FIJI: CURRENT ECONOMIC CONDITIONS & OUTLOOK

Ariff AliGovernor, Reserve Bank of Fiji

6 July, 2018

2018 PACIFIC UPDATE

22.7

20.2

57.0

1977 Base

Primary Industry Services

18.822.8

58.4

1995 Base

Primary Industry Services

10.920.5

68.6

2011 Base

Primary Industry Services

Source: Fiji Bureau of Statistics

FIJI ECONOMY How have we transformed since independence?

1.0

-1.4

3.02.7

1.4

4.7

5.6

3.8

0.4

4.2

3.23.4 3.2 3.2

-2.0

0.0

2.0

4.0

6.0

2008Gene

2009Mick

2010Tomas

2011 2012Evan

2013 2014r 2015r 2016pWinston

2017f 2018fJosie &

Keni

2019f 2020f 2021f

% Actual May-18 Forecast

Historical Growth Rate

GDP GROWTHHow have we performed against our historical growth rate?

Sources: FBOS & Macroeconomic Committee

GDP GROWTHMoody’s: How have we performed against our peers?

GDP GROWTHIs our forecast in line with others?

2013 2014 2015 2016 2017f 2018f

MACRO 3.6 4.5 4.2 2.0 4.2 3.2

IMF 3.0 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 0.4

IMF’s forecast for 2016 derived from estimates done for 2015 Article IV. There was no visit in 2016. The 2016 projections were done before TC Winston.

IMF and ADB’s forecasts for 2018 were done prior to the natural disasters in April 2018.

CONSUMPTION SPENDINGWhat do the key indicators reveal?

Source: Industry contacts

Net VAT Collections

13.9%

0

200

400

600

800

1,000

2010 2011 2012 2013 2014 2015 2016 2017

F$M

Vehicle Registrations

Commercial Banks’ New Consumption Lending Wholesale & Retail Trade Survey

12.1%

0

200

400

600

800

1,000

1,200

2010 2011 2012 2013 2014 2015 2016 2017

F$M

8.7%

-30.2%

0

6,000

12,000

18,000

2010 2011 2012 2013 2014 2015 2016 2017

No.New Vehicles Secondhand Vehicles

5.2% 2.7%

4.4% 4.0%

0

1000

2000

3000

4000

5000

2010 2011 2012 2013 2014 2015 2016 2017 2018

F$M Annual Jan-Mar

INVESTMENTAre the indicators consistent with our assessment of the economy?

Source: RBF and Industry contacts

11.1% 2.2%

0

50

100

150

200

250

2010 2011 2012 2013 2014 2015 2016 2017

‘000 TONNES

Commercial Banks’ New Investment Lending Government's Actual Capital Expenditure

Value of Work Put in Place Domestic Cement Sales

0

100

200

300

400

500

600

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

F$M Building & Construction Real Estate

558

446

10.1%

0

100

200

300

400

500

600

2010 2011 2012 2013 2014 2015 2016 2017

F$MAnnual

5.2%

12.4%15.2%

1506

1852

0

300

600

900

1200

1500

1800

2100

2010 2011 2012 2013 2014 2015 2016 FY16-17 FY17-18(r)

FY18-19(b)

F$M

Actual Capital Budgeted Capital

BUSINESS SENTIMENTSDo real and financial data validate sentiments?

Source: RBF

Overall Business Confidence (Net %) Commercial Banks’ New Lending

2489

2729

0

500

1,000

1,500

2,000

2,500

3,000

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

F$M

65

75

-80

-60

-40

-20

0

20

40

60

80

100

% (Net)Next 6 months Next 12 months

As at 28 May, 2018 Source: RBF

MONETARY POLICYIs it supportive of economic growth?

59866489

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

F$M Outstanding Loans & Advances

5.65

2.0

4.0

6.0

8.0

10.0

12.0

14.0

%

450

0

100

200

300

400

500

600

700

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

F$M

Outstanding Lending Rate Outstanding Loans & Advance

Banks’ Liquidity

LABOUR MARKET Is GDP growth translating into more jobs?

Source: RBF

0

50

100

150

200

250

2010 2011 2012 2013 2014 2015 2016 2017

F$M

-15,000

-5,000

5,000

15,000

25,000

2010 2011 2012 2013 2014 2015 2016 2017

No. New Compulsory Membership

23 2528 28 29 27 26 27

2319

16

7.3 7.5

6.25.5

4.5

0

1

2

3

4

5

6

7

8

9

10

0

5

10

15

20

25

30

35

2005 2007 2009 (r) 2012(e) 2014(e) 2017

%`000sUnemployed Unemployment Rate

RBF Jobs Ads Survey PAYE Collections

FNPF Compulsory Membership and Withdrawals Unemployment has Declined

0

5,000

10,000

15,000

20,000

25,000

2001* 2003* 2005* 2007* 2009* 2011* 2013* 2015 2017

No.

*Job Ads – Fiji Times only from 2001-2014

Exports Imports

Sources: FBOS & Macroeconomic Committee

BALANCE OF PAYMENTSWhy are tourism and remittances important for Fiji?

Tourism Earnings

0

300

600

900

1,200

1,500

1,800

2012 2013 2014 2015p 2016p 2017f 2018f

F$M Annual8.012.3%

0

100

200

300

400

500

600

2010 2011 2012 2013 2014 2015 2016 2017 2018

F$M Annual Jan-Mar

-1.6%3.4%

3.7%

Personal Remittances

0

500

1000

1500

2000

2500

2010 2011 2012 2013 2014 2015p 2016p 2017r 2018f 2019f

F$MJan-Feb Annual

19.7%

7.5%4.7%

6.0%

0

1,000

2,000

3,000

4,000

5,000

6,000

2010 2011 2012 2013 2014 2015p 2016p 2017p 2018f 2019f

F$MJan- Feb Annual

2.2%10.2%

7.9%

3.7%

Source: National Budget Supplement 2017-2018

GOVERNMENT EXPENDITUREWhere is the rise in expenditure diverted to?

Revenue Expenditure Expenditure Mix

*Revenue for FY2017-18 includes asset sales.

4166.8

0.0

500.0

1000.0

1500.0

2000.0

2500.0

3000.0

3500.0

4000.0

4500.0

F$M

4581.0

0.0

500.0

1000.0

1500.0

2000.0

2500.0

3000.0

3500.0

4000.0

4500.0

5000.0

F$M

60

40

0

10

20

30

40

50

60

70

80

90

100

% Operating Capital

Source: National Budget Supplement 2017-2018

-0.5

-4.9

-6.0

5.0

-0.3

-3.4

-6.2

-5.3-5.8

-3.1 -3.3-2.9

-1.8

0.5

-4.1

-2.2

-1.4-1.1

-0.5

-4.2 -4.1

-2.2

-4.5

-3.5

-2.5

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 15/16(a) 17/18(b) 19/20(b)

%

Average 12 years -3.1 Average 13 years -2.4

Net Deficit(Percent of Calendar & Fiscal year GDP)

BUDGET DEFICITIs it heading in the right direction?

47.5

-

10

20

30

40

50

60

%

FIJI’S DEBT SUSTAINABILITYHow do we fare against the IMF/WB Benchmarks?

Sources: MOE & RBF * Excluding asset sales

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

15.7 20.7 21.5 24.9 26.7 29.7 27.1 28.4

0

50

100

150

200

%

220.0 197.7 191.9 183.5

173.0 180.3 165.7 161.9

149.7

0

50

100

150

200

250

300

%

1.6 1.8 1.5 1.6 1.7 1.84.1

2.2

0

5

10

15

20

25

%

FIJI’S DEBT SUSTAINABILITY How do we fare against our peers?

Source: Moody's

GOVERNMENT DEBTWhy debt to GDP ratio and not absolute values?

Central Government Debt - 2017

(Debt US$ billions)

Source: 2017-2018 National Budget Supplement and International Monetary Fund

Central Government Debt - 2017

(Percent of GDP)

0

100

200

300

400

500

600

Fiji

Mal

div

es

PN

G

Mau

riti

us

New

Ze

alan

d

Au

stra

lia

235.6

104.4

88.2

68.9

65.9

60.1

46.9

45.6

44.3

40.6

31.7

28.2

0 50 100 150 200 250

Japan

Advanced Economies

UK

India

Maldives

Mauritius

Emerging & Developing Economies

Fiji

China

Australia

Papua New Guinea

New Zealand

Economies

Sources: MOE & RBF

GOVERNMENT DEBT

Why are they going in the opposite direction?

32.7 32.3 32.3

13.8 13.3 12.7

0

20

40

60

2010 2011 2012 2013 2014 2015 2016 2017 May-18

% of GDP Domestic External

46.545.6

3,1963,441

3,655

1,352

1,412

1,437

0

1,000

2,000

3,000

4,000

5,000

2010 2011 2012 2013 2014 2015 2016 2017 May-18

F$M Domestic External

4,548

4,853

45.0

5,092

Sources: RBF and FBOS

INFLATIONWhat’s driving prices?

5.1

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

% Monthly % Change

Headline Inflation

HEADLINE INFLATION – MAY CONTRIBUTION TO INFLATION– MAY

*Others include Health, Communication, Furnishings, Hhld., Equip. Routine Hhld. Maintenance, Recreation &

Culture, Clothing & Footwear and Misc.

2…

1.8

0.30.1

0.0

1.0

2.0

3.0

4.0

Alcoholic Beverages,Tobacco & Narcotics

Food & Non-alcoholicBeverages

Transport Others*

% 5.1% Annual GrowthVegetables: +21.0%Yaqona: +39.4%Alcohol: +9.3%Tobacco: +6.6%

FOREIGN RESERVESDo we have buffers?

Retained Imports Cover

515 805 559 1,091 1,303 1,513 1,636 1,778 1,811 1,944 1,921 2,273 2,139

5.7

4.9

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

0

500

1,000

1,500

2,000

2,500

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 28-Jun

MORIF$M

Benchmark MORI

Source: RBF

RISKS

Natural disasters

Surge in crude oil/commodity prices

Global geo-political tensions

US interest rate hikes

Reliance on Australia & NZ Visitors

RISKS They are always out there

• 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

SUMMARY

Source: Reserve Bank of Fiji

MEDIUM-TERM INVESTMENT OUTLOOK: Does it make sense?

56

65

7373

72 72

6967

61

33

44

35

27 26

2528

2833

39

0

20

40

60

80

100

120

Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Jun-17 Dec-17

% of Firms

Increase Decrease No Change

79 82 79 78

86 8480

72 73

1

0

2018 21

22

1415 20

2826

0

20

40

60

80

100

120

Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Jun-17 Dec-17

% of Firms

Increase Decrease No Change

Medium-term Investment Outlook (Plant & Machinery) Medium-term Investment Outlook (Buildings)