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Annual Report 2001

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Fiji Islands

Economic performance

Real GDP in the Fiji Islands grew by a modest 1.5% in 2001, largely reflecting a partial recovery in tourism. The weakness in economic activities was broad-based and business confidence remained subdued. Despite variations during the year, inflation averaged about 4.3%, reflecting an increase in transport and postal charges and reinstatement of value-added tax on basic food items. Government efforts to stimulate the economy through tax incentives and higher expenditure resulted in a budget deficit of 4.9% of GDP in 2001. Government debt stood at 42.7% of GDP at end-2001. Money supply and private sector credit contracted during the year, reflecting depressed economic activities. The current account deficit widened to 4.4% of GDP largely due to a drop in exports and weakness in the services account, reflecting the global economic slowdown and uncertainties in the domestic economy. The overall balance of payments was negative, leading to a decrease in external reserves to about F$360 million at the end of 2001, sufficient to cover about 4.4 months of imports. During 2001, the nominal and real effective exchange rate indexes remained relatively stable. The Government succeeded in maintaining macroeconomic stability despite the expansionary fiscal policy. Over the year, the central bank eased the monetary policy and exchange controls. In the second half of 2001, the commercial banks were required to lend a certain minimum proportion to the export sector.

ADB operations

Operational strategy: A new operational strategy for the Fiji Islands is being prepared to reflect the newly elected (September 2001) Government’s socioeconomic program for rebuilding the economy. The strategic focus will be on helping the Government stimulate economic growth by encouraging private sector development and export-oriented activities to support employment creation. This will involve enhancing public sector reforms; supporting the establishment and functioning of efficient financial sector and capital markets, promoting corporatization and commercialization of public enterprises, selective public sector investments for infrastructure development, and poverty reduction; and addressing environmental and natural resource management concerns.

Policy dialogue: Poverty reduction, good governance, enterprise policy reforms, cost recovery, and operation and maintenance in the road subsector were the focus of policy dialogue between ADB and the Government.

Loans and technical assistance: No loans or technical assistance were approved in 2001. However, ADB reactivated all suspended technical assistance and further processed the Ports Development and the Suva-Nausori Water Supply and Sewerage projects.

Project implementation: Since joining ADB in 1970, the Fiji Islands has received 13 loans, of which 1 was active at the end of 2001. Contract awards totaled $12.9 million, bringing the cumulative figure to $131.8 million. The contract award ratio was 43.2%, higher than the ADB-wide average of 14.8%. Disbursements during the year totaled $4.4 million, bringing cumulative disbursements to $123.6 million. The disbursement ratio was 12.9%, lower than the ADB-wide average of 20.5%.

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