FIJI INSITITUTE OF ACCOUNTANTS SEMINAR FIJI: CURRENT ECONOMIC CONDITIONS & OUTLOOK. Ariff Ali Governor, Reserve Bank of Fiji 18 September, 2018

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1 FIJI INSITITUTE OF ACCOUNTANTS SEMINAR FIJI: CURRENT ECONOMIC CONDITIONS & OUTLOOK Ariff Ali Governor, Reserve Bank of Fiji 18 September, 218

2 ROLE OF CENTRAL BANKS? Central Banking is a high impact organization. It s decisions or indecisions, it s actions or inactions will have major and far reaching repercussions and consequences on the economic well being of the public at large and the entire spectrum of businesses. The responsibility and accountability is therefore immense... Central banking is therefore not for the faint of heart. Zeti Akhtar Aziz Former Governor, Bank Negara Malaysia

3 Why is the Role of RBF so Important? Loan Amount $2, $2, $2, $2, $2, Interest Rate 5.% 7.5% 1.% 12.5% 15.% Term 25 years 25 years 25 years 25 years 25 years Total Repayment $35,754 $443,394 $545,22 $654,212 $768,498 Interest Repayment Ratio of Interest/Loan $15,754 $243,394 $345,22 $454,212 $568,498 75% 122% 173% 227% 284% Illustrative example only

4 GDP GROWTH How has the Fiji economy fared so far? 15 Real GDP Growth (Annual percent change) Average : +2.9 % f Sources: Fiji Bureau of Statistics, Macroeconomic Committee and RBF

5 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

6 GDP GROWTH How have we performed against our historical growth rate? % Actual May-18 Forecast Historical Growth Rate (2.9%) Gene Mick 21 Tomas Evan r r Winston 217p 218f Josie & Keni 219f 22f 221f Sources: FBOS & Macroeconomic Committee

7 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.

8 216 and 217 GDP Growth are below Macroeconomic Committee Forecast Accommodation Transportation % 2 Room Nights Sold Visitor Arrivals % Annual Visitor Arrivals Transportation (RHS) 2 % p 216p -1 Source: Fiji Bureau of Statistics

9 SECTORAL PERFORMANCES Mixed but generally positive in major sectors Annual percent change (unless otherwise specified) Partial Indicators GDP Weights (latest) Cane ,844,524 tonnes ,387,34 tonnes ,631,31 tonnes.* 1,631,31 tonnes ** 779,247 tonnes Sugar ,934 tonnes ,52 tonnes ,372 tonnes -5.* 171,353 tonnes -6.2** 81,62 tonnes Visitor Arrivals , , ,884 Jan-Jul: ,43 Mahogany Jan-Jul: +1,765 52,3m 3 34,79m 3 1,987m 3 7,397m 3 Pine ,733 tonnes ,655 tonnes ,183 tonnes Jan-Aug: ,47 tonnes * May 218 MC forecast ** As at 1 September Direct weight of cement, gold, pine, woodchips and mahogany in GDP is around 2.5%. Source: Industry contacts

10 SECTORAL PERFORMANCES Mixed but generally positive in major sectors Annual percent change (unless otherwise specified) Partial Indicators GDP Weights (latest) Woodchip Sawn timber ,21 tonnes ,221m ,85 tonnes ,424m ,619 tonnes ,379m 3 Jan-Aug: ,298 tonnes Jan-Aug: ,597m 3 Cement ,826t ,661t ,813t Jan-Aug: ,82 tonnes (*PCL +6.4%) Gold ,162 oz ,921 oz ,29 oz Jan-Aug ,835 oz Electricity ,747 Mwh ,58 Mwh ,725 Mwh Jan-Aug: ,915 Mwh Fish Jan-June: Direct weight of cement, gold, pine, woodchips and mahogany in GDP is around 2.5%. Source: Industry contacts

11 Net VAT Collections CONSUMPTION SPENDING What do the key indicators reveal? Vehicle Registrations F$M Annual Jan-Jul 1, No. 18, New Vehicles Secondhand Vehicles % 11.1% 12, 6, -3.2% 12.3% % 37.9% Jan- Aug18 Commercial Banks New Consumption Lending Wholesale & Retail Trade Survey F$M 1,2 1, Annual Jan-Jul 12.1% 21.4% F$M Annual Jan-Mar % 2.7% 4.% 4.4% Source: Industry contacts

12 INVESTMENT Are the indicators consistent with our assessment of the economy? Commercial Banks New Investment Lending Government's Actual Capital Expenditure F$M Building & Construction Real Estate % -2.6% Jan- Jul18 F$M Actual Capital Budgeted Capital FY16-17 FY17-18(r) 1852 FY18-19(b) Value of Work Put in Place Domestic Cement Sales F$M Annual 5.2% 1.1% TONNES Annual Jan-Jul % -23.7% Sources: RBF and Industry Contacts

13 RBF INVESTMENT FORECAST Share of Nominal GDP % Government Target: 25% Government Private & Public Enterprises 213f 214f 215f 216f 217f 218f 219f Sources: FBOS and RBF Estimates

14 BUSINESS SENTIMENTS Do real and financial data validate sentiments? Overall Business Confidence (Net %) Commercial Banks New Lending % (Net) 1 Next 6 months Next 12 months F$M 3, Annual Jan-Aug , , , , % Source: RBF

15 Outstanding Lending Rate MONETARY POLICY Is it supportive of Growth? New Loans & Advances F$M Annual Jan-Aug 18 % 14. 3, 2, , 1,5 1, % Banks Liquidity F$M Jul As at 13 September, 218 Source: RBF

16 RBF Jobs Ads Survey No. LABOUR MARKET Is GDP growth translating into more jobs? PAYE Collections F$M 25, , , 15 1, , 5 22* 24* 26* 28* 21* 212* 214* 216 Jan-Aug Jan-July 218 FNPF Compulsory Membership and Withdrawals Unemployment has Declined No. 25, 15, 5, -5, -15, New Compulsory Membership As at March 218 *Job Ads Fiji Times only from `s Unemployed Unemployment Rate (r) 212(e) 214(e) % Source: RBF

17 Exports 25 2 BALANCE OF PAYMENTS Why are tourism and remittances important for Fiji? F$M Jan-Jun Annual 6.% 7.5% 4.7% Imports F$M 6, 5, Jan-Jun Annual 2.2% 1.2% 3.7% 15 4, 1 3, 2, 5-1.6% 5.1% 1, 8.4% 1.2% r 216r 217p 218f 219f r 216r 217p 218f 219f Tourism Earnings F$M 2,2 2, 1,8 1,6 1,4 1,2 1, Annual Jan-Mar 5.5% 8.% 3.% 4.7% 8.% f 219f Personal Remittances F$M 7 Annual Jan-Jul % 3.4% 3.9% % 7.4% f 219f Sources: FBOS & Macroeconomic Committee

18 (r) (b) (r) (b) Jul (r) (b) GOVERNMENT EXPENDITURE Where is the rise in expenditure diverted to? Revenue Expenditure Expenditure Mix F$M F$M % Capital Operating % 9% % % 3. 6% % % % % %.. % *Revenue for FY includes asset sales. Source: National Budget Supplement

19 BUDGET DEFICIT Is it heading in the right direction? Net Deficit (Percent of Calendar & Fiscal Year GDP) % Average 12 years -3.1 Average 14 years /16(a) 17/18(b) 19/2(t) Source: National Budget Supplement

20 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

21 Source: Moody's 218 FIJI S DEBT SUSTAINABILITY How do we fare against our peers?

22 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) 6 Economies New Zealand Papua New Guinea Australia China Emerging & Developing Economies Fiji Mauritius Maldives India UK Advanced Economies Japan Sources: National Budget Supplement and International Monetary Fund

23 GOVERNMENT DEBT Why are they going in the opposite direction? Domestic External Domestic External % of GDP 6 F$M 5, , , , , Jul Jul-18 Sources: MOE & RBF

24 INFLATION What s driving prices? HEADLINE INFLATION AUGUST CONTRIBUTION TO INFLATION AUGUST % 1. Monthly % Change % % Headline Inflation Alcoholic Beverages, Tobacco & Narcotics Food & Nonalcoholic Beverages Housing, Water, Elec., Gas & other Fuels Clothing & Footwear Health Others* *Others include Health, Communication, Furnishings, Hhld., Equip. Routine Hhld. Maintenance, Recreation & Culture, Clothing & Footwear and Misc. Sources: RBF and FBOS

25 FOREIGN RESERVES Do we have buffers? F$M 2,5 MORI , Retained Imports Cover , , Benchmark MORI Sep 1. Source: RBF

26 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

27 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 Overall prospects for domestic economy remain favourable but baseline forecast is just above 3.% Raising potential growth requires fast tracking reforms and climate proofing infrastructure and communities Opportunity to raise future growth to above 5 percent. Need everyone including private sector to rally behind a common goal.

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