Fiji economy to contract further, no recovery until 2021

Fiji’s central bank said the economy will contract more sharply than earlier estimated, and does not expect it to recover until next year.

In its April review, the Reserve Bank of Fiji said the economy will contract more sharply than -4.3 per cent estimated early this year, actual magnitude of which will depend on the duration of the pandemic.

RBF anticipates that domestic economic activity will return to some normalcy from the final quarter of 2020, and economic recovery into 2021.

The projections, RBF said is the combined result of the significant fall in tourism activity, drop in primary industry productions and investment activity coupled with the impact of the global economy downturn. 

Another indicator, on which the RBF bases its projection is the further deterioration of labour market conditions stemming from layoffs, reduced hours and the general slump in economic activity.

As at 29 April, Fiji’s National Provident Fund received 65,800 COVID19 withdrawal scheme assistance applications, representing almost 15 per cent of total Fund members.

Highlighting the state of the local economy, the RBF said: “Lackluster output in the in the primary industry persisted, with annual contractions in pine logs (-35.5%) leading to a fall in woodchips (-14.0%) and sawn timber (-29.6%) production in the year to March.

 “Gold production was also lower (-1.9%) in the same period owing to deteriorating ore reserves. On the upside, electricity production expanded (2.2%) in the year to February. 

“Investment activity slowed further with contractions noted in domestic cement sales (-17.0%) and lending to the building and construction sector (-23.4%) in the year to March. 

“Consumption indicators were also weak given the relatively modest growth in new consumer credit (1.9%) and remittance inflows (5.9%) in the year to March, amid the decline in net VAT collections (-19.2%). Moreover, registrations for both new (-30.8%) and second-hand (-58.0%) vehicles also fell in the same period.”

Slowdown in lending to the private sector business entities and private individuals, resulted in a decrease in domestic credit growth to 4.8 per cent in March from 8.2 per cent for the same period last year. As such, commercial bank lending rates stabilised while new time deposit rates declined further.

Excess liquidity in the banking system remained adequate at $590.0 million at the end of March. As at 29 April, excess liquidity rose to $723.5 million, owing to an increase in foreign reserves and a decline in currency in circulation which more-than-offset the increase in statutory reserve deposits. Foreign reserves (RBF holdings) as at 30 April, stood at $2,214.0 million, sufficient to cover 6.9 months of retained imports.

Fiji’s merchandise trade deficit (excluding aircraft), narrowed by 19.5 per cent in January 2020, compared to the 0.8 per cent widening in the same period last year. The improved trade balance emanated from a larger annual contraction in total imports (excluding aircraft) of 18.0 per cent, compared to the decline in total exports (-15.1%).

Photo: Fijian Government

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