The Reserve Bank of Fiji has stated that the Fijian economy is expected to contract more sharply than the -4.3% earlier estimated in 2020, reflective of the significant fall in tourism activity and its knock-on effects to the rest of the economy.
In it’s Economic Review for April, the RBF says the actual magnitude of the economy’s contraction will depend on the duration of the COVID-19 pandemic, how quickly global trade and tourism will resume, and the effectiveness of policy responses.
The RBF says domestic economic activity is anticipated to return to some normalcy from the last quarter of 2020 with an economic recovery expected in 2021.
The latest key activity indicators confirm the anticipated slump.
Lackluster output in the primary industry persisted in April, with annual contractions in pine logs by 35.5% leading to a fall in woodchips by -14.0% and sawn timber by 29.6% production in the year to March.
Gold production was also lower by 1.9% in the same period owing to deteriorating ore reserves.
On the upside, electricity production expanded by 2.2% in the year to February.
Investment activity slowed further with contractions noted in domestic cement sales by 17.0% and lending to the building and construction sector by 23.4% in the year to March.
Labour market conditions deteriorate because of the effects of COVID-19 - RBF
The Reserve Bank of Fiji says labour market conditions in the country have deteriorated further given the layoffs and reduced hours in line with the halt in tourism activity, lockdowns and the deterioration in economic activity.
The RBF says as at 29th April, 65,800 COVID-19 Withdrawal Scheme assistance applications have been received by FNPF as a result of the pandemic.
Consumption indicators are also weak given the relatively modest growth in new consumer credit by 1.9% and remittance inflows by 5.9% in the year to March.
Net VAT collections have decreased by 19.2%.
Registrations for new vehicles are down by 30.8% and second-hand vehicles are down by 58% in the same period.
Domestic credit growth decelerated to 4.8% in March, from 8.2% a year ago, driven by the slowdown in lending to the private sector amid commercial banks’ reduced lending to private sector business entities and private individuals.
As such, commercial bank lending rates stabilised while new time deposit rates declined further.
The RBF also says that excess liquidity in the banking system remained adequate at $590 million at the end of March. As at 29th April, excess liquidity rose to $723.5 million, owing to an increase in foreign reserves and a decline in currency in circulation which more-than-offset the increase in statutory reserve deposits.
Foreign reserves stands at $2.2 billion
Foreign reserves stands at $2.2 billion, sufficient to cover 6.9 months of retained imports according to the Reserve Bank of Fiji.
The Bank also states that it is injecting an additional $100 million to its Import Substitution and Export Finance facility to help ease the financial difficulties imposed on private sector businesses by the COVID-19 pandemic.
The RBF further says domestic deflation persisted for the sixth consecutive month as prices fell by 2.8% over the year in March.
Annually lower prices were noted for alcoholic beverages, tobacco & narcotics; food & non-alcoholic beverages and the housing, water, electricity, gas and other fuel categories which more than offset the higher prices recorded in the transport category.
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