IMF Concludes 2021 Article IV Consultation with Fiji

Washington, DC: On November 29, 2021, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation[1]with Fiji.

Fiji has been hard hit by the COVID-19 pandemic. Real GDP contracted by an estimate 15.7 percent in 2020 and is projected to contract by a further 4 percent in 2021 in the wake of the Delta variant outbreak. The fiscal deficit reached a record 13.1 percent of GDP in FY20-21 and is projected around the same level for FY21-22, with an accompanying rise in public debt to 89.8 percent of GDP by the end of the current fiscal year. Year-on-year consumer price inflation reached -2.8 percent at end-2020. Increases in international commodity prices and local food prices are expected to contribute to rise in consumer price inflation to 1.4 percent by end-2021. Both lending and deposit rates have decreased, and private sector credit contracted by 3.1 percent in 2020 and is expected to shrink by a further 3.6 percent by end-2021. Non-performing loans have risen to record levels.

While Fiji’s COVID-19 Delta variant outbreak was largely confined to one island, infection rates were at one point among the highest in the world. Contributions of AstraZeneca vaccine from Australia and New Zealand enabled an aggressive vaccination campaign. As of mid-October, more than 95 percent of eligible Fijians (those over 18) had received their first dose and 80 percent were fully vaccinated. Passing these milestones, the government announced an easing of local curfew and business restrictions. Fiji’s borders will be reopened to fully vaccinated travelers from a select group of countries, including Australia, New Zealand, the U.S., UK, Japan, and other Pacific Islands starting December 1, 2021.

A gradual recovery is expected to emerge in 2022 but will hinge on how the reopening and resumption of tourism unfolds. Based on the authorities’ announced border reopening and protocols for international tourist arrivals real GDP is projected to rise to 6.2 percent in 2022 and by a further 8.3 percent in 2023. There remain significant risks to the outlook. Fiji remains highly vulnerable to natural disasters-particularly the effects of tropical cyclones. The recovery and medium-term outlook hinge on a full recovery of tourism, but it is unclear whether pre-pandemic tourism and spending patterns will reestablish themselves. Contingent liabilities have surged during the pandemic, posing a quasi-fiscal risk. The sustainability of the economic outlook will also rest critically on the government’s ability to embark on the policy reforms necessary for macro-fiscal stabilization and to begin reducing public debt.

Executive Board Assessment[2]

Executive Directors noted that Fiji has been severely impacted by the COVID-19 pandemic given its reliance on tourism. Directors commended the authorities for their swift actions to cushion the impact of the crisis and to accelerate vaccinations, which, together with the reopening of borders, have improved economic prospects. Given heightened uncertainty, macroeconomic imbalances, and vulnerability to climate shocks, Directors stressed the importance of policy adjustments and macro-structural reforms aimed at facilitating stronger, greener, and more sustainable growth.

Directors underscored that, as the recovery strengthens, fiscal consolidation will be needed to safeguard sustainability and place the public debt-to-GDP ratio on a steady downward path. They recommended a roadmap to guide the implementation of phased revenue reforms and expenditure rationalization, in line with the economic recovery. Directors emphasized the need to address the increase in contingent liabilities related to state-owned enterprises, develop contingency plans, and strengthen governance and transparency. They also encouraged further building climate resilience and mainstreaming climate adaptation considerations into fiscal policy planning.

Directors agreed that the accommodative monetary policy stance is appropriate at the current juncture but that a careful monitoring of financial conditions is warranted as support measures are gradually withdrawn. They recommended close supervision of the financial sector, especially non-banks, given rising vulnerabilities and non-performing loans. Directors called for further progress in implementing the recommendations of the 2018 Financial Sector Assessment Program and enhancing the effectiveness of the AML/CFT framework. They called on the authorities to phase out existing exchange restrictions for payments on current international transactions, as conditions allow.

Directors welcomed recent structural reform measures to underpin the recovery and foster private investment and economic diversification, notably the new Investment Act. They encouraged further efforts to develop the domestic debt market and a digital national payment system, address skills gaps and labor mismatches, and simplify labor market regulations. Directors welcomed continued efforts to raise female labor force participation, including by focusing on early childhood care and education.

Table 1. Fiji: Selected Economic Indicators, 2018-26

2018

2019

2020

2021

2022

2023

2024

2025

2026

Est.

Proj.

Output and prices (percent change)

Real GDP

3.8

-0.4

-15.7

-4.0

6.2

8.3

6.4

4.5

3.4

GDP deflator

3.0

2.4

-2.6

1.2

2.5

3.0

2.8

2.7

2.5

Consumer prices (average)

4.1

1.8

-2.6

1.2

2.5

3.0

2.8

2.7

2.5

Consumer prices (end of period)

4.8

-0.9

-2.8

1.4

2.6

3.2

2.7

2.5

2.4

Central government budget (percent of GDP)

Revenue

26.9

27.3

20.4

21.4

22.2

23.8

25.0

25.4

25.7

Expenditure

32.4

29.9

33.2

37.2

33.2

30.2

28.9

28.5

28.3

Overall balance

-5.5

-2.7

-12.8

-15.8

-11.0

-6.4

-4.0

-3.1

-2.6

Primary balance

-2.8

0.1

-9.1

-11.8

-7.0

-2.5

-0.2

0.6

1.2

Central government debt

46.4

48.9

70.8

86.7

89.4

85.9

82.3

79.8

78.0

External sector (percent of GDP)

Current account balance

-8.4

-12.6

-13.4

-15.7

-8.8

-7.0

-6.7

-7.4

-7.8

Trade balance

-24.2

-25.2

-14.7

-14.8

-18.7

-20.0

-21.1

-21.6

-21.8

Services balance

16.6

14.9

-1.7

-5.9

7.8

13.5

15.3

15.9

15.9

Primary Income balance

-6.4

-8.2

-6.2

-5.0

-7.0

-7.5

-8.0

-8.2

-8.4

Secondary Income balance

5.6

5.9

9.2

10.0

9.0

7.0

7.0

6.5

6.5

Capital account balance

0.1

0.1

0.1

0.1

0.1

0.1

0.1

0.1

0.1

Financial account balance (-= inflows)

-12.0

-11.8

-7.7

-18.1

-12.4

-8.7

-7.6

-7.2

-6.2

FDI

-8.5

-6.5

-5.0

-7.5

-5.4

-5.9

-7.1

-7.2

-7.2

Portfolio investment

0.6

-0.3

3.9

2.3

0.6

0.6

0.6

0.6

0.6

Other investment

-4.2

-5.0

-6.6

-12.9

-7.6

-3.4

-1.1

-0.7

0.4

Errors and omissions

-6.0

2.5

5.2

0.0

0.0

0.0

0.0

0.0

0.0

Change in reserve assets (-=increase)

2.2

-1.8

0.3

-3.0

-3.7

-1.8

-0.9

0.1

1.6

Gross official reserves (in months of prospective imports)

4.1

7.3

7.7

6.9

6.8

6.5

6.3

5.8

External central government debt

13.1

12.7

18.9

26.4

30.7

31.7

30.8

29.8

28.7

Money and credit (percent change)

Net domestic credit depository corporations

10.7

5.4

0.7

-3.4

Private sector credit

7.3

4.6

-3.1

-3.6

Broad money (M3)

2.8

2.6

1.3

13.2

Monetary base

-9.9

15.2

13.5

35.7

Central Bank Policy rate (end of period)

0.50

0.50

0.25

Commercial banks deposits rate (end of period)

1.32

1.10

0.54

Commercial banks lending rate (end of period)

5.69

6.30

6.12

Memorandum items

Exchange rate, average (FJD/USD) (2021=H1 average)

2.09

2.16

2.17

2.04

Real effective exchange rate, average (2021=H1 average)

112.7

113.3

107.6

104.2

GDP at current market prices (in millions of Fiji dollars)

11,651

11,874

9,747

9,466

10,307

11,491

12,566

13,480

14,281

GDP at current market prices (in millions of U.S. dollars)

5,581

5,496

4,494

4,641

5,054

5,635

6,162

6,610

7,003

GDP per capita (in U.S. dollars)

6,273

6,143

4,995

5,130

5,556

6,160

6,699

7,146

7,450

Real output gap

2.8

-0.8

-12.9

-17.8

-14.5

-9.2

-5.7

-3.9

-3.1

Sources: RBF, Ministry of Economy and IMF staff estimates and projections.


[1]Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.

[2]At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country’s authorities. An explanation of any qualifiers used in summings up can be found here:https://www.IMF.org/external/np/sec/misc/qualifiers.htm.

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