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Fiji’s economic outlook has improved from earlier forecasts, and a growth rate of around 3% is likely in 2013. Consumption and investment indicators have improved, and confidence appears to be building in the run-up to the 2014 elections. The accumulated value of commercial bank lending was 5.5% higher at the end of May 2013 than at the end of 2012. Imports excluding aircraft increased by 10.4% year on year in the first 5 months of 2013, while construction increased by 10.1% year on year in the first quarter. Personal remittances were up by 8.6% year on year in the first 7 months of 2013, according to the Reserve Bank of Fiji. The International Monetary Fund reports buoyant collection of value-added taxes in 2013 but notes that contributions are being driven by such one-off factors as increased efforts to collect arrears on these taxes.
|Selected Economic Indicators (%) - Fiji||2013||2014|
|ADO 2013||Update||ADO 2013||Update|
|Current Account Balance (share of GDP)||-22.5||-22.5||-7.0||-7.0|
Source: Asian Development Outlook (ADO) 2013 Update; ADB estimates.
Cuts in personal and corporate income tax in 2012, pensioners’ one-time withdrawals from the Fiji National Provident Fund, and fiscal stimulus are seen to contribute to rising consumption and investment in 2013. These factors relied on increasing debt and liquidation of savings, and thus are expected to have only a short-term impact. Sustaining growth momentum in 2014 and beyond will require raising productivity in key sectors of the economy, such as tourism, mining, and agriculture.
Tourist arrivals in the first quarter of 2013 were down by 2.8% from the same period of last year - partly due to the lingering impact of Cyclone Evan, but also reflecting economic weakness in Fiji’s two largest tourist markets. During the first half of 2013, the number of visitors from Australia (which provides 51.0% of all arrivals to Fiji) increased only marginally, while arrivals from New Zealand (15.3% of the market) fell by 2.4%. Gold production declined by 26.6% year on year during the first half of 2013. However, there are plans to boost production following the purchase of a 19.2% stake in the Vatukoula gold mine by an international mining service company. The government projects that sugar production will pick up in 2013 despite the industry’s having been hard hit by Cyclone Evan. Concerns persist about the industry’s waning productivity and competitiveness, and about its structural decline over the long term.
The short-term factors stimulating growth this year will likely fade in 2014, prompting the update of the Asian Development Outlook (ADO) 2013 to revise its growth outlook only slightly, up to 2.4%, which is close to the Reserve Bank of Fiji forecast.
Government efforts to reduce inflation appear to be succeeding. In the first 8 months of 2013, the inflation rate was 2.7% year on year, well below the ADO 2013 forecast of 4.5% for the whole year. The inflation forecast is therefore lowered to 2.7% for 2013 and further to 2.5% for 2014.
The delivery of the first of three new Airbus A330 aircraft for Fiji Airways pushed total imports into Fiji up by 28%, while exports fell by 22% in the first quarter of 2013. As a result, Fiji’s current account deficit is expected to widen to 22.5% of GDP this year, as forecast in ADO 2013, before narrowing to 7.0% in 2014 as imports revert to a normal level.
Source: ADB. 2013. Asian Development Outlook 2013 Update. Manila.