Fiji: An economy in decline

Fuel bill hit F$1 billion in 2006, export sector dismal, central bank worries

By Dionisia Tabureguci

FIJI obviously needs a miracle if it wants to get out of an impending economic tailspin that some believe will get worse before things get anywhere near better.
Latest national economic data is showing a troubled state of affairs for a nation still entangled in internal political difficulties and facing an economic recession on the back of an expected two percent contraction this year.

Figures from the Fiji Islands Bureau of Statistics (FIBOS) released in February has shown that for the first time in seven years, possibly in Fiji’s recorded history, fuel bill has passed the F$1 billion mark within a year last year, with the surge driven by steep increases in aviation turbine fuel and industrial distillate fuel. Despite generally good performances by fuel re-exports, other economic signs like the perceived lack of activities to stimulate exportable commodities, the fast-depleting foreign exchange reserves weathered by declining export earnings against escalating import costs, have posed worrying implications, adding more strain to the country’s ability to sustain investment needs and remain competitive in the global
market.

FIBOS 2006 provisional trade statistics on overseas merchandise shows Fiji’s total import bill was F$3.1199 billion, of which mineral products contributed 33.4 percent, or F$1.042 billion. Domestic exports put together was only F$807.9 million, not enough to pay for fuel bill alone, and total exports at F$1.1752 billion implies a national spending of 88 percent of export earnings – or 88 cents in an export dollar earned – only to pay for fuel bill.

FIBOS data over the last seven years have shown Fiji’s balance of payment increasing as a result of the country’s mineral fuel costs and overall increases in other costs, made worse by the dismal export performance.
The state of urgency - pushed closer to the edge as donor agencies suspend aid to pressure the interim regime to return the country back to democratic elections within the next two years – has prompted Fiji’s central bank to again ring warning bells.
“The rise in the price of oil has come at the worst possible time,” said Reserve Bank of Fiji governor Savenaca Narube in a social event early this year.
“Our oil imports are four times what we used to pay some six years ago. The balance of payment therefore continues to come under pressure. Reviving export is the key.”
Last month, RBF’s plea for lasting solution came with a more sombre overtone, with Narube urging the nation that “tinkering at the margin will not work for us any longer.”
“To me, the key economic challenge that we face is to correct our widening trade imbalance. Our exports continue to be dismal. Sugar is earning $100 million less than its peak year. Garment has lost even more than that. Gold production has now disappeared and that’s another $60 million. Tourism numbers and yields have now dropped. Oil price remains at around US$60 a barrel. The trade deficit continues to widen.”

Obviously running out of short-term policy measures within its mandate to hold the fort in a crumbling national economy, the Reserve Bank has flatly admitted that export performance has not responded and this, it added, is now putting undue strain on Fiji’s external financial position, the protection of which comes under the bank’s supervisory role.
“In December last year, we had to introduce a ceiling on private sector credit. We also reduced the delegated limits given to foreign exchange dealers on selected overseas transactions. Recently, we announced changes to borrowing guidelines for non-residents individuals and companies. There have been some concerns on higher interest rates particularly from individual borrowers and investors. We understand these concerns. But again we ask that you appreciate the seriousness of our financial situation. When things are tough, we must safeguard the bigger picture. We cannot be reactionary. If we do not take care of the bigger picture, the small picture will suffer even a lot more than what we are facing now,” Narube
said.

Donor agencies have also noted Fiji’s dismal economic outlook in their recently released flagship publications.
The Asian Development Bank identified in its ADO 2007 that Fiji’s broader challenge now “is to encourage private investment and export development that, together, generates faster, sustained economic expansion that is compatible with external balance.” The challenges were also noted by the United Nations Economic and Social Commission for Asia and the Pacific(UNESCAP) in its annual survey report, titled” Surging Ahead in Uncertain Times”.

While Fiji’s economic challenges as such are now widely acknowledged, the country is now faced with a choice of either actively invigorating its export sectors or go down the road to an economic and social meltdown. For its part, the interim government has modified a few national blueprints from the Laisenia Qarase–led government, including the 2007 national budget. For the short term, it has put in place measures to stabilize government finances by cutting down on operational costs while offshore borrowing is on the cards as a short-term measure to address the balance of payment crisis.
For the medium term, it has revised the focus areas in the Qarase government’s National Export Strategy from 13 to six, where the focus now is on stimulating Forestry, Agro-business, Marine Products, Audio-Visual, Information and Communications Technology and Mineral Water.
Getting things started however has been Fiji’s weak point ever since RBFbegan tolling the warning bells over seven years ago.

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NOTE: This article was published in the Fiji Business Magazine (www.islandsbusiness.com) as: "Economic tailspin? Miracle needed to halt impending decline", pp 7,8, May 2007 edition.

Fiji Business is a publication in the Islands Business International portfolio and sold only in the Fiji islands as an accompaniment to Islands Business Magazine.

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