Jan 26, 2021 Last Updated 3:51 PM, Jan 25, 2021

The Reserve Bank of Fiji has released another series of sobering figures, and says the coronavirus pandemic shows little sign of abating going into 2021.

The Bank has recorded declines in jobs, government tax revenue, lending for investment and consumption, and in the construction, sugar, gold, tourism and electricity sectors. Continuing a trend seen much of this year, personal remittances are up.

The Bank says its  Job Advertisement Survey registered a 65.7% decline in vacancies for the year to November.

Value Added Tax collections cumulative to November 2020 dropped by 38.6%.

New lending by commercial banks for consumption fell 27.8%, driven by lower lending to the commercial sector (a decline of 21%) and private individuals (which saw lending halve in value).

The story is similar for new lending for investment, with lending to building and construction down by 24% and for real estate down by 20.9%. Furthermore, banks have increased their provisioning for credit losses due to increased credit risks and a rise in non-performing loans.

Domestic cement sales declined by 13.9% cumulative to November.

For the year to November, cement production was down 15.8%, electricity 10.1%, and gold 7.1% due to delays in getting essential equipment into the country. Conversely, the timber sector grew, with pinewood supply up by 22.2% and woodchips 47.4%.  However sawn timber and mahogany declined.

While 2.1% more cane was harvested at the end of the 2020 crushing season, its poorer quality meant sugar production declined by 5.1%.

The Reserve Bank says liquidity levels remain ample, despite a  5.8% dip in November. At December 31, total liquidity in the banking system stood at F$836.8 million. The trade deficit continues to narrow, due to “a notable increase in inward remittances and Government’s external borrowing” which has stabilised foreign reserves. Total remittances in the year to November sit at F$572.8million, while just $311.3 million has been earned through tourism cumulative to September.

Fiji’s central bank is projecting the country’s economic growth to climb back into positive territory next year, after revising this year’s historic contraction to negative 19 percent from an earlier estimate of negative 21.5 percent. 

“Domestically, the magnitude of this year’s economic contraction is expected to be smaller than initially anticipated, whereas next year’s projected recovery largely hinges on the opening of international borders and the resumption of travel,” the Reserve Bank of Fiji said in its November Economic Review released this week.

“In 2021, economic growth is expected to range between 1.6 percent and 8.0 percent given the substantial uncertainties around the reopening of borders for quarantine-free travel and appetite for tourism activity.”

Performances across major sectors of the economy – some already poor before global lockdown early this year – have plunged further and remain dismal as the coronavirus pandemic enters its ninth consecutive month since it was declared a pandemic by the World Health Organisation in March this year. 

“Sectoral performances continued to be well below 2019 levels in the first ten months of the year,” RBF noted.

Partial indicators for consumption, a major economic driver, returned gloomy signals.

Net VAT collections, new consumption lending, new vehicle registration, second hand vehicle registration and electricity consumption were all significantly reduced over most of the year, indicating a prevailing weakness in consumer spending.

Tourism, another major GDP component and still in hiatus internationally, declined by 80.7 percent cumulative to October.

In the investment area, two major indicators – domestic cement sales and new investment lending – both declined by 11.6 percent and 16.6 percent respectively in October, compared to the previous month. 

“Cumulative to October, commercial banks’ new lending for building & construction purposes declined by 24.9 percent. In the same period, domestic cement sales declined (-11.6%), mainly underpinned by weak demand,” RBF said.

Increased caution by the banks and other credit institutions, who now prefer less risky lending, has not only led to a general reduction in lending to both private business entities and individuals, it has also created a liquidity glut in the market.

In August and September, excess liquidity as denoted by the banks’ demand deposits (BDD) stood at over F$1billion (US$0.48b) each month, gradually easing in October to $912.9m (US$440m) and $860.5m (US$414m) at the end of November, mostly attributed to money moving out of the country.

Interest rates, according to RBF, were generally lower compared to 2019.

“However, risks to the financial sector remain as the ending of moratoriums offered by financial institutions to COVID-19 affected customers could raise the existing levels of non-performing loans,” it warned.

In the job market, supply remained weak and according to the RBF Job Advertisement Survey, there was a 64.3 percent decline in vacancies in the year to October, compared to a decline of 1.4 percent in the same period in 2019.

“This was underpinned by reduced recruitment intentions across all major sectors of the economy,” it said.

Amid the bleak scenario, personal remittances have been pivotal in buoying both the deflating economy and consumer confidence.

“Personal remittances rose by 7.3 percent to F$521.0 million (US$251m) in the first ten months of the year. For the month of October alone, personal remittances totalled a record F$69.0 million (US$33.2m), an increase of 29.5 percent over the previous month and an increase of 58.7 percent over October last year. Overall, remittances have performed well above expectations and contributed positively to foreign reserves,” RBF said.

While the numbers look good in terms of the central bank’s two key roles of keeping foreign reserves adequate and inflation low, it has been on the back of lower exports and lower imports, reflecting lower production and consumption demand from within a weak domestic economy. 

Foreign reserves stood at F$2.2 billion (US$1.06b), sufficient for 7.7 months of retained imports, while annual inflation rate was at -2.9 percent in October.   

PNG economy, health hit hard

  • Jan 27, 2021
  • Published in August

The impact of COVID-19 is accentuating trends that had already developed over the last decade, says  University of Papua New Guinea lecturer in economics, Maholopa Laveil.

He lists amongst these trends: “falling employment, large fiscal deficits, very mild resource growth and the increasing debt burden.”

Laveil says the exchange rate “is the only policy lever for government right now to use so it can allow a managed depreciation of the kina, but it refuses to do so. And the reforms going forward will be undermined by a looming vote of no confidence in November this year, a misperception of stability held by many government employees, the durability of leading civil servants who are resistant to change, the gradual deterioration as opposed to a sudden deterioration, this does not prompt them to adopt reforms and external financing available that is not conditional on policy reforms.”

In an update published in April 2020 the International Monetary Fund suggested “the kina is overvalued by around 11 to 18%. This overvaluation could be largely eliminated over the next three years without boosting inflation excessively.”

Executive Director of the PNG Business Council, Douveri Henao, said “there is a very lively debate in the market right now with policy makers whether the devaluation of the kina should kick in.

“Those that are pro-devaluation, their main argument is that everything is slowing down so this is the time to actually devalue. Whereas others, especially on the government side, are more reluctant because of the debt financing pegged into a stronger Kina.”

Henao says the Council is working hard to ensure businesses can survive, saying “we simply cannot go back to an April lockdown state of emergency scenario”. He says CEOS and managing directors the Council spoke to at that time, 75% expected revenue to decline, 70% expected a profit decline and 66% indicated they won't be operating any business by the end of the year. Henao says businesses are negotiating a co-regulation model where “social distancing, hygiene protocols, staff rotation protocols are now becoming the compliance mechanism that businesses are undertaking,” allowing them to continue operating.

He indicates that there have been signs of market resilience, with fresh produce moving across the market, “There have also been substitutions on services as well,  more PNG management are rising up to executive positions.   When the March period kicked in,  there were lots of expatriates that left the country,  called from their governments and in particular Australia.   All of those positions are being filled up by PNG middle to senior management.

“[There] has been a massive uptake on technology.  All the consumables have jumped up by 30-40% in purchases because everything's online from school curriculums to business engagement and so forth.”

The ADB projects economic growth will decline to -1.5% this year, likely leading to further cash flow problems for government. Development Policy Centre’s COVID Economic Database notes projected economic growth of -1.5% for 2020, down from 2% pre-COVID. Government revenue is anticipated to fall by 15% and debt will rise to 43.7% of GDP.

“The latest international commodity price data published by the World Bank in April 2020 indicate a general fall in the prices of PNG’s main export commodities. Prices for Liquefied Natural Gas (LNG), copper and nickel declined, while that of gold picked up reflecting investors’ preference for a safe haven investment. Non-mineral commodity prices for cocoa, coffee and palm oil also increased providing some relief to PNG exporters,” Bank of PNG Governor, Loi Bakani wrote for the Pacific Forum blog recently.

“The significant drop in some of the commodity prices has already affected PNG’s export tax revenue and foreign exchange inflows, and will continue to put pressure on the foreign exchange market. The Government’s support to increase local production and ensure its food security requirements are at a satisfactory level is critical to sustain domestic consumption, while reducing the country’s dependency on imports.”

Pacific Islands Forum Economic Ministers are asking development partners to provide debt relief, and increase general budget support as island nations struggle with the economic impacts of coronavirus pandemic.

At the end of this week’s virtual Forum Economic Ministers Meeting (FEMM), Ministers and officials also asked for more  flexibility in the financing and focus of existing and upcoming donor programs, increased support for social protection systems, and that International Financial Institutions reassess  grant and loan eligibility so Pacific island states can fully benefit from their support.

The Ministers say considerable additional investment and resourcing of public health systems will be needed and have committed to diversifying their economies and improving competitiveness, with a focus on the digital economy and investments in digital literacy, trade and innovation in the private sector, including through public private partnerships.

The Ministers have backed the establishment of a regional COVID-19 economic recovery taskforce to look at the socio-economic impacts of the pandemic over a longer period of time, and oversee implementation of regional priorities, including including health, digital economy and connectivity, food security and agriculture, and building resilient and sustainable economies. The taskforce will also engage with development partners on ‘innovative’ financing options.

Pacific Islands Forum Secretary General Dame Meg Taylor says the FEMM also discussed the need for “very strong public financial management systems”,  so that members can absorb resilience finance and “address the issues of health and climatic impacts and plan our economies.”

“I think one of the key issues here is that, to note that over the past several years about US$2 billion has come into the region for resilience finance. That's a lot of money .”

As Chair of the FEMM, Tuvalu’s Finance Minister Seve Paeniu said for him, “it all boils down to the resourcing of these response measures that we pursue and how we implement and resource these initiatives.

Paeniu would also like to see “a coordinated set of lessons learnt and experiences by similar countries” so that Tuvalu and other small island states can learn from and adapt to their own  circumstances for future crisis response situations.

FEMM has directed that a development partners roundtable be convened to help coordinate donor support for COVID-19 responses.

The Ministers did not discuss travel ‘bubbles’ or labour mobility in depth. Minister Paeniu says this is because in the case of travel bubbles, only a few countries have flagged such arrangements as a possibility. Dame Meg said labour mobility and seasonal worker discussions have largely been handled on a bilateral basis.

The Pacific today faces three crises: a health crisis, an economic crisis and the ongoing climate crisis, and Pacific Islands Forum Economic Ministers will discuss all three when they meet (virtually) next week.

As the COVID-19 pandemic has unfolded the scale of the economic impact on Pacific people and communities has become clearer – and Pacific Islands Forum Secretary General, Dame Meg Taylor says for some it is ‘catastrophic’.

Increased hunger, malnutrition and poverty is being reported by civil society organisations. Job losses, business failures and plummeting remittances are telling and industries such as the tourism sector face the prospect of decades in recovery. Governments are scrambling to put in place safety nets and cope with staggeringly bad COVID-related economic forecasts.

Dame Meg says it is time to think out of the box and act regionally.

She understands the tendency by Pacific countries to turn inwards during the pandemic.

“It is only natural when something like this happens,” she told reporters ahead of the Forum Economic Ministers’ meeting.

“We …look at what is happening to myself, what is happening to my family, what is happening to my friends, what is happening in my community, what is happening in my country.

Dame Meg Taylor says the ministers will focus on economic priorities to contain the spread of COVID-19 and recover from the pandemic to build “a strong platform for economic stability and resilience in the long term.”

She stressed the need for new and innovative approaches to development challenges based on self-reliance, pointing to the Pacific Humanitarian Pathway as an example of effective Pacific collective action.

“It is the only region in the world that has done this. And why is this important? Because it is the political space, making sure that the technical assistance can get in, medical assistance can get in, we can ship cargo and customs can be adhered to, that we can repatriate citizens, we can land aircraft, immigration facilities are all in place, and trying to make this work is no mean feat, as you will understand.”

Dame Meg is encouraging Forum members to look beyond their national boundaries, and for development partners to think beyond bilateralism, in order to facilitate “better and deeper coordination and collaboration.”

“It is, I think it is honest for me to say, that the development partners have really approached COVID with a very much bi-lateral approach. And we have watched this, and we have watched the geo-strategic issues play out.”

Dame Meg says the Forum and other regional organisations are also looking at digitalisation as a priority; to survey what infrastructure is in place or coming online plus prices and accessibility,  and then explore how it can support the digital economy, health, education and other development goals.

“ I think that it is an opportunity that we need to look at. I know that development banks like the Asian Infrastructure Investment Bank (AIIB) are looking at this through Southeast Asia  and other countries.  We have asked them to have a conversation with us in terms of what can be done in this region.

“But everything costs money and everything that we get from banks, unless it is coming from the International Development Assistance in the World Bank, everything will one day have to be paid back.   This  is  the big issue for us in the region on how we are going to be able to service this debt over time.”

A paper on the Pacific’s own climate-infrastructure fund, the Pacific Resilience Facility, —with added  content on the COVID pandemic—is also going to ministers. The Facility aims to raise US$1.5 billion and fund small projects  through the interest generated.

“It is really important that we start thinking of how we can help ourselves, “ Dame Meg says.

“I think that there is a huge tendency in the International Development space every document that you pick up is about how much the Pacific relies on everybody else to do things for them.  

“You know I am really sick of that!  I'm sure that a lot of you who have worked around this are also tired of it too. It is not as if we are people who  do not know how to look after ourselves but wherever they have been good ideas put forward,  it is amazing how people think that ‘oh why did you think of that?’  And this is exactly the kind of resistance that we got on this from some of the development banks; we are doing that so why would you want to do it? 

“We have got to start helping our countries get systems in place in countries where we can maximise funding that comes in so that countries can help themselves.”

Dame Meg acknowledges that thinking outside the box and building on the regional identity of the ‘Blue Pacific’ continent - launched by leaders in 2017 - is not always easy.

Sharing of experiences of individuals and of countries is important.

“I hope that this is what Forum Economic Ministers will do – to discuss and share their experiences and support each other,” she said.

Forum Economic officials meet this week, with the Ministerial due to open on Tuesday next week.

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