May Fiji: Update This document is being disclosed to the public in accordance with ADB's Public Communications Policy 2011.

Transcription

1 May 2014 Fiji: Update 2014 This document is being disclosed to the public in accordance with ADB's Public Communications Policy 2011.

2 CURRENCY EQUIVALENTS (as of 6 May 2014) Currency unit Fiji dollar (F$) F$1.00 = $ $1.00 = F$ ABBREVIATIONS ADB GDP MDG Asian Development Bank gross domestic product Millennium Development Goal NOTE In this report, $ refers to US dollars, unless otherwise stated. Vice-President S. Groff, Operations 2 Director General X. Yao, Pacific Department (PARD) Regional Director R. Jauncey, Pacific Subregional Office (SPSO), PARD Team leader C. Currie, Senior Country Economist, SPSO, PARD In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.

3 I. INTRODUCTION 1. This update for Fiji outlines political and economic changes in the country since the last update was circulated to the Asian Development Bank (ADB) Board of Directors on 20 June The annual update is provided in accordance with ADB s approach to reengaging with Fiji (discussed by the ADB Board of Directors in April 2007). 2 The paper provides an overview of needs and plans for ADB to consider in preparing to provide new development financing in Fiji. II. PREPARATION FOR ELECTIONS 2. Fiji has made very significant progress toward planned elections. The new Constitution, signed into law on 6 September 2013 following 6 months of public consultation, forms the basis for the upcoming elections. In April, Fiji's attorney-general and minister responsible for elections announced that the elections would be held on 17 September The much-awaited announcement has been broadly welcomed both domestically and internationally. 3. Given the significant logistical challenges to holding the elections on a single day (a first for Fiji), extensive preparations are now under way. More than 550,000 people have registered to vote. The government allocated almost $12 million in the 2014 budget for election preparations and for the first sitting of Parliament; Papua New Guinea has committed to provide additional support. Elections experts from Australia, the European Union, and New Zealand are working with the Fiji Elections Office to finalize planning for the election. The experts are assisting in identifying polling stations; drafting rules and regulations that will guide the electoral process; and establishing a free, fair, and transparent system for hiring and training qualified election staff. In January 2014, the government established the Electoral Commission, which comprises seven prominent citizens. It has since recruited an electoral supervisor. Two Australian nationals will work in key positions in the Fiji Elections Office as deputy supervisor of elections and director of operations. 4. Four political parties have registered to contest the elections. Under the Electoral Decree, the current Prime Minister can contest the elections. On 5 March 2014 he resigned his post as commander of the military (he will remain prime minister until a new prime minister is appointed following elections). In May he lodged an application to register his Fiji First political party. III. ECONOMIC PERFORMANCE AND DEVELOPMENT PRIORITIES 5. Fiji s economic outlook has improved over the past year, led by higher domestic investment and consumption expenditure. Business confidence appears to have improved based on clear progress toward elections, while consumption indicators show consumer spending strengthening over the course of the year. Growth reached 3.6% in The Reserve Bank of Fiji in April increased growth forecasts for 2014 to 3.8%. ADB is projecting growth of 2.8% in The government is continuing reforms to improve the business climate. A government decision to devalue the Fiji dollar by 20% in 2009 provided a significant boost to the tourism industry the main source of foreign exchangewith visitor arrivals increasing by 24.5% between 2009 and 2011 and remaining broadly stable since. Agriculture remains the main source of livelihoods for much of the population, with sugar the main export. Following an extended period of contraction, sugar production increased by 16% in 2013, largely due to recent investments to improve the operating efficiency of mills and the quality of cane supplied to the mills. Mining also increased rapidly between 2007 and However, after a sharp rise in gold exports, earnings 1 ADB Update: Fiji, Manila. 2 ADB Fiji Islands: Reengagement Approach. Manila. 3 ADB Asian Development Outlook Manila.

4 2 declined between 2011 and 2013 as production fell short of expectations and prices softened from record highs. To encourage investment, the government included new corporate tax incentives and investment-friendly initiatives in the 2014 budget. The launch of an electronic company registry in 2014 will ease the administrative burden for investors. 7. Greater public spending and consumption are the main drivers behind recent growth. Government expenditures increased from 25% of gross domestic product (GDP) in 2008 to 29% in This was due primarily to increased investment in economic infrastructure and the provision of basic services. The rehabilitation and upgrade of transport assets has been a government priority, with spending on road maintenance increasing to 5% of GDP in each of 2013 and The government s commitment to universal free primary and secondary education, introduced in the 2014 budget, has resulted in education spending increasing from 4% of GDP in 2013 to more than 5% in Growth in consumer spending has been encouraged by recent salary increases for public servants, the introduction of a national minimum wage, one-off tax cuts, and higher tax thresholds. The changes increased disposable incomes, and increased access to consumer and mortgage finance. 8. Balancing the goals of inclusive growth and fiscal sustainability over the medium term will require additional structural reforms to (i) encourage new private sector investment, including foreign direct investment, and (ii) improve total factor productivity. This will in turn depend on improvements in the business environment: investors still highlight barriers to starting a business, trading across borders, and paying taxes. Structural reform to encourage strong investment-led growth will be particularly important to ensure that government revenues are sufficient to finance vital programs without increasing the fiscal deficit or public debt. The budget deficit is projected to decline to 1.9% of GDP in 2014 (from 2.8% in 2013), largely due to the (anticipated) partial sale of key public enterprises and overseas embassies. Accelerated progress on asset sales will be vital in the short term to potentially improve the performance of state-owned enterprises and to raise revenues of about 6% of GDP in Without this, the budget deficit could increase substantially, as could public debt, which is currently around 49% of GDP (although most is domestic debt). 9. Fiji faces challenges to ensure that growth is more inclusive and translated into broader benefits for the population by increasing employment opportunities, improving access to quality services, and addressing gender disparities. Progress in reducing poverty has been slow: data from 2008 (the most recent available) indicate that poverty declined from 39% of the population in 2002 to 31% in This is still short of what will be required to meet the Millennium Development Goal (MDG) target. Translating growth into jobs will be critical. While employment provides the quickest route out of poverty, Fiji s labor force participation rate remains less than 65%. Salaried workers make up only about 15% of the population, 22% of the workforce rely on subsistence income alone, and the economy is not able to generate sufficient jobs to accommodate the country s 20,000 annual school leavers. Rural poverty is a key concern, with more than 40% of the rural population living in poverty. Improving agricultural output and opportunities for sustainable livelihoods in the regions will be especially important to correct these imbalances, as will improved transport links (roads, bridges, wharves, jetties) to provide access to markets and services. At the same time, ruralurban drift is likely to result in the urban population increasing from about 50% of the country s population to 60% by Investments in water and sanitation and other basic amenities will be especially important to improve lives for the estimated 100,000 living in informal squatter settlements. Gender disparities remain pronounced as in many Pacific island countries, and Fiji is unlikely to meet MDG goals in this respect. The government is moving to address several of these challenges through the 2014 commitment to provide free primary and secondary education, improve targeting of social welfare, and invest in rural transport 4 Government of the Fiji Islands, Bureau of Statistics Fiji Household Income and Expenditure Survey Suva; World Bank Republic of Fiji: Poverty Trends Washington D.C.

5 infrastructure. Fiji is broadly on track to meet the MDG goals of universal primary education (with equal access by girls) and reduction of infant and maternal mortality. 5 Still, efforts to ensure growth is more inclusive and to strengthen quality service provision within the bounds of fiscal sustainability will be critical. 3 IV. RELATIONSHIPS WITH THE INTERNATIONAL COMMUNITY AND REGIONAL ORGANIZATIONS 10. Relationships between Fiji and key bilateral partners have improved significantly in the past few months, with Australia and New Zealand taking steps to normalize relations. In February, the Australian foreign minister met with the Fiji Prime Minister and Australia subsequently removed travel sanctions. New Zealand has similarly removed travel restrictions and, in an April visit to Fiji, the foreign minister announced that the New Zealand government would include Fijian workers in the seasonal worker program and establish a joint annual forum for bilateral exchanges for ministers and senior officials to facilitate increased interaction between the two governments. Fiji continues to actively pursue development cooperation with other bilateral and regional partners. 11. Fiji remains suspended from the Commonwealth and from full participation in the Pacific Islands Forum. In February 2014, however, the Forum Ministerial Contact Group welcomed forum leaders, encouraged by Fiji s progress toward elections, recommended that Fiji be invited to participate at ministerial level in regional trade forums, and discussed steps to welcome Fiji s full participation in the Forum after the September elections. In March 2014, the Commonwealth Ministerial Action Group determined that Fiji s suspension from the Commonwealth should be limited to suspension from Commonwealth councils, permitting Fiji to participate in a range of activities, including the Commonwealth Games. V. ADB PREPARATORY WORK FOR OPERATIONS IN FIJI 12. In the past year, ADB has (i) participated in a joint mission with the World Bank in July 2013 to prepare an interim assessment of key development priorities and needs, and to assess opportunities for future collaboration; (ii) approved technical assistance for sector analysis and investment planning in transport and urban development (as foreshadowed in the 2013 update); (iii) continued preparation of a Fiji country diagnostic study, with detailed analysis of critical constraints to inclusive growth in Fiji; and (iv) continued active engagement through ongoing portfolio management in the areas of transport, water supply, disaster risk management, stateowned enterprise reforms, and overall economic management. 13. With the prospect of the September 2014 elections, ADB must be ready to respond quickly to provide development financing and work with the new elected government to address critical development priorities. To this end, ADB is starting initial work to prepare a country partnership strategy for Fiji. This will be done in close consultation with development partners and in parallel with other multilateral agencies such as the World Bank Group. 14. The country partnership strategy will provide a strategic assessment of development concerns Fiji faces to achieve inclusive and sustainable growth. It will identify sector and thematic priorities for ADB to provide investment financing and advisory assistance in the short to medium term. Transport, water and sanitation, and energy are among potential priority sectors to focus ADB investment financing in the short term. Development of these infrastructure sectors is critical to higher and robust growth, and improved connectivity underpins inclusive and efficient provision of basic services to those currently underserved in Fiji. 5 Pacific Islands Forum Secretariat Regional MDGs Tracking Report. Suva.