The economy is expected to grow in 2015 in line with earlier projections as broad-based growth continues to be supported by fiscal stimulus, rising investment, and increased consumption—all aided by low oil prices.
|Selected economic indicators (%)||2015||2016|
|ADO 2015||Update||ADO 2015||Update|
|Current Account Balance (share of GDP)||-9.8||-9.8||-8.7||-8.7|
Source: ADB estimates.
In May, Standard & Poor’s raised its long-term sovereign credit rating for Fiji from B to B+, reflecting the more stable economic outlook arising from a more normalized political climate and reengagement with development partners.
As expected, tourist arrivals have grown at a steady pace—increasing by 8.7% year on year in the first half of 2015. In response to the increased arrivals, Fiji Airways recently announced that it would lease two new aircraft in 2015, which should further boost tourist arrivals. It plans to lease another one in 2017.
The Reserve Bank of Fiji reports that during the first half of 2015 new lending for investment (largely construction) soared by 82.1%, while new lending for consumption increased by 14.4%. The 2015 budget raised allocations for transport, energy, water supply, and sanitation infrastructure, and this has helped push strong growth in aggregate demand. However, because of higher spending, the government is projecting a budget deficit equivalent to 2.5% of Gross Domestic Product in 2015. The projection factors in the planned sale of state-owned enterprises, and the deficit will be higher if the sales are delayed or generate disappointing returns.
The fall in oil prices kept average inflation at a moderate 1.3% year on year in the first 7 months of 2015. Low inflation is expected to allow Fiji to keep its policy interest rate accommodative at 0.5% for the foreseeable future.
Economic growth is now expected to accelerate in 2016 as recent trends continue and infrastructure projects are implemented with assistance from development partners. This improved outlook faces a downside risk from a possible economic slowdown in Australia linked to moderating growth in the People’s Republic of China.
Possible upside risks include an unexpectedly large stimulus to consumption and tourism from low oil prices. Projected inflation in 2015 remains unchanged from Asian Development Outlook 2015, but strengthening growth prompts an increase in the forecast for inflation in 2016. Forecasts for current account deficits remain unchanged for both years.
Excerpted from the Asian Development Outlook 2015 Update.