Fiji: Economy

Fiji continues to grow solidly, and the economy remains on track for a fifth consecutive year of expansion. The gross domestic product (GDP) growth projection for 2014 has been revised up by half a percentage point to 3.3%, based on strong growth in the first half in visitor arrivals and export earnings - particularly from sugar and mineral water. Growth is expected to remain robust, but is seen to ease slightly as sharp increases in consumption and investment expenditures in 2013 are likely to moderate. The 2015 growth projection is maintained at 3.0%, but this is subject to significant upside and downside risks. Reduced uncertainty following the September elections is seen to boost investment and tourism, and the overall economy is expected to strengthen with reintegration and renewed engagement with development partners. However, factors seen to temper growth in 2015 include: ongoing dry weather conditions that are expected to persist into next year and lower output of agricultural goods besides sugar; and possible fiscal tightening after recent expansions in public expenditure.

Selected economic indicators (%) - Fiji 2014 2015
ADO 2014 Update ADO 2014 Update
GDP Growth 2.8 3.3 3.0 3.0
Inflation 3.0 3.0 3.5 3.5
Current Account Balance (share of GDP) -6.1 -6.0 -7.1 -7.0

Source: ADB estimates.

Revised estimates show that the economy grew by 4.6% in 2013 as it rebounded from the impact of Tropical Cyclone Evan, which hit tourism and agriculture. Growth was broad-based, led by service sectors such as finance, insurance, and transport and storage; and supported by greater construction and manufacturing activity. Lending for investment doubled in 2013, as construction picked up, mainly on tourism and infrastructure projects.

Consumption remained strong in the first 5 months of 2014, as evidenced by higher net value-added tax collection, which rose by 6.5% over the period. Imports of consumption goods, mainly vehicles, rose by 15.6% in the same period. Personal remittances increased by 13.2% year on year in the second quarter, boosting consumption expenditure.

The tourism sector - Fiji’s main source of foreign exchange - continues to perform strongly. Visitor arrivals increased by 4.0% year on year, with 4.6% more visitors from Australia and 11.6% more from New Zealand. Together, these two main markets account for over 60% of visitors to Fiji. Sugar production has improved recently, likely aided by government investments in new technology that improved mill efficiency. During the first 6 weeks of the annual sugar-crushing season, mills recorded a 48.8% increase in output. On the other hand, gold production continued to decline, falling by 9.3% from the first half of 2013.

Despite higher growth, inflationary pressures remain subdued. Inflation to June 2014 was running at 0.7% year on year, restrained by declining international commodity prices. However, annual average inflation is expected to remain at the Reserve Bank of Fiji’s target of 3.0% as recent dry weather could affect food supply and economic activity could pick up after the elections.

The current account deficit widened in the second quarter as imports rose and exports were flat. Foreign reserves declined from $1.7 billion in May 2014 to $1.6 billion in June, the equivalent of 4.4 months of imports. However, the current account deficit for the full year is still expected to narrow sharply from 2013 on expected increases in remittances and tourism receipts in the second half.

Medium-term challenges to Fiji’s growth outlook remain, as the International Monetary Fund assessed the country’s “potential GDP growth rate” (an estimate of the highest real GDP growth rate sustainable over the long term) to be only about 2.5%. The assessment suggests that, despite the positive growth outlook in the near term, investment and policy reforms are needed to address supply-side capacity constraints and improve productivity. A particular priority will be to institute further structural reforms to improve the country’s growth potential.

Source: ADB. 2014. Asian Development Outlook 2014 Update. Manila.