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.
