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PRESENTATION TO THE FIJI AUSTRALIA BUSINESS COUNCIL

Reserve Bank of Fiji. PRESENTATION TO THE FIJI AUSTRALIA BUSINESS COUNCIL. THE FIJI ECONOMY: FACING THE GLOBAL CRISIS. Mr Savenaca Narube Governor, Reserve Bank of Fiji 2 December 2008. Reserve Bank of Fiji. OUTLINE. GLOBAL CRISIS EXPOSURE TO TRADE IN GOODS & SERVICES GROWTH OUTLOOK

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PRESENTATION TO THE FIJI AUSTRALIA BUSINESS COUNCIL

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  1. Reserve Bank of Fiji PRESENTATION TO THE FIJI AUSTRALIA BUSINESS COUNCIL THE FIJI ECONOMY: FACING THE GLOBAL CRISIS Mr Savenaca Narube Governor, Reserve Bank of Fiji 2 December 2008

  2. Reserve Bank of Fiji OUTLINE • GLOBAL CRISIS • EXPOSURE TO TRADE IN GOODS & SERVICES • GROWTH OUTLOOK • KEY CHALLENGES AND POLICY RESPONSES • SUMMARY

  3. Reserve Bank of Fiji SNAPSHOT OF THE FIJI ECONOMY • Economy declined heavily in 2007 • Recovery to begin this year but low growth • The trade deficit is widening and exerting pressure on foreign reserves • Inflation has risen to a 20-year high but to decline to a moderate level in 2009 • Investment has fallen • Unemployment is rising • Poverty is worsening NOW COMES THE GLOBAL FINANCIAL CRISIS …..

  4. WORLD GDP GROWTH Reserve Bank of Fiji % Source: IMF World Economic Outlook – Nov 08

  5. TRADING PARTNERS’ OUTLOOK Reserve Bank of Fiji % 3.2 3.1 2.1 1.6 1.3 2.0 0.7 0.1 0.2 0.5 Source: World Economic Outlook – Oct 08 & Nov 08

  6. EXCHANGE RATES OF SELECTED CURRENCIES AGAINST FJD Reserve Bank of Fiji NZD/AUD/EUR/USD YEN NZD 11% AUD 16% USD -14% EURO -4% YEN -26% 2007 2008

  7. Reserve Bank of Fiji REER/NEER(Monthly Average) Index REER 106.23 NEER 103..05 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

  8. Reserve Bank of Fiji EXPOSURE TO TRADE IN GOODS & SERVICES

  9. FIJI’S COMMODITY EXPORT* DESTINATIONS Reserve Bank of Fiji *Refers to 2007 Source: FIBOS

  10. MAJOR EXPORTS* TO US Reserve Bank of Fiji Demand Will Slow Down $M *Represents 84% of total commodity exports to the US in 2007 Source: FIBOS

  11. MAJOR EXPORTS* TO EUROPE Reserve Bank of Fiji Sugar Exports Unaffected $M *Represents 83% of total commodity exports to the UK, Germany, France & Italy in 2007 Source: FIBOS

  12. MAJOR EXPORTS* TO JAPAN Reserve Bank of Fiji Demand Will Slow Down $M *Represents 88% of total commodity exports to Japan in 2007 Source: FIBOS

  13. MAJOR EXPORTS* TO AUS Reserve Bank of Fiji Garments May Be Affected $M *Represents 73% of total commodity exports to Australia in 2007 Source: FIBOS

  14. MAJOR EXPORTS* TO NZ Reserve Bank of Fiji Demand Will Slow Down $M *Represents 48% of total commodity exports to New Zealand in 2007 Source: FIBOS

  15. Reserve Bank of Fiji IMPACT ON EXPORTS • Slowdown in exports which are demand driven • Tourism • Water • Garments • Supply driven exports – structural constraints binding • Slowdown in growth of total exports

  16. VISITOR ARRIVALS* BY COUNTRY Reserve Bank of Fiji *Refers to 2007 Source: FIBOS

  17. VISITOR ARRIVALS Reserve Bank of Fiji Growth Under Threat 3% 8% ‘000s 600 580 550 545 539 503 11% 431 398 Source: FIBOS & Macroeconomic Committee

  18. VISITOR ARRIVALS - USA Reserve Bank of Fiji Already Declining ‘000s 74 65 66 65 62 58 59 58 53 Source: FIBOS

  19. VISITOR ARRIVALS - EUROPE Reserve Bank of Fiji Already Declining ‘000s 91 81 71 72 71 69 65 52 51 Source: FIBOS

  20. VISITOR ARRIVALS - JAPAN Reserve Bank of Fiji Already Declining ‘000s 38 30 26 24 24 23 23 20 20 Source: FIBOS

  21. VISITOR ARRIVALS - NZ Reserve Bank of Fiji Already Flat ‘000s 108 104 100 96 75 72 68 66 49 Source: FIBOS

  22. VISITOR ARRIVALS - AUSTRALIA Reserve Bank of Fiji Key Source of Growth ‘000s 207 198 181 176 142 124 118 98 77 Source: FIBOS

  23. REMITTANCES* BY CURRENCY Reserve Bank of Fiji *Cumulative for the period Sep-07 to Jun-08, excluding remittances received in FJD Source: RBF

  24. Reserve Bank of Fiji PERSONAL REMITTANCES Already Declining $M -10% -22% Source: RBF & Macroeconomic Committee

  25. Reserve Bank of Fiji IMPACT ON SERVICES • Reduce tourist arrivals • Japan, Europe and US was already declining • NZ tourists were also flat • Australia was the growth industry • Exchange rate will further dampen demand • Remittances will decline further

  26. FIJI’S ORIGIN OF IMPORTS Reserve Bank of Fiji *Refers to 2007 Total Imports = $2,890m Source: FIBOS

  27. IMPORTS* FROM UNITED STATES Reserve Bank of Fiji $M *Represents 47% of total commodity imports from the US in 2007 Source: FIBOS

  28. IMPORTS* FROM JAPAN Reserve Bank of Fiji Cement & Car Prices Will Rise $M *Represents 21% of total commodity imports from Japan in 2007 Source: FIBOS

  29. IMPORTS* FROM AUSTRALIA Reserve Bank of Fiji Food Prices Will Drop… $M *Represents 28% of total commodity imports from Australia in 2007 Source: FIBOS

  30. IMPORTS* FROM NEW ZEALAND Reserve Bank of Fiji Food Prices Will Drop… $M *Represents 14% of total commodity imports from New Zealand in 2007 Source: FIBOS

  31. Reserve Bank of Fiji IMPACT ON IMPORTS • Imports will rise • Price of cars and auto parts will rise – demand will drop • Oil price in Fiji dollar will rise – will partly offset the lower global price • Prices of food and manufactured items will drop – demand may be inelastic • Cement price will rise

  32. TRADE BALANCE Reserve Bank of Fiji F$M 29% 25% 5% 1% 1% Source: FIBOS and Macroeconomic Committee *C.I.F Accrual data excluding aircraft

  33. Reserve Bank of Fiji INVESTMENT % of GDP Government Private Statutory Bodies & Public Enterprises Source: FIBOS

  34. Reserve Bank of Fiji GROWTH OUTLOOK

  35. GDP GROWTH: 2006-2011 Reserve Bank of Fiji % Source: FIBOS & Macroeconomic Committee

  36. Reserve Bank of Fiji MAJOR DRIVERS • Tourism • Agriculture –fishing, forestry • Manufacturing, except garments • Mining – gold • Water MAJOR DRAG • Community & social services – Government expenditure (2010 & 2011)

  37. Reserve Bank of Fiji GROWTH IN SELECTED PACIFIC ISLAND ECONOMIES Growth Is Too Low % Average Growth 2001-2007 Source: IMF World Economic Outlook (Oct & Nov 2008) & FIBOS

  38. GROWTH IN SELECTED SMALL ISLAND DEVELOPING STATES Reserve Bank of Fiji Growth Is Too Low % Average Growth 2001-2007 Source: IMF World Economic Outlook (Oct & Nov 2008) & FIBOS

  39. Reserve Bank of Fiji KEY CHALLENGES AND POLICY MIX

  40. Reserve Bank of Fiji KEY CHALLENGES • Safeguarding Fiji’s external position • Raising exports • Raising investment • Raising and sustaining growth

  41. Reserve Bank of Fiji BUDGETARY MEASURES • PRO GROWTH • 3% of GDP deficit • Support for priority sectors • Tourism • Agriculture • ICT

  42. Reserve Bank of Fiji BUDGETARY MEASURES • BALANCE OF PAYMENTS SUPPORT • Bio Fuel • Import Substitution • Fiji Diaspora • Increase in tariffs • INVESTMENT • Infrastructure development • Incentives

  43. Reserve Bank of Fiji MONETARY MEASURES • BALANCE OF PAYMENTS • Credit Ceiling • Exchange Controls • INVESTMENT • Interest rates • Special approvals

  44. Reserve Bank of Fiji GOVERNMENT UNDERLYING BALANCE Expansionary Stance $M % of GDP Source: Ministry of Finance

  45. Reserve Bank of Fiji GOVERNMENT REVENUE % of GDP $M Source: Ministry of Finance

  46. GOVERNMENT OPERATING EXPENDITURE Reserve Bank of Fiji Too High as % of GDP % of GDP $M Source: Ministry of Finance

  47. GOVERNMENT CAPITAL EXPENDITURE Reserve Bank of Fiji Good Increase… % of GDP $M Source: Ministry of Finance

  48. Reserve Bank of Fiji GOVERNMENT DEBT Deficit is Sustainable % of GDP 48 47 46

  49. COMMERCIAL BANK’S LENDING RATE Declining … % 8% 2005 2006 2007 2008 Reserve Bank of Fiji

  50. LENDING RATES: FIJI & SELECTED COUNTRIES Lowest In Region % 2008 2006 2007 Source: International Financial Statistics Reserve Bank of Fiji

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