degree of economic challenges that we currently face in fiji. for instance, papua new guinea and samoa have better levels of foreign reserves in months of imports than fiji has. yet their lending rates are higher. i wish to take this opportunity to thank the commercial banks for their understanding and support in our effort to address the economic challenges before us. with the credit ceiling in place, the reserve bank has allowed liquidity to rise. liquidity has risen by over $ 50 million since february this year. in addition, we are reducing the statutory reserve deposits by one percentage point from 1st of may which should pump an additional $ 29 million into the system. this should take liquidity to a very comfortable level. we are already seeing the impact of this easier liquidity on wholesale deposit rates which have fallen sharply to 5 percent from around 15 percent late last year. with this liquidity condition, one would expect commercial banks and other lending institutions to pass this lower cost of funds through to lending rates. and here i must congratulate westpac for taking the lead and reducing its lending rates. lower rates will help support growth and investment in this difficult time. in support of investment and growth, the reserve bank now considers commercial banks ’ lending to investment, small and medium size businesses and to exporters to be outside the credit ceiling. since december last year, the reserve bank has approved over $ 70 million of loans above the credit ceiling. economic projection as you know, we project that the economy will fall by 2. 5 percent this year. there are some important factors that will determine the final outcome. first, what happens to tourism is important. there are mixed signals coming from this important industry. the latest visitor arrival figure shows a decline of around 7 percent in january compared to january the previous year. a survey we conducted recently of a few major hotels show a low occupancy rate of around 30 percent and not much higher going into their forward booking. the second factor is gold. the current forecast does not include any gold production. but with the change in ownership of the vatukoula mine, we hear that production may commence in june. the third factor is the possible industrial action by the trade unions. it appears to me that all trade unions are seeking strike mandates. i hope that the situation is amicably settled. the fourth is the uncertainty in the european union ’ s support for the important sugar industry reform. we all hope that the discussion in brussels this week is fruitful for fiji.

yields have now dropped. oil price remains at around us $ 60 a barrel. the trade deficit continues to widen. it is therefore essential that the reserve bank do all it can to safeguard the external financial position of fiji. since may 2004, we had progressively raised interest rate and tightened liquidity. we had also highlighted back then the need to lift our exports. unfortunately, exports have yet to respond. in fact, with gold production and the sugar reform uncertain, there is still no light in the tunnel. we have tightened monetary policies progressively. some say that we should have moved more aggressively at the start. i do not agree with this view. introducing harsher measures at the beginning would have discouraged growth which was the last thing we need. it would have been an over kill. it makes more sense to tighten progressively and as much as possible allow room for investment and the economy to grow. in december last year, we had to introduce a ceiling on private sector credit. we also reduced the delegated limits given to foreign exchange dealers on selected overseas transactions. recently, we announced changes to borrowing guidelines for non - residents individuals and companies. there have been some concerns on higher interest rates particularly from individual borrowers and investors. we understand these concerns. but again we ask that you appreciate the seriousness of our financial situation. when things are tough, we must safeguard the bigger picture. we cannot be reactionary. if we do not take care of the bigger picture, the smaller picture will suffer even a lot more than what we are facing now. there are lessons from around the world that we should heed. when we compare the interest rates in fiji with countries like australia and new zealand as well as some of our pacific island neighbors it clearly reveals that they are relatively low in fiji. for example the lending rate in new zealand is 12. 25 percent, in papua new guinea 10. 7 percent and samoa 11 percent. this compares with 9. 34 percent in fiji. while these are the weighted average lending rates and the rates will obviously differ for individual borrowers they are the best gauge of the general level of interest rate between countries. this comparison of interest rates throws up two interesting observations. first, all the countries that i have mentioned are performing better than fiji including samoa and papua new guinea. yet their lending rates are higher than us. it implies that there are other factors that are important for investment and growth than interest rates alone. second and perhaps more pertinent, these countries do not face the