FIJI INSITITUTE OF ACCOUNTANTS SEMINAR FIJI: CURRENT ECONOMIC CONDITIONS & OUTLOOK Ariff Ali Governor, Reserve Bank of Fiji 18 September, 218
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
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
GDP GROWTH How has the Fiji economy fared so far? 15 Real GDP Growth (Annual percent change) 1 5.5 5 1.9 3..9 3.1-5 Average 197-217: +2.9 % -1 197 1974 1978 1982 1986 199 1994 1998 22 26 21 214 218f Sources: Fiji Bureau of Statistics, Macroeconomic Committee and RBF
FIJI ECONOMY How have we transformed since independence? 1977 Base 1995 Base 211 Base Primary Industry Services Primary Industry Services Primary Industry Services 22.7 2.2 18.8 22.8 1.9 2.5 57. 58.4 68.6 Source: Fiji Bureau of Statistics
GDP GROWTH How have we performed against our historical growth rate? % Actual May-18 Forecast 6. 4.7 5.6 Historical Growth Rate (2.9%) 4. 3. 2.7 3.8 3. 3.2 3.4 3.2 3.2 2. 1. 1.4.7. -2. 28 Gene -1.4 29 Mick 21 Tomas 211 212 Evan 213 214r 215 216r Winston 217p 218f Josie & Keni 219f 22f 221f Sources: FBOS & Macroeconomic Committee
GDP GROWTH Is our forecast in line with others? 213 214 215 216 217f 218f MACRO 3.6 4.5 4.2 2. 4.2 3.2 IMF 3. 3.8 4.3 3.7 3.8 3.5 ADB 3.9 3.6 MOODY 3.2 ANZ 3.3 FBOS (Actuals) 4.7 5.6 3.8.7 3. 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.
216 and 217 GDP Growth are below Macroeconomic Committee Forecast Accommodation Transportation % 2 Room Nights Sold Visitor Arrivals % Annual Visitor Arrivals Transportation (RHS) 2 % 2 15 15 15 1 5 5. 6.4 5.8 1 5 6.4 1 5-9.5-5 -5-5 -1-8.3 26 28 21 212 214 216-1 26 28 21 212 214p 216p -1 Source: Fiji Bureau of Statistics
SECTORAL PERFORMANCES Mixed but generally positive in major sectors Annual percent change (unless otherwise specified) Partial Indicators GDP Weights 215 216 217 218 (latest) Cane 1.2 +.7 1,844,524 tonnes -24.8 1,387,34 tonnes +17.6 1,631,31 tonnes.* 1,631,31 tonnes -3. 6 ** 779,247 tonnes Sugar 1. -2.2 221,934 tonnes -37.1 139,52 tonnes +29.3 18,372 tonnes -5.* 171,353 tonnes -6.2** 81,62 tonnes Visitor Arrivals 5.6 +9. 754,835 +5. 792,32 +6.4 842,884 Jan-Jul: +3.5 479,43 Mahogany -5.4-33.3-94.3 Jan-Jul: +1,765 52,3m 3 34,79m 3 1,987m 3 7,397m 3 Pine.4-25.3 395,733 tonnes -35.9 253,655 tonnes -32.1 172,183 tonnes Jan-Aug: +192.9 288,47 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
SECTORAL PERFORMANCES Mixed but generally positive in major sectors Annual percent change (unless otherwise specified) Partial Indicators GDP Weights 215 216 217 218 (latest) Woodchip Sawn timber.5-11.2 336,21 tonnes -17.4 14,221m 3-43.5 189,85 tonnes +1.4 14,424m 3-6.4 177,619 tonnes +48.2 21,379m 3 Jan-Aug: +199.3 234,298 tonnes Jan-Aug: +75.6 2,597m 3 Cement.4 +18.1 327,826t +1.9 363,661t -19.8 291,813t Jan-Aug: -21.7 176,82 tonnes (*PCL +6.4%) Gold 1.3 +9.5 42,162 oz +13.7 47,921 oz -6. 45,29 oz Jan-Aug +.9 28,835 oz Electricity 1.9 +3.8 892,747 Mwh +3.5 923,58 Mwh +6.5 983,725 Mwh Jan-Aug: +.2 656,915 Mwh Fish.5 +.7-12.6 +26.2 Jan-June: -15.9 Direct weight of cement, gold, pine, woodchips and mahogany in GDP is around 2.5%. Source: Industry contacts
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 8 6 4 13.9% 11.1% 12, 6, -3.2% 12.3% 2 21 211 212 213 214 215 216 217 218 8.7% 37.9% 21 211 212 213 214 215 216 217 Jan- Aug18 Commercial Banks New Consumption Lending Wholesale & Retail Trade Survey F$M 1,2 1, 8 6 4 2 - Annual Jan-Jul 12.1% 21.4% 21 211 212 213 214 215 216 217 218 F$M Annual Jan-Mar 5 4 3 2 1 5.2% 2.7% 4.% 4.4% 21 211 212 213 214 215 216 217 218 Source: Industry contacts
INVESTMENT Are the indicators consistent with our assessment of the economy? Commercial Banks New Investment Lending Government's Actual Capital Expenditure F$M Building & Construction Real Estate 6 5 4 3 2 1 25.% -2.6% 26 27 28 29 21 211 212 213 214 215 216 217 Jan- Jul18 F$M 21 18 15 12 9 6 3 Actual Capital Budgeted Capital 21 211 212 213 214 215 216 FY16-17 FY17-18(r) 1852 FY18-19(b) Value of Work Put in Place Domestic Cement Sales F$M 6 5 4 3 2 1 Annual 5.2% 1.1% 21 211 212 213 214 215 216 217 TONNES Annual Jan-Jul 25 2 15 1 5 21 211 212 213 214 215 216 217 218 7.5% -23.7% Sources: RBF and Industry Contacts
RBF INVESTMENT FORECAST Share of Nominal GDP % 3 29.1 3.5 25. 24.2 23. 27. 28. Government Target: 25% 26. 3.2 Government 8.5 9.7 7.4 2 7.6 8. 25.6 1 21.8 16.6 15. 18.5 18.3 18.6 Private & Public Enterprises 213f 214f 215f 216f 217f 218f 219f Sources: FBOS and RBF Estimates
BUSINESS SENTIMENTS Do real and financial data validate sentiments? Overall Business Confidence (Net %) Commercial Banks New Lending % (Net) 1 Next 6 months Next 12 months F$M 3, Annual Jan-Aug 18 8 8 2729 6 65 2,5 2489 4 2 2, 1835 1,5-2 -4 1, 768 5.5% -6 5-8 26 28 21 212 214 216 218 Source: RBF
Outstanding Lending Rate MONETARY POLICY Is it supportive of Growth? New Loans & Advances F$M Annual Jan-Aug 18 % 14. 3, 2,5 2489 2729 12. 1. 2, 1,5 1, 5 1835 5.5% 26 28 21 212 214 216 218 8. Banks Liquidity F$M 6. 5.68 7 6 66 4. 5 4 412 466 3 2. 198 199 2 26 28 21 212 214 216 Jul-18 2 1 26 27 28 29 21 211 212 213 214 215 216 217 218 As at 13 September, 218 Source: RBF
RBF Jobs Ads Survey No. LABOUR MARKET Is GDP growth translating into more jobs? PAYE Collections F$M 25, 23385 21683 25 2, 1727 2 167 167 15, 15 1, 1 86 5, 5 22* 24* 26* 28* 21* 212* 214* 216 Jan-Aug 18 21 211 212 213 214 215 216 217 Jan-July 218 FNPF Compulsory Membership and Withdrawals Unemployment has Declined No. 25, 15, 5, -5, -15, New Compulsory Membership 21 211 212 213 214 215 216 217 As at March 218 *Job Ads Fiji Times only from 21-214 `s 35 3 25 2 15 1 5 23 25 Unemployed 7.3 7.5 28 28 29 27 26 27 Unemployment Rate 25 27 29 (r) 212(e) 214(e) 217 23 6.2 5.5 19 4.5 16 % 1 9 8 7 6 5 4 3 2 1 Source: RBF
Exports 25 2 BALANCE OF PAYMENTS Why are tourism and remittances important for Fiji? F$M Jan-Jun Annual 6.% 7.5% 4.7% Imports F$M 6, 5, Jan-Jun Annual 2.2% 1.2% 3.7% 15 4, 1 3, 2, 5-1.6% 5.1% 1, 8.4% 1.2% 212 213 214 215r 216r 217p 218f 219f 212 213 214 215r 216r 217p 218f 219f Tourism Earnings F$M 2,2 2, 1,8 1,6 1,4 1,2 1, 8 6 4 2 Annual Jan-Mar 5.5% 8.% 3.% 4.7% 8.% 212 213 214 215 216 217 218f 219f Personal Remittances F$M 7 Annual Jan-Jul 6 5-1.6% 3.4% 3.9% 4 3 2-1.6% 7.4% 1 21 211 212 213 214 215 216 217 218f 219f Sources: FBOS & Macroeconomic Committee
24 25 26 27 28 29 21 211 212 213 214 215 216-17 217-18 (r) 218-19 (b) 24 25 26 27 28 29 21 211 212 213 214 215 216-17 217-18 (r) 218-19 (b) 24 25 26 27 28 29 21 211 212 213 214 215 Jul 216 216-217 217-218(r) 218-219 (b) GOVERNMENT EXPENDITURE Where is the rise in expenditure diverted to? Revenue Expenditure Expenditure Mix F$M F$M % Capital Operating 45. 4. 4166.8 5. 45. 458.9 1% 9% 35. 4. 8% 4 3. 35. 7% 3. 6% 25. 25. 5% 2. 2. 4% 15. 15. 3% 6 1. 1. 2% 5. 5. 1%.. % *Revenue for FY218-19 includes asset sales. Source: National Budget Supplement 218-219
BUDGET DEFICIT Is it heading in the right direction? Net Deficit (Percent of Calendar & Fiscal Year GDP) % 6. 5. 4. 2. Average 12 years -3.1 Average 14 years -2.4.5. -2. -4. -6. -.5-4.9-6. -.3-3.4-6.2-5.3-5.8-3.1-3.3-2.9-1.8-3.8-2.1-1.4-1.1 -.5-4.1-4.1-2.2-4.5-3.5-3. -2.5-8. 1995 1997 1999 21 23 25 27 29 211 213 15/16(a) 17/18(b) 19/2(t) Source: National Budget Supplement 218-219
FIJI S DEBT SUSTAINABILITY How do we fare against the IMF/WB Benchmarks? Debt as a percent of GDP Debt as a percent of Revenue % % 6 3 5 4 3 47.8 25 2 15 227.2 22.7 197.1 187.2 177.3 184.3 168.9 167.3 157.8 148. 2 1 1 5 - External debt as a percent of Exports of Goods & Services External Debt Servicing as a percent of Exports % % 12 1 8 15 11 8.3 14. 6 7 4 2 15.7 2.7 21.5 24.9 26.7 29.7 27.1 28.4 28.9 3 1.6 1.5 1.6 1.7 1.8 1.9 2.2-1 * Excluding asset sales Sources: MOE & RBF
Source: Moody's 218 FIJI S DEBT SUSTAINABILITY How do we fare against our peers?
Fiji GOVERNMENT DEBT Why debt to GDP ratio and not absolute values? Maldives PNG Mauritius New Zealand Australia Central Government Debt - 217 (Debt US$ billions) Central Government Debt - 217 (Percent of GDP) 6 Economies 5 4 3 2 1 New Zealand Papua New Guinea Australia China Emerging & Developing Economies Fiji Mauritius Maldives India UK Advanced Economies Japan 26.4 32.6 41.6 47.8 49. 47.5 6.2 68.1 7.2 87. 14.4 236.4 5 1 15 2 25 Sources: 217-218 National Budget Supplement and International Monetary Fund
GOVERNMENT DEBT Why are they going in the opposite direction? Domestic External Domestic External % of GDP 6 F$M 5, 4853 522 4548 1457 47.5 48.2 46.1 4, 1352 1412 4 14.1 14. 12.9 3, 2 33.4 34.2 33.3 2, 3196 3441 3763 1, 21 211 212 213 214 215 216 217 Jul-18 21 211 212 213 214 215 216 217 Jul-18 Sources: MOE & RBF
INFLATION What s driving prices? HEADLINE INFLATION AUGUST CONTRIBUTION TO INFLATION AUGUST % 1. Monthly % Change % 4. 4.3% 8. 2.5 6. 4. Headline Inflation 4.3 2. 1.4 2...2.2.1 -.1. -2. -4. -2. Alcoholic Beverages, Tobacco & Narcotics Food & Nonalcoholic Beverages Housing, Water, Elec., Gas & other Fuels Clothing & Footwear Health Others* *Others include Health, Communication, Furnishings, Hhld., Equip. Routine Hhld. Maintenance, Recreation & Culture, Clothing & Footwear and Misc. Sources: RBF and FBOS
FOREIGN RESERVES Do we have buffers? F$M 2,5 MORI 8. 7. 2, Retained Imports Cover 5.7 6. 1,5 5. 4.7 1, Benchmark MORI 4. 3. 5 2. 515 85 559 191 133 1513 1636 1778 1811 1944 1921 2273 255 26 27 28 29 21 211 212 213 214 215 216 217 17-Sep 1. Source: RBF
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
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.