2018 PACIFIC UPDATE FIJI: CURRENT ECONOMIC CONDITIONS & OUTLOOK

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1 218 PACIFIC UPDATE FIJI: CURRENT ECONOMIC CONDITIONS & OUTLOOK Ariff Ali Governor, Reserve Bank of Fiji 6 July, 218

2 FIJI ECONOMY How have we transformed since independence? 1977 Base 1995 Base 211 Base Primary Industry Services Primary Industry Services Primary Industry Services Source: Fiji Bureau of Statistics

3 GDP GROWTH How have we performed against our historical growth rate? % Actual May-18 Forecast Historical Growth Rate Gene Mick 21 Tomas Evan r 215r 216p Winston 217f 218f Josie & Keni 219f 22f 221f Sources: FBOS & Macroeconomic Committee

4 GDP GROWTH Moody s: How have we performed against our peers?

5 GDP GROWTH Is our forecast in line with others? f 218f MACRO IMF ADB MOODY 3.2 ANZ 3.3 FBOS (Actuals) IMF s forecast for 216 derived from estimates done for 215 Article IV. There was no visit in 216. The 216 projections were done before TC Winston. IMF and ADB s forecasts for 218 were done prior to the natural disasters in April 218.

6 Net VAT Collections CONSUMPTION SPENDING What do the key indicators reveal? Vehicle Registrations 1, No. 18, New Vehicles Secondhand Vehicles % 6 12, -3.2% 4 2 6, % Commercial Banks New Consumption Lending Wholesale & Retail Trade Survey Annual Jan-Mar 1,2 1, 12.1% % 2.7% % 4.% Source: Industry contacts

7 INVESTMENT Are the indicators consistent with our assessment of the economy? Commercial Banks New Investment Lending Government's Actual Capital Expenditure Building & Construction Real Estate Actual Capital Budgeted Capital FY16-17 FY17-18(r) 1852 FY18-19(b) Value of Work Put in Place Domestic Cement Sales Annual 15.2% 12.4% 1.1% 5.2% TONNES % 2.2% Source: RBF and Industry contacts

8 BUSINESS SENTIMENTS Do real and financial data validate sentiments? Overall Business Confidence (Net %) Commercial Banks New Lending % (Net) Next 6 months Next 12 months 1 3, , , 2 1,5-2 1, Source: RBF

9 Outstanding Lending Rate MONETARY POLICY Is it supportive of economic growth? Outstanding Loans & Advance % Outstanding Loans & Advances , 6, 5, 4, 3, 2, 1, Banks Liquidity As at 28 May, 218 Source: RBF

10 RBF Jobs Ads Survey No. 25, LABOUR MARKET Is GDP growth translating into more jobs? PAYE Collections 25 2, 2 15, 15 1, 1 5, 5 21* 23* 25* 27* 29* 211* 213* FNPF Compulsory Membership and Withdrawals Unemployment has Declined No. New Compulsory Membership `s Unemployed Unemployment Rate % 25, 15, 5, -5, -15, (r) 212(e) 214(e) *Job Ads Fiji Times only from Source: RBF

11 Exports BALANCE OF PAYMENTS Why are tourism and remittances important for Fiji? Imports 25 2 Jan-Feb Annual 6.% 7.5% 4.7% 6, 5, Jan- Feb Annual 2.2% 1.2% 3.7% 15 4, 3, 1 2, % 1, 7.9% p 216p 217r 218f 219f p 216p 217p 218f 219f Tourism Earnings Personal Remittances 1,8 1,5 Annual 12.3% 8. Annual Jan-Mar % 3.4% 1, % p 216p 217f 218f Sources: FBOS & Macroeconomic Committee

12 GOVERNMENT EXPENDITURE Where is the rise in expenditure diverted to? Revenue Expenditure Expenditure Mix % Operating Capital *Revenue for FY includes asset sales. Source: National Budget Supplement

13 BUDGET DEFICIT Is it heading in the right direction? Net Deficit (Percent of Calendar & Fiscal year GDP) % Average 12 years -3.1 Average 13 years /16(a) 17/18(b) 19/2(b) Source: National Budget Supplement

14 FIJI S DEBT SUSTAINABILITY How do we fare against the IMF/WB Benchmarks? Debt as a percent of GDP Debt as a percent of Revenue % % External debt as a percent of Exports of Goods & Services External Debt Servicing as a percent of Exports % % * Excluding asset sales Sources: MOE & RBF

15 Source: Moody's FIJI S DEBT SUSTAINABILITY How do we fare against our peers?

16 Fiji GOVERNMENT DEBT Why debt to GDP ratio and not absolute values? Maldives PNG Mauritius New Zealand Australia Central Government Debt (Debt US$ billions) Central Government Debt (Percent of GDP) New Zealand Papua New Guinea Australia China Fiji Emerging & Developing Economies Mauritius Maldives India UK Advanced Economies Economies Japan Source: National Budget Supplement and International Monetary Fund

17 GOVERNMENT DEBT Why are they going in the opposite direction? % of GDP Domestic External Domestic External 6 5, 4,853 5,92 4, , 1,352 1,412 1, , , 3,196 3,441 3,655 1, May May- 18 Sources: MOE & RBF

18 INFLATION What s driving prices? HEADLINE INFLATION MAY CONTRIBUTION TO INFLATION MAY % Monthly % Change % 5.1% 4. Annual Growth Vegetables: +21.% Yaqona: +39.4% Alcohol: +9.3% Tobacco: +6.6% Headline Inflation Alcoholic Beverages, Tobacco & Narcotics Food & Non-alcoholic Beverages.3 Transport.1 Others* *Others include Health, Communication, Furnishings, Hhld., Equip. Routine Hhld. Maintenance, Recreation & Culture, Clothing & Footwear and Misc. Sources: RBF and FBOS

19 FOREIGN RESERVES Do we have buffers? 2,5 MORI , Retained Imports Cover , , Benchmark MORI ,91 1,33 1,513 1,636 1,778 1,811 1,944 1,921 2,273 2, Jun Source: RBF

20 RISKS RISKS They are always out there Natural disasters Surge in crude oil/commodity prices US interest rate hikes Global geo-political tensions Reliance on Australia & NZ Visitors

21 SUMMARY 9 years of consecutive growth has resulted in almost doubling of Fiji s GDP and above trend growth is forecast for the next 3 years Macroeconomic fundamentals are strong: Business confidence is high Public debt is sustainable and fiscal policy is supportive of growth Financial system is sound and low level of interest rates is supportive of the private sector investment External sector is stable with foreign reserves at comfortable levels Core inflation is below 3%, however recent spike is driven by supply side shocks due to natural disasters Risks to growth are driven largely by natural disasters and global commodity price hikes Opportunity to raise future growth to above 5 percent

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23 MEDIUM-TERM INVESTMENT OUTLOOK: Does it make sense? Medium-term Investment Outlook (Plant & Machinery) Medium-term Investment Outlook (Buildings) Increase Decrease No Change Increase Decrease No Change % of Firms % of Firms Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Jun-17 Dec-17 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Jun-17 Dec-17 Source: Reserve Bank of Fiji