The Reserve Bank of Fiji says recent locally transmitted cases and containment measures will prolong already subdued economic activity in the country.
The RBF's April statement reports that visitor arrivals were down of course, as was electricity (-13.4%) and mahogany. There was a big boost in pine log production, woodchips and sawn timber as a result of increased demand. Gold production also increased 17.5% due to higher quality ore being minded.
There were declines in net VAT collections (down 27.8%), consumer credit (down 24.1%), new vehicle sales (-17.8%) and registrations, reflecting weak consumption activity. However there was strong growth in second-hand vehicle registrations (up 122%), “driven in part by the budgetary changes around vehicle imports.”
The job market is very subdued; job adverisements declined by 75.8% for the year to March. Compulsory Fiji National Provident Fund membership dropped 64% for the same period.
Private sector credit fell 3.7% in March for the ninth consecutive month.
“In terms of the Bank’s twin objectives, inflation remains low and foreign reserves are ample” the statement says. It says inflation slipped to -1.2% due to lower prices for local food, alcohol and yaqona.
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.
Remittance flow falling victim to the COVID-19 pandemic was anybody’s guess. It was only a matter of time before this realisation would hit global economies, and drastically, in most cases. It was not until late April that news of an anticipated drop-off came as the World Bank forecasted a dismal 20 per cent decline in global remittances for 2020, the largest in recent history. But it is not known if a second wave of the pandemic, now underway in several parts of the world, had been factored into the modelling at the time, considering that this would worsen forecasts by any measure.
Pacific Island Countries are going to be especially hit hard as remittance flows in the East Asia and Pacific Region are expected to contract by 13 per cent. A number of these countries are among the largest recipients of personal remittances relative to the size of their economies with Tonga topping the list at 40.7 per cent. In the case of Fiji, as recently noted by the Reserve Bank of Fiji Governor, Mr Ariff Ali, personal remittances constitute the second largest foreign exchange earner after tourism and it raked in just below FJ$600m in 2019; equivalent to 5 per cent of GDP.
More recent analyses based on data provided through the Reserve Bank of Fiji’s Enhanced General Data Dissemination System online showed a decline in personal remittances of about 2.4 per cent to $233.2 million cumulative to May 2020, compared to a 10.1 per cent growth in the corresponding period in 2019. This outcome was largely driven by declines in gifts, maintenance and donations (-2.2 per cent) and personal receipts (-0.2 per cent) which more-than offset a marginal increase in immigrant transfers (+0.02 per cent). While these trends might lend support to the World Bank’s forecasts of what is to come by the end of the year, there has been one development that surprised many—positively!
Since the height of what might be considered to have been the first wave of COVID-19 earlier this year, mobile money remittance channels took to the forefront of sustaining these lifelines as lockdowns, social distancing rules and deterrents to the use of cash catalysed a shift towards digital services on both sending and receiving ends. For instance, inward remittances through Vodafone’s M-PAiSA—one of two mobile money service providers in Fiji—more than doubled within two months to FJ$4.5 million in April and is anticipated to grow further for the rest of the year. In comparison, total remittances recorded a 42 per cent drop over the same period. While inward remittances through mobile money have been among the least costly methods of sending money from Australia, New Zealand and the US, flows through these channels have long been only a fraction relative to total personal remittance flows. The observed pandemic-induced boost to this service represents both a historic and promising development in advancing the uptake of digital financial services.
Recognising the lifeline that these digital remittance channels sustained, the Pacific Financial Inclusion Programme engaged a partnership with Vodafone to waive fees on both its international and local remittance channels for two months from mid-May which is anticipated to accelerate the growth of flows through these channels even further. And especially where mobile money services offer recipients an ecosystem of making payments safely, such as through scanning quick response codes at a distance from merchants and bill payments remotely through mobile, a boom in the use of these services is expected to be sustained for a while as signs of a return to normalcy is shrouded by uncertainty.
These developments in mobile money services have highlighted the importance of these digital channels in enabling access to cost effective and efficient financial services. While the challenges that the pandemic has brought may be unprecedented, mobile money services are no strangers to crises, having been leveraged previously to provide assistance during major natural disasters and assist in disbursements of allowances to tertiary students under scholarship or loan schemes.
The challenge for central banks going forward would be to ensure that their regulatory environment remain conducive to these services; in particular, by ensuring that risk-based due diligence measures are applied to maintain uninterrupted access to what is now becoming an increasingly essential channel. This would require dialogue between remittance service providers and even regulators to ensure that anti-money laundering rules are appropriate to these channels and are harmonised to prevent frictions on both sending and receiving ends.
Central banks are encouraged to address barriers to genuinely innovative solutions such as FinTech which can enable more efficient and cost-effective options for consumers. Exploring and facilitating public-private partnerships to expand connectivity and further reduce the costs of receiving remittances are also suggested. In addition, central banks may consider ways of raising the profile of these channels and enhance financial as well as digital literacy so as to deepen access across previously-excluded segments of society and to counter exclusion driven by increased digitisation of these services. Now, more than ever, is a critical time to adapt these lifelines to the new normal in order to keep remittances flowing. It would be interesting to learn about the experiences of other PICs via the Pacific Forum, among others.
Eserani Munivai is an Analyst with the Financial System Development Unit, Financial System Development Group, Reserve Bank of Fiji. The views expressed in this article are that of the author and do not necessarily represent the position of the Reserve Bank of Fiji.
This article was originally published on the Pacific Forum, a capacity building platform for South Pacific central banks, including Fiji, PNG, Solomon Islands, Vanuatu and Timor Leste. For more on this Griffith University program visit SPCCB or email the convenor: firstname.lastname@example.org
The Reserve Bank of Fiji (RBF) has today confirmed Fiji's sure path to an economic recession, as all sectors of the economy brace for the harsh impact of the current coronavirus pandemic.
"Following almost a decade of positive economic growth, the domestic economy is now forecast to fall into a recession. The magnitude of the contraction depends on how long the pandemic lasts and the extent of local contagion," RBF stated in its March Economic Review, released today.
"The main transmission will be through the tourism industry and cessation of economic activity due to appropriate precautionary measures taken by the Government and the general population. The halt in tourism activity and the general decline in incomes and consumption appetite will also negatively affect Government revenue and have spillover effects to all other sectors in the economy."
A recession is generally defined as two successive quarters (6 months) of economic decline and weak GDP growth.
Fiji's predicament mirrors the trend in most countries around the world, with the pandemic sparing no one including the global economy, which itself is on life support in the form of financial response packages doled out by all affected governments as well as the world's bilateral and multilateral financial institutions.
This week, the International Monetary Fund (IMF), whose membership of189 countries includes Fiji, issued a bleak prognosis on the health of the world's economy after virtual meetings with leaders of the G-20.
"It is now clear that we have entered a recession as bad or worse than in 2009. We do project recovery in 2021," said IMF's managing director Kristalina Georgieva in a telecast press briefing.
"In fact, there may be a sizeable rebound, but only if we succeed with containing the virus everywhere and prevent liquidity problems from becoming a solvency issue."
The IMF, she said, had so far received 81 requests - an unprecedented number - from member countries for emergency funding.
Fiji's economy, initially forecast to grow by one percent this year, is now estimated to contract by 4.3 percent as a result of the coronavirus pandemic.
By Anish Chand