savenaca narube : a brief overview of developments in fiji ’ s financial system and economy opening address by mr savenaca narube, governor of the reserve bank of fiji, at the official opening of bank of south pacific limited ’ s new nadi office, nadi, 19 february 2008. * * * your excellency, the papua new guinea high commissioner to fiji, mr. peter eafeare ; mr garth mcilwain, managing director, bank of south pacific ; mr kevin mccarthy, general manager, branch network ; mr. greg watson, general manager, bsp fiji ; distinguished guests ; ladies and gentlemen : introductory remarks good morning to you all. it seems just like a few months ago when i had the pleasure to welcome bank of south pacific into fiji at their renwick road branch in suva. i remember that opening very well. it is not often that you are offered a full bowl of kava first thing on a monday morning. but i remember that occasion well because of what was happening in the country at that time. the military had taken over government only two weeks before that. the situation in suva was still tense and no one was really sure what was going to unfold. it was therefore remarkable that bsp made the decision to open its first branch irrespective of what was happening in fiji. it was a bold but right decision. it clearly reflects three things. first, bsp likes to have their official openings in the morning. i have been to many openings of bank branches and agencies. i believe that they were all in the evenings. somehow, morning works for bsp. perhaps morning openings signal the new dawn or the new beginning. so, i am pleased to be here in this new dawn to open bsp ’ s first western branch here on main street in the jet - set town of nadi. secondly and on a serious note, this expansion after only one year of setting up shop in fiji clearly signals bsp ’ s commitment to the country. they have made their intentions clear. they are obviously here to stay. they have a long term view of their presence in fiji. and i warmly welcome that and congratulate them on their commitment and determination. it ’ s a vision that we can all embrace. nothing much is gained from being short term. visions are realised with courage and by looking far beyond the horizon. thirdly, this expansion reflects bsp ’ s continuing confidence in the economic

hotels and the reduction in the length of stay. most other economic sectors declined in 2007. there was a small growth in exports while imports in the january to november period of 2007 declined due to the depressed state of the economy and the restrictive policies that we had put in place. foreign reserves foreign reserves increased in the second half of 2007 rising to 4. 3 months of imports at the end of the year and this is encouraging. however, the major reasons for this performance were the decline in the economy particularly in investment and the credit ceiling which has slowed down credit considerably. we still need to do a whole lot more to get our exports increasing at a respectable rate. but unfortunately we are still not doing enough at this time on this important front. our balance of payments will continue to come under pressure. time is clearly not on our side. we must move immediately. in 2008, the economy is expected to grow by 2. 2 percent. but that was before cyclone gene. we are still evaluating the impact of the cyclone and flooding on the economy. but based on past natural disasters, we can expect a reduction in the modest growth rate projected for 2008 unless there are other offsetting developments. this obviously would frustrate our efforts to restore growth this year. there is also a real fear that the world economy will enter a recession or even a depression this year. the impact of the sub prime loan in the us is spreading into europe and is coming down to asia. how these global developments impact fiji will depend on how they affect our major markets. tourism numbers and remittances may be affected. there is also the possible impact of the movements in exchange rate. inflation inflation is becoming a bit of a worry. inflation jumped to over 7 percent at the end of last month – the highest since 1998. this was due to the higher oil prices, some increase in duties from the national budget and some disruptions in local supply of vegetables. furthermore, the disruptions in supply of market items caused by cyclone gene are bound to push inflation higher in the next few months. we are therefore revising our inflation projection for the end of this year. we are caught in what economist term “ stagflation ” where the fiji economy has declined but inflation is rising. it ’ s not a good place to be. however, in our view, the fundamental causes of this flare up in inflation should be temporary. the future path of oil prices will largely determine inflation in the medium term. so if oil