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ANZ Report: It’s Not Fiji Economic Gloom

Banking system liquidity dominated Fiji’s economic conversations in early 2019. This is according to the ANZ Research January 2020 Pacific Economic Outlook Fiji. The report released yesterday said its sharp
09 Jan 2020 11:01
ANZ Report: It’s Not Fiji Economic Gloom

Banking system liquidity dominated Fiji’s economic conversations in early 2019. This is according to the ANZ Research January 2020 Pacific Economic Outlook Fiji.

The report released yesterday said its sharp decline in 2018 and into 2019 sparked debate about whether tighter liquidity had caused a credit crisis.

Some commentary suggested that lower liquidity could result in a devaluation of the Fijian dollar.

“As we foreshadowed in our April and June notes, none of these events materialised,” it said.

“Falling liquidity did lead to a tightening of funding conditions and higher interest rates but that was a strategy deliberately adopted by the Reserve Bank of Fiji (RBF).

“We believe, the Reserve Bank of Fiji intentionally tightened funding to squeeze imports and ease pressure on the country’s current account deficit (CAD).

“With imports moderating, liquidity has pushed higher in recent months.

“At the end of December 2019 it was at FJ$590m, which is 93 per cent (or FJ$284m) more than the level a year before.

“With the CAD stabilising, we believe the RBF will keep liquidity around FJD600m this year to stabilise interest rates.

“In 2019, we also saw the Government begin a process of fiscal consolidation to be better prepared for the next economic shock.

“Public demand has been a key driver of Fiji’s growth over the last 10 years.

“It had to be, because private investment was in retreat following the global financial crisis.

“Expansionary fiscal policy was achieved, however, by running budget deficits, which have increased the level of Government debt.

“After several years of budget deficits, the government has begun to unwind some of the stimulus and reduce expenditure (both recurrent and capital) in 2019-20 fiscal year. We estimate the economy grew by 1.8 per cent in 2019, which would make 10 years of straight growth.”

Lift in construction activity

The ANZ report stated that since 2011, Fiji has had a sharp lift in construction activity across all the three categories of investment (dwelling building, non-residential building and engineering construction).

“Work done rose from an annual average of FJ$225m over 2004-08 (inclusive) to FJ$241m 2009-13.

“It then nearly doubled to FJ$467m over 2014-18.

“Private investment contributed to the bulk of that investment, increasing its share of the total from 45 per cent in 2013 to 56 per cent in 2018.

“We think last decade’s long construction boom peaked in 2019, and that construction output will decline in 2020.

“On the bright side, remittances and visitor arrivals held up well last year despite slowing conditions in key source markets.

“We see visitor arrivals staying near record levels in 2020 as economic conditions in key source markets are expected to improve this year.

“In addition, US visitors are likely to more than offset any drop in numbers from Australia and New Zealand.”

The ANZ report noted that consumer demand would also hold, supported by stable unemployment and remittances.

The latter to be boosted by Fiji’s inclusion in the expanded Pacific Labour Mobility Scheme.

“We forecast the economy to grow by 1.6 per cent in 2020 before gaining momentum in 2021.”

Screenshot 2020-01-09 at 10.49.16 AM

Feedback: maraia.vula@fijisun.com.fj

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