2019 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for the Republic of Fiji

Abstract

2019 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for the Republic of Fiji

WASHINGTON, DC February 24, 2020 the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation1 with Fiji.

The Fijian economy experienced relatively high growth during 2017–18 amid rising external and fiscal imbalances. Fiscal space is now at risk and external vulnerabilities remain significant. Economic activity slowed sharply in 2019 due to lower government spending, tighter domestic financial conditions, weak sentiment, and the synchronized global downswing. Growth is estimated to have reached about 1 percent in 2019, underpinned by resilient tourism and remittances. GDP growth should pick up gradually as the private sector regains dynamism. Inflation pressures are subdued.

Policies should aim to sustain growth and make it more inclusive as fiscal policy support is withdrawn and external imbalances narrow. Reducing fiscal imbalances is essential to rebuild buffers to respond to natural disasters and to maintain public debt sustainable. Fiscal consolidation should focus on reining in current spending given limited scope for further revenue mobilization and the need for capital spending to improve resilience to climate change. Improvements in the business environment and in governance are essential to raise potential growth and needed private investment, and to enhance productivity and competitiveness. Another priority should be to tackle the gender gap in labor force participation in order to boost potential growth and make it more inclusive.

Disclaimer. The Staff Report prepared by a staff team of the IMF for the Executive Board’s consideration on February 24, 2020. The staff report reflects discussions with the Fiji authorities in December 2019 and is based on the information available as of December 15, 2019. It focuses on Fiji near and medium-term challenges and policy priorities and was prepared before COVID-19 became a global pandemic and resulted in unprecedented strains in global trade, commodity and financial markets. It, therefore, does not reflect the implications of these developments and related policy priorities. The outbreak has greatly amplified uncertainty and downside risks around the outlook. Staff is closely monitoring the situation and will continue to work on assessing its impact and the related policy response in Fiji and globally.

Executive Board Assessment2

Executive Directors welcomed the recent pickup in activity after a sharp slowdown in 2019. Directors noted that the medium-term growth outlook is favorable but subject to significant risks, including rising fiscal and external imbalances, and natural disasters. They emphasized the need to consolidate the fiscal position, boost potential growth, and build resilience to weather-related shocks.

Directors stressed the importance of growth-friendly fiscal consolidation to rebuild buffers and ensure debt sustainability. In this context, they encouraged the authorities to rationalize current spending and protect priority investments and social programs. They agreed that a credible medium-term fiscal strategy would help underpin the consolidation efforts and place the debt-to-GDP ratio firmly on a downward path.

Directors noted that the stance of monetary policy is appropriate and should continue to focus on maintaining adequate foreign reserves. They agreed that the central bank should continue to rely on the automatic stabilizing mechanism of the peg, avoid financing the government, and strengthen its operational independence. Directors also encouraged the authorities to gradually relax the remaining exchange restrictions, with technical support from the Fund.

Directors underscored the need to safeguard financial stability, including by upgrading the supervision of nonbank financial institutions, adopting the Credit Union Act, and closely monitoring nonperforming loans. They looked forward to further progress in strengthening the AML/CFT framework in line with the recommendations of the FATF.

Directors welcomed the authorities’ structural reform initiatives. They encouraged sustained efforts to improve the business environment, foster private sector investment, and strengthen governance. Directors recommended reforms to improve the functioning of the labor and product markets, including measures to boost female labor force participation and rationalize price controls. They also highlighted the importance of aligning the investment regime with international best practices, and upgrading the disaster risk management framework.

Table 1.

Fiji: Selected Economic Indicators, 2015–20

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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: http://www.IMF.org/external/np/sec/misc/qualifiers.htm.