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© 2003 International Monetary Fund
January 2003
IMF Country Report No. 03/8
Fiji: 2002 Article IV Consultation—Staff Report; and Statements by the Executive Director and the Authorities for Fiji
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. In the context of the 2002 Article IV consultation with Fiji, the following documents have been released and are included in this package:
the staff report for the 2002 Article IV consultation, prepared by a staff team of the IMF, following discussions that ended on May 2, 2002, with the officials of Fiji on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on July 19, 2002. The views expressed in the staff report are those of the staff team and do not necessarily reflect the views of the Executive Board of the IMF.
a Public Information Notice (PIN) summarizing the views of the Executive Board as expressed during its August 9, 2002 discussion of the staff report that concluded the Article IV consultation.
statements by the Executive Director and the authorities for Fiji.
The document(s) listed below have been or will be separately released.
Selected Issues Paper
The policy of publication of staff reports and other documents allows for the deletion of market-sensitive information.
To assist the IMF in evaluating the publication policy, reader comments are invited and may be sent by e-mail to Publicationpolicy@imf.org.
Copies of this report are available to the public from
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INTERNATIONAL MONETARY FUND
FIJI
Staff Report for the 2002 Article IV Consultation
Prepared by the Staff Representatives for the 2002 Consultation with Fiji
Approved by Steven Dunaway and Michael Hadjimichael
July 19, 2002
Consultation discussions were held in Suva during April 22-May 2. The staff team met with Finance and National Planning Minister Kubuabola, Reserve Bank Governor Narube, other government officials, and banking, business, and union representatives.1
Fiji joined the Fund on May 28, 1971. It has accepted the obligations of Article VIII, Sections 2, 3, and 4. The last consultation was concluded by the Board on September 14, 1998. The consultation scheduled for 2000 (under the biennial cycle) was postponed owing to political instability following a coup that toppled the elected government. An informal staff visit was made in June 2001, but a formal consultation was held off pending new elections that were held in September 2001. Following the elections, Fiji’s international relations were normalized and international sanctions were lifted.
The Fijian economy suffered a recession after the coup, but is now recovering in response to a pick-up in tourism, the lifting of sanctions, and fiscal stimulus. Inflation remains low and the current account deficit has narrowed.
The mission recommended that the focus of macroeconomic policies shift from kick-starting the recovery to implementing a medium-term strategy to raise Fiji’s sustainable growth rate. In particular, the mission urged that immediate steps be taken to reduce the large fiscal deficit, primarily through cutting current expenditures. Revenue increases are also likely to be needed to help finance higher public investment.
Structural reforms should give priority to strengthening public sector management, especially with regard to financial control, and comprehensive restructuring of the sugar industry.
The mission recommended further easing of exchange controls, especially those pertaining to current transactions, some of which have been assessed to be restrictions inconsistent with Fiji’s obligations under the Articles of Agreement. The authorities are advised to establish a clear timetable for removing such restrictions.
The principal author of this report is Mr. Roger.
Contents
Executive Summary
I. Background
II. Recent Developments and Short-Term Outlook
III. Report on the Discussions
A. Fiscal Policy Priorities
B. Monetary, Exchange Rate, and Financial Sector Policies
C. Structural Measures
D. Medium-Term Outlook
IV. Staff Appraisal
Text Boxes
1. Political Developments
2. Exchange and Capital Controls, 1999–2002
3. Recent Exchange Rate Trends and Competitiveness
Figures
1. Economic Performance, 1986–2002
2. Central Government Finances, 1997–2002
3. Monetary Indicators, 1997–2002
4. External Developments, 1997–2002
5. Exchange Rate Developments, 1997–2002
Tables
1. Selected Economic Indicators, 1997–2003
2. Output and Expenditure, 1997–2002
3. Central Government Finances, 1997–2002
4. Monetary Survey, 1997–2002
5. Balance of Payments, 1997–2002
6. Indicators of Financial and External Vulnerability, 1997–2002
7. Medium-Term Adjustment Scenario, 1998–2007
Annexes
I. Fund Relations
II. Relations with the Pacific Financial Technical Assistance Centre
III. Relations with the World Bank Group
IV. Relations with the Asian Development Bank
V. Social and Demographic Indicators
VI. Statistical Issues
Executive Summary
Economic Setting:
The Fijian economy is recovering from the after-effects of the 2000 coup. A rebound in the tourism sector and expansionary fiscal policy have been the main drivers of economic growth to date. With the lifting of economic sanctions late in 2001, the economic recovery is becoming more broad-based. Real GDP growth in 2002–03 is projected to be in the range of 4 to 5 percent, while inflation is projected to remain under 3 percent. Earnings from tourism have led to a significant narrowing of the current account deficit, which is projected to fall to 1 percent of GDP by 2003.
Policy Discussions:
The staff recommended that immediate action be taken to cut the fiscal deficit in 2002. The deficit could remain close to 6 percent of GDP, in the absence of corrective measures. The staff recommended that the deficit be reduced to around 3 percent of GDP through cuts in wage costs and scaling back of new spending initiatives.
The staff supported increasing gradually the flexibility of the exchange rate over time. Such flexibility would facilitate the removal of exchange controls and financial sector development. The staff emphasized that movement in this direction will need to be accompanied by fiscal and monetary policies consistent with exchange rate stability, underscoring the need for fiscal consolidation.
Exchange controls should be liberalized and restrictions eliminated. The wide range of controls still in place is unhelpful to Fiji’s efforts to attract foreign investment. Moreover, the staff has determined that some exchange controls constitute restrictions subject to approval under Article VIII. The staff does not recommend approval for the retention of these measures and recommends that the authorities set a clear timetable for their elimination.
The staff supported the government’s medium-term objectives of reducing the government debt GDP ratio and increasing public sector investment in order to raise the economy’s sustainable growth rate. To achieve these objectives, the staff recommended cuts in lower priority current spending and selected increases in revenues (e.g., an increase in the VAT rate).
The staff also endorsed a range of structural reforms. The staff stressed the need to strengthen public sector management, especially financial management, as this will play an important role both in achieving fiscal consolidation and in raising public sector productivity. In the private sector, comprehensive restructuring of the sugar industry is urgent, including a resolution of land issues. Moreover, the staff recommended prompt action to simplify the investment approval process, dismantle price controls, and eliminate distortionary import licenses and quotas.
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Public Information Notice (PIN) No.01/101
FOR IMMEDIATE RELEASE
September 12, 2002
International Monetary Fund
700 19th Street, NW
Washington, D.C. 20431 USA
Washington, D.C. 20431 • Telephone 202-623-7100 • Fax 202-623-6772 • www.imf.org
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August 9, 2002
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RESERVE BANK OF FIJI
SUVA, FIJI
Private Mail Bag, Suva
Cable: Resbank
Telephone: (679) 331 3611
Fax: (679) 330 1688
Website: www.rbf.gov.fi
E-mail: rbf@reservebank.gov.fi
