital and liquidity positions along with earnings and asset quality
remain acceptable. This is critical given the reliance on bank financing by domestic borrowers.
Moreover, the financial sector continues to grow with the entry of Bred Bank (a subsidiary of
Banque Populaire, France's 2nd largest bank) in 2012, the licensing of Kontiki Finance Limited
in 2015, and the recent listing of Vision Investments Limited (VIL) on our South Pacific Stock
Exchange. In particular, Vision's entry into the stock market last February notably boosted
market capitalization and augurs well for improved optimism and participation by potential
investors. We now have 17 companies listed on the SPSE with market capitalization of just
over $1 billion. A key reform in the pipeline is the implementation of the Financial Sector
Development Plan 2016-25 which will bring together all key stakeholders to further develop
and deepen the sector.
Closing
Ladies and gentlemen, just a few final comments before I close.
In our role, the Reserve Bank coordinates closely with other stakeholders including the
Government, its agencies and the private sector, to ensure that macroeconomic policy
considerations are consistent and aim towards achieving macroeconomic stability and
inclusive growth. At the same time we will ensure that our financial sector remains strong and
stable.
Fiji's favorable macroeconomic performance in recent years has bode well for Fiji's country
rating by both Standard & Poors and Moody's, which recently affirmed a "B+" and stable
outlook and a "B1" and positive outlook, respectively.
I thank you for listening and wish you the very best for the remainder of your annual conference
and encourage you to get out in the sun and see what Fiji has to offer.
Vinaka vaka-levu.