however, demand may be inelastic. • the trade balance may worsen. growth outlook • after contracting in 2007 ( - 6. 6 % ), our economy is showing some recovery in 2008 ( 1. 2 % ). forecasts for 2009 and 2010 are 2. 4 percent and 1. 9 percent, respectively. • the major drivers of growth are tourism, agriculture, manufacturing, mining and water, while the major drag, particularly for 2010 and 2011, is the reduction in government expenditure, following the fiscal stimulus expected for 2009. • these growth rates are too low, compared to our pacific neighbours and similar small island developing countries. key challenges and policy mix • • • our key challenges are : o safeguarding fiji ’ s external position o raising exports o raising investment o raising and sustaining growth budgetary measures o pro - growth ( fiscal deficit is 3 % of gdp for 2009, support for priority sectors – tourism, agriculture, ict ) o balance of payments ( bop ) support – bio - fuel, import substitution ( increase in tariffs ), enticing fiji diaspora o investment – infrastructure development, tax incentives monetary measures o bop – credit ceiling, exchange controls o investment – low interest rates, special approvals for priority sector lending • government has indicated an expansionary stance for 2009. while a good increase is noted for capital expenditure, operating expenditure is too high, as a percentage of gdp. nevertheless, the deficit is sustainable. • on money and credit conditions, commercial banks ’ lending rate continues to decline and was around 8 percent in october. our lending rate is the lowest in the region. lending for investment purposes is rising. • monetary policy objectives – year - end inflation are still expected at 7. 5 percent but will moderate next year. foreign reserves remain under pressure. summary • current weak domestic economic fundamentals will be exacerbated by the global financial crisis. the key challenges must be met with coordinated monetary and fiscal policies. • the current policy mix is appropriate. there is a need to raise growth in the medium term and the only way to do this sustainably is to raise exports of goods and services.

tourism therefore needs our full support while we furiously work at reviving commodity exports. we must work together to restore growth. i am confident that we can overcome the challenges and not only to return the economy to a positive growth cycle but even to lift this growth rate. however, in our pursuit of growth, we must not take the easier way out. we must build our strategy on a firm foundation – one that will last for a long time. we therefore have no choice but to address long standing reforms that are critical to lift economic growth towards the five percent mark. we know what these reforms are and we have known them for many, many years. these include sugar, land lease, public enterprise, public service and exports. next friday, the interim administration will be presenting its budget for 2007. we are looking forward to the policy content of this budget to map out for us the economic way forward. we hope that it will address convincingly the fundamental hurdles that i have mentioned. monetary policy the reserve bank has been highlighting the imbalance between exports and imports for some time now. we will continue to do so. we realise though that the solutions to this problem are largely outside the direct influence of the reserve bank itself. in many ways, we are therefore dealing with the effects rather than the cause. but we have no choice but to protect our financial position while we try to solve the root cause which is exports. solving the root cause however is taking a lot of time – a luxury that we are running out of very quickly. our task therefore becomes more difficult and complex as time slips by. over the last five years, the reserve bank has therefore used the tools available to us to stabilize the situation. we have progressively raised interest rates in the last four years. we have tightened liquidity. and since december last year we have imposed a credit ceiling on commercial banks and also reduced their delegated limits on selected overseas transactions. at this point, let me point out two things on our policy. first, we have not curtailed any foreign remittances. we only have asked that in a few types of transactions, you seek our approval if you want to remit more than the amount delegated to commercial banks. second, while the credit ceiling is in place, the reserve bank continues to encourage lending for investment. commercial banks can seek our approval for these lending on a case by case basis. no one likes higher interest rates. neither do we. but do we have a choice? in