The most senior civil servant in Fiji’s Ministry of Economy, Makereta Konrote, has resigned from the post.
Konrote’s resignation comes at a critical time, as Fiji’s Minister of Economy remains in Singapore for medical treatment, and economic activity continues to take a battering from COVID-19 related border closures and Tropical Cyclones Yasa and Ana.
Minister Aiyaz Sayed-Khaiyum has been conducting budget consultation sessions over the Internet from Singapore, with the budget due to be delivered mid-year.
The February economic updated released by the Reserve Bank of Fiji this week stated declines in visitor arrivals (-98.5%), electricity (-13.7%) and mahogany (-98.7%), although there were production increases for cement, gold, pine, woodchips and sawn timber.
The Reserve Bank says Value Added Tax (VAT) collections plummeted by 25.2% and new lending by commercial banks for consumption purposes fell by 39.3%. Commercial banks’ new lending for investment declined by 47.2% in January.
The Bank says labour demand remains week, with job vacancies falling by 82.6% in January.
Government recorded a net deficit of $545.8 million (or 5.5% of GDP) in the first six months of the 2020-21 financial year. At the end of January 2021, government debt stood at 73.2% of GDP. 19% of this was external debt.
A government statement today quoted Konrote, who has been at the Ministry for 18 years and PS for five, as saying: "It has been a great privilege to work on behalf of my country. I want young people, particularly young women, who are considering entering the Civil Service to know that it can be a deeply fulfilling career of service to your fellow Fijians."
"I'm confident that I'm leaving the Ministry in the good hands of dedicated Fijians who are firmly focussed on our recovery from the COVID-19 pandemic."
Shiri Gounder, the Head of Fiscal Policy and former Head of Treasury will act as the Permanent Secretary for Economy from 16 March 2020.
The Reserve Bank of Fiji Governor says Fiji could see a marginal economic recovery if borders open towards the end of the year. Ariff Ali says economic recovery will depend on fiscal support provided by the government in the 2021-22 national budget. “On a positive note, the RBF’s December Business Expectations Survey shows that overall business confidence has improved slightly from six months ago, possibly reflecting the successful containment of the virus locally, businesses adjusting to the new norm and concrete steps towards immunisation across the globe,” Ali says. He anticipates inflation will rise due to shortages as the result of Tropical Cyclone Ana and associated flooding. The full statement is available here.
Two companies listed on the South Pacific Stock Exchange (SPX) have suspended trading. Fiji Television (FTV) has suspended trading as it must recall and re-issue its financial statements for the financial year ending June 30, 2020. In a statement today, it says “subsequent to the release of its Financial Statements…the FTV Board had undertaken certain internal investigations. The investigations identified some account adjustments which relates to prior years.” The accounts adjustments are now being reviewed by an external auditor. Meanwhile Fijian Holdings (FHL), the parent company of Fiji Television has also suspended trading and expect its half yearly financial results to be delayed.
The IFC, a member of the World Bank Group, is to support Fiji’s government to design an early childhood care services policy. A 2019 IFC report found that each year, employers are losing an average of 12.7 work days per employee due to parents juggling responsibilities at work and home, costing businesses an average of FJ$550,000 (US$273,000) each year in lost productivity, or about FJ$1,000 (US$497) per employee. The cooperation agreement will also see the introduction of a licensing and inspection system for childcare providers.
The Financial Intelligence Unit has warned Fijians against unregulated cryptocurrency trading and pyramid selling schemes. FIU Director Razim Buksh said instances of unregulated cryptocurrency trading and illegal pyramid selling schemes have been referred to them. They are being aggressively promoted on social media.
Fiji Crop and Livestock Council trustees have been elected for the next five-year term of office. They are: John Deo, Fiji Coconut Farmers Association; Josua Raitilava, Fiji Ginger Farmers Association; Filimoni Kilawekana, Fiji Dalo Farmers Association, and Simon Cole, Fiji Pig Farmers Association.
Thunderstruck Resources has appointed Rob Christl as Vice President Business Development and Investor Relations. Thunderstruck anticipates drilling to commence in June at its Liwa gold and silver project in Fiji.
The Fiji Banks and Finance Sector Employees Union has confirmed Aunendra Singh as its national secretary, and Faizal Hussain as president. Singh says COVID-19 had led to reduced hours, pay cuts and reduced recruitment in the sector, and as a union they need to find collective solutions to protect workers.
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.
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.”