Countries and Regions

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p. 3 of 5 BACK | NEXT I. Country Strategy II. Current Development Trends and Issues III. Implementation of the Country Strategy and Program IV. Portfolio Management Issues V. Country Performance and Assistance Levels

Country Strategy and Program Update 2006-2008: Fiji Islands, Republic of the

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III. Implementation of the Country Strategy and Program

A. Progress in Poverty Reduction

15. The Fiji Islands has made more progress in achieving the MDGs than many other Pacific developing member countries. As a result, Fiji is close to achieving MDG targets in education, health, and gender-related goals (Appendix 2, Table A2.1). In the 2005 Human Development Report, the United Nations Development Programme (UNDP) ranked the Fiji Islands 92nd among the 175 countries in the Human Development Index (HDI), ahead of Sri Lanka and behind Belize. Fiji's HDI values have been increasing steadily from 0.663 in 1975 to 0.752 in 2003. Still, only about 50% of the population has access to safe water and proper sanitation. Access to sanitation is 75% for urban areas, and only 12% for rural areas.

16. Poverty remains a significant and growing concern in the Fiji Islands, despite the overall level of development and the moderately high average incomes. The most recent official Household Income and Expenditure Survey (HIES) in 2002 indicated that 28.2% of the population does not earn incomes adequate for basic needs.⁵ While the statistical information has substantial gaps, the preliminary HIES data indicate that poverty is increasing particularly in rural areas. Further, the nature and incidence of urban and rural poverty continue to show important differences.

17. The growing presence of poorly serviced squatter settlements underpins the perception that urban poverty is increasing. Small communities in the rural areas also show signs of rising poverty. These trends reflect a range of factors, including (i) the increasing displacement of sugarcane farmers due to expiring land leases, and declining incomes resulting from the gradual reduction in the sugar subsidy; (ii) the loss of employment in the garment industry due to the closing of preferential access to the main export markets; (iii) rising consumer prices reflecting global conditions; (iv) low real growth in wages; and (v) deterioration in many Government services. These factors have eroded the standard of living for the poorest members of the community. Moreover, the prospect of continued slow growth and the imminent loss of a substantial number of jobs in the sugar and garments industries have the potential to increase rural and urban poverty significantly over the medium term.

B. Progress in the Country Strategy and Program Focus Areas

1. Results-Based Framework

18. In line with ADB's Management for Development Results principles, the Government is committed to improving the monitoring of development impacts. Monitoring of results-based progress enjoys general support at all phases of the development process-from strategic planning through implementation to completion of the development interventions. ADB's rapid assessment of the Government's results-based management (RBM) system identified some weaknesses. These include capacity constraints and limited access to results data on inputs, outputs, and outcomes (e.g., service delivery data). In particular, the achievement of expected development outcomes necessitates realistic and clear timelines, strong leadership, training, and sensitivity to the cultural and political context. Keeping the RBM system simple, and allowing for a step-by-step approach in moving toward a comprehensive, customized, and useful Government-wide RBM system, will facilitate successful planning and monitoring.

19. This CSPU aims to strengthen the results orientation in the Government's strategic planning by including a results framework that identifies outcomes and indicators. The results-based framework will be developed further in next year's RB-CSP. In addition, the RB-CSP should be developed jointly and collaboratively with Fiji's development partners, in line with the commitments made under the Paris Declaration⁶ to pursue harmonized approaches.

2. The ADB Pacific Strategy

20. The CSPU for 2006-2008 is consistent with ADB's overriding goal of poverty reduction and strategic objectives embodied in the Pacific Strategy, as well as with the Government's commitment to achieving the MDGs. It will assist the Fiji Islands in (i) strengthening the economic environment for private sector-led growth aimed at job creation, (ii) providing reliable and affordable basic social services, and (iii) building effective development institutions.

21. Private Sector-Led Growth Aimed at Job Creation. A central focus of this CSPU is support for private sector development. This builds upon the ADB's private sector assessment (PSA)⁷, which identified six areas for reform: (i) reducing incentive distortions, (ii) reducing pervasive regulation, (iii) rationalizing state involvement in the economy, (iv) improving intermediation in the financial markets, (v) strengthening property rights, and (vi) removing pervasive infrastructure bottlenecks. Key stakeholders were consulted extensively on the PSA, including a presentation to the Cabinet Subcommittee on Investment in June 2005. The Government endorsed the main thrust of the PSA. It also asked ADB to assist in formulating sound and carefully sequenced action-oriented private sector development road maps that will lead to, and guide, the implementation of reforms. This will be done through TA for Private Sector Development Road Maps⁸ in 2005 and Institutional Support to Private Sector Development in 2006.

22. Sound Economic Management. To complement the PSA, an economic report was included as part of the underlying assessments for the preparation of the CSPU. The consultations on the report led to the drafting of a targeted program for strengthening the results orientation in the Government's planning processes. This will develop an environment of cascading objectives, targets, and indicators for improving the productivity of the public sector. The Government asked ADB to support capacity building for the preparation and implementation of reforms. The request was made in the context of harmonized external aid for economic and public sector reforms, and particularly in light of the 2005 report that World Bank and the Australian Agency of International Aid (AusAID) prepared on three reform areas: (i) civil service, (ii) financial management, and (iii) public enterprises. This will be carried out through the proposed TA for Capacity Building for Economic and Public Sector Reforms in 2006 and Support to State-owned Enterprise Reform in 2007.

23. Reduction in Infrastructure Bottlenecks. The CSPU recognizes the considerable demand of a growing economy for adequate economic and social infrastructure. For this reason, the CSPU includes initiatives to provide infrastructure to support private sector development. This CSPU acknowledges ADB's comparative advantage as a partner in infrastructure development, which is derived from ADB's (i) historical role as the leading development partner for infrastructure in the country, and (ii) staff strengths and institutional experience. In the small country context of the Fiji Islands, this CSPU and next year's results-based CSP aim to present ADB's strategic support for infrastructure as a thematic thrust, not limited to any sector.

24. ADB is helping the Government optimize private sector involvement in physical infrastructure initiatives, including in roads, power, ports, airports, water supply and sanitation, and urban services. The expected adoption in early 2006 of private-public partnership legislation, developed under the ongoing Fourth Road Upgrading Project (FRUP IV) TA, will pave the way for similar approaches in the delivery of social services. The proposed loan for the Fourth Road Upgrading (Sector) Project⁹, with the proposed advisory TA on Strengthening Road Sector Performance, will sustain ADB's support for enhancing road infrastructure and sector management through policy and institutional arrangements that improve road safety, planning, financing, and maintenance. This will be achieved particularly through expanded private sector participation.

25. To promote the growth of tourism and other economic activities, the Government has asked ADB to support civil aviation, particularly upgrading of airport facilities and services in the country. This will be addressed under the proposed loan for Airport Rehabilitation and Upgrading in 2007 and an associated advisory TA on Strengthening Aviation Sector Performance. This support also will facilitate necessary policy and institutional reforms to sustain infrastructure development. Further, it will expand private sector participation, increasing investment, enhancing investment productivity, and focusing the Government's resources on areas not served feasibly by the private sector.

26. Furthermore, the Government has asked ADB to help formulate a power sector development road map in close consultation with stakeholders, including the Fiji Electricity Authority, the Department of Energy, and the Ministry of Finance and National Planning. In addition to identifying the necessary investments, the road map will highlight the policy and institutional requirements for the sector to ensure an affordable, reliable, and efficient supply of electricity to meet the growing demand of business and household consumers. As a part of this effort, ADB also will explore existing and innovative financing instruments to support public and subsovereign agencies. A project preparatory TA to prepare the Renewable Power Sector Development Project,¹⁰ followed by an advisory TA to prepare a proposed Power Sector Development Road Map are planned for 2006. In the context of this initiative, the Government will discuss with ADB possible future financing, and the means for supporting the country's power sector development program.

27. Structural Changes and Alternative Livelihoods. The objective of the Alternative Livelihoods Project¹¹ is to generate jobs for those being displaced by the contraction of the sugar and garment industries. This approach is being expanded countrywide under the project preparatory TA¹² and proposed loan for Rural and Outer Islands Development. The proposed loan in 2006 will address the relative lack of economic opportunities outside of the main urban areas, particularly for disadvantaged population pockets in remote outer islands and rural hinterlands. Private sector development in agriculture is a central objective of the ongoing TA for the Commercialization of Agriculture Development,¹³ which aims to increase productivity through greater flexibility and market responsiveness in the sector. The proposed Natural Resource-Based Sector Development Program (project preparatory TA and loan) will provide additional assistance for nonagricultural rural economic development, such as sustainable forestry, fisheries, and tourism development.

28. Reliable and Affordable Basic Social Services. Local and provincial agencies must improve their performance for the effective delivery of social services. The proposed project preparatory TA on Provincial and Local Governance Program aims to facilitate necessary policy and institutional changes at the municipal level to allow more efficient social services provision, including measures to address the growing urban squatter problem. This TA will implement the Urban Action Plan¹⁴ in close coordination with New Zealand Agency for International Development (NZAID). In addition, this TA seeks to strengthen public sector management, and support the Government's initiative to commercialize, out source, and decentralize service provision.

29. Improved access to basic social services also depends on increased investment in infrastructure. An ongoing ADB project is improving access to water supply and sanitation in the Suva-Nausori¹⁵ areas. In addition, the project is helping to implement policy and institutional reforms needed to increase productivity in providing services.

30. Effective Development Institutions and Processes. Increased investment and higher rates of economic growth require the development of complementary capabilities in public sector management, as well as the implementation of necessary macroeconomic policy and public sector reforms. ADB's recent Pacific Islands economic report (PIER) and private sector assessment (PSA) for Fiji, along with the work of World Bank and AusAID on public sector reforms, identify important areas where reform is needed. This CSPU proposes assistance for creating the demand for reform, analytical skills, and the capacity to implement reforms through sequenced and linked initiatives: Private Sector Development Road map (2005), Capacity Building for Economic and Public Sector Reforms (2006), Institutional Support to Private Sector Development (2006), and Implementation of Public Enterprise Reforms (2007)-all advisory TAs-as well as the project preparatory TA entitled Public Sector Reform Program (2008). Together, these initiatives will assist the country with the technical resources necessary to design and implement a comprehensive economic reform program that will facilitate and sustain the structural changes needed to raise incomes and accelerate economic growth. These goals can be pursued most effectively through joint work, close coordination, and collaboration with development partners. To this end, ADB will organize informal quarterly development partners meetings to exchange information, and to harmonize development partners' strategies and activities in close consultation with the Government.

C. Highlights in Coordination of External Funding and Partnership Arrangements

31. Official development assistance to the Fiji Islands is among the lowest on a per capita basis in the Pacific. Funding agencies provided about $40 million in grants in 2004 and a similar amount in 2005, which is about 1.2% of GDP. Fiji's key development partners include Australia, EU, Japan, New Zealand, People's Republic of China (PRC), and United Nations agencies. Most of the country's public external debt of about $105 million, equivalent to less than 5% of GDP, comprised official multilateral loans from ADB, European Investment Bank, and International Bank for Reconstruction and Development. ADB contributed about 73% of these loans. Bilateral agencies providing official loans include Japan Bank for International Cooperation, France, Netherlands, and PRC.

32. Assistance from Australia, EU, and New Zealand generally focus on education, training, and health. ADB is the key funding agency for infrastructure, with EU and PRC also lending to the sector. ADB and EU have developed a strong partnership in the agriculture sector, particularly in supporting sugar industry reforms. ADB collaborates with AusAID, the Government of Japan, the International Monetary Fund, and NZAID in supporting the Pacific Financial Technical Assistance Centre. ADB is working closely with AusAID, World Bank, and the Foreign Investment Advisory Service of the World Bank Group in helping the Government identify bottlenecks to private sector development. Funding agencies, including ADB, AusAID, and World Bank are pursuing a coordinated and unified approach to capacity building in economic and public sector reforms to harmonize and enhance aid effectiveness. The Government coordinates assistance through its multi-agency aid coordination committee. However, the coordination of development partners activities could be improved through more frequent exchange and dialogue between agencies and the Government, in addition to the annual development partners roundtable organized by the Government. In ADB's areas of operation, the other development partners support limited, though very complementary, interventions. With many local and regional aid agencies represented in Suva, their representatives have agreed that quarterly informal meetings should be held to enhance aid harmonization in Fiji as well as in the region.

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