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Tuesday, March 03, 2009

Reserve Bank of Fiji Economic Review Vol. 26, No. 2, month ended February 2009

In an RBF Economic Review Vol.26, No.2 dated February 2009, the bank says that as a result of the global financial crisis, the International Monetary Fund has been forced to revise its global growth estimate of 2.2% down to 0.5%. Many of Fijis’s trading partner economies are expected to contract this year. Only Australia has been forecasted to record a growth, albeit one of the lowest in recent years.
On the domestic front, growth in the Fiji economy for 2008 was estimated by RBF to be about 1.2%. Listed below are some of the prominent highlights:
  • Annual decline of 6.9% in money supply (broad money) on account of low demand deposits which had declined by 25.6%.
  • Domestic credit growth slowed, led by less government borrowing (4.8% in Dec from 6.9% in Nov).
  • Worsening of trade imbalance (i.e. more imports over exports) by $1.9b in November. In fact, imports increased by 24.2 %.
  • Annual decline of remittances by 26.7%.
  • Low cane & sugar output.
  • Tightening of liquidity with both lending and time deposit rates increasing.

On a positive note however:

  • Although exports levels were lower than imports, exports nonetheless had increased by 16.7%, mainly through re-exports of mineral fuels, and higher earnings from sugar, gold and fish.
  • Raising the tax threshold to $15,000 in June of 2008.
  • Improved performance of tourism, copra, electricity, gold and construction & building activities.
  • Decline in inflation from 7.4% in Jan to 6.6% in Dec.
  • Increase in capital spending and investment lending.

Growth in 2009 is estimated to be around 2.4% by RBF. However, this is all contingent upon both global influences and how well the country handles itself coming out from the recent flood crisis, and during the current tight liquidity situation.

The RBF revealed that inflation stood at 6.1% in January but forecasted a drop to 4.5% by the end of the year. This inflation estimate may be largely due to a drop in global oil price which has seen the benefits flow to the local transport, heating and lighting industries. However, because of Fiji’s high dependence on oil and wheat, the price stability of these commodities will have a huge bearing on this year end estimate.

The RBF has also revealed that the Fiji dollar has declined in value (i.e. the Nominal effective exchange rate of Fiji Dollar had an annual drop of 0.3% in January 2009) but hopefully through RBF’s current monetary policy mix, Fiji’s financial situation will continue to be stable. In addition, the RBF says that official foreign reserves are at a provisional level of $672.2m, sufficient to cover 2.7 months of imports.

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