Economic growth picked up in 2013, stimulated by an expansion of government expenditure to rehabilitate and upgrade the country’s road network, and by increased domestic investment and consumption. Business confidence continues to strengthen as clear progress is made toward elections scheduled for September 2014. Sustaining recent increases in domestic demand and private sector investment is vital to maintaining growth and achieving fiscal sustainability in the long run.

Economic performance

The latest official estimate is that Fiji posted 3.6% growth in gross domestic product (GDP) in 2013 as the economy rebounded from poor performances in agriculture and mining, and from severe flooding at the start of 2012. Recovery in agricultural output and stronger performances in wholesale and retail trade, transport and storage, communication, and financial intermediation contributed to broad-based economic growth. As preparations for elections in September 2014 have achieved their milestones, domestic investor confidence has improved and private sector activity has rebounded after a weak 2012.

The government’s expansionary fiscal policy increased expenditure by 12% in 2013, boosting both public and private investment. Projects to rehabilitate and upgrade the country’s road network drove an increase of more than 30% in capital expenditure during the year. Buoyant construction drove domestic cement sales up by 20% in 2013 and imports of investment goods up by 27% from January to November 2013.

Consumption indicators also showed consumer spending strengthening over the course of the year, supported by higher disposable incomes. Tax cuts and higher tax thresholds, combined with strong remittance inflows - which rose by 6.9% over the year to October - fueled consumption growth. Higher consumption spending was reflected in higher value-added tax revenues, which increased by 11.1%.

Selected Economic Indicators (%) - Fiji 2014 2015
GDP Growth 2.8 3.0
Inflation 3.0 3.5
Current Account Balance (share of GDP) -6.1 -7.1

Source: Asian Development Outlook (ADO) 2014; ADB estimates.

Economic prospects

Growth is projected to moderate to 2.8% in 2014, as record investment growth levels off and the stimulatory effects of one-off tax cuts and higher tax thresholds in 2013 dissipate. The economic outlook continues to improve on previous projections, though, and early growth indicators are positive for 2014. In the near term, recently completed, ongoing, and planned projects including the Damodar City project in Suva, a couple of large hotel and resort developments, and the upgrading of Nadi International Airport, are expected to boost employment and economic activity. In the longer term, these projects are seen to benefit tourism and related sectors such as transport and wholesale and retail trade.

Growth is projected to accelerate to 3.0% in 2015 with development partner financing in the post-election period, continued improvement in investor confidence, and rising private sector activity stemming from greater policy certainty. The current dependence on consumption-driven growth is unsustainable in the medium term, however, and some rebalancing toward broader-based growth is essential. One downside risk to growth is the large public debt, which was equal to 48% of GDP in 2013. A related risk is high contingent liabilities, which equaled 30% of GDP in the same year.

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