Fiji’s economic recovery hinges on how soon COVID is contained locally and the resumption of international tourism – RBF Governor

The Governor and Chairman of the Reserve Bank of Fiji Board, Ariff Ali reiterates that our economic recovery hinges on how soon the second wave of infections is contained locally and the resumption of international tourism.

Ali says to control infections and safely reopen our borders, increased local vaccination will need to be urgently prioritised.

He says assisting businesses to ride out the pandemic and ensuring vulnerable segments of society do not fall further into poverty is also imperative as this has long-term implications on economic recovery and growth.

The RBF Governor highlighted that the second wave of local COVID-19 infections as well as the continued closure of international borders is weighing heavily on Fiji’s near-term economic prospects.

As a result, an economic contraction is now likely for 2021, while the outlook for 2022 remains uncertain.

Ali says the prompt restart of tourism activity and an expansionary expenditure stance in the next financial year are central to economic recovery.

He says while the current containment measures are crucial to curb the virus spread, their persistence will exacerbate the downturn in sectoral output and suppress consumption and investment spending further.

Ali says labour market conditions are also severely affected, with the Fiji National Provident Fund and Government continuing to provide some relief in this difficult economic environment.

The Governor says financial sector activity confirms weak consumer and business demand with a consistent contraction noted in private sector credit since July last year and an uptick in non-performing loans.

However, risks in the banking system are being mitigated by sufficient levels of provisioning and adequate levels of capital.

Banking system liquidity remains ample at $1.693 billion.

The Governor maintains that the RBF’s twin monetary policy objectives of stable inflation and adequate foreign reserves remain intact.

The annual inflation rate stayed in negative territory in April at -2.4 percent.

Ali says looking ahead, factors such as consumable goods shortages induced by panic buying coupled with increased business costs as firms adhere to new COVID-19 operating protocols, as well as higher commodity and food prices internationally may result in increased consumer prices in the coming months.

Foreign reserves reached a historical high in May, surpassing the $3 billion mark and currently stands at $3.134 billion, sufficient to cover 9.7 months of imports.

This is largely due to external Government loan drawdowns, lower import payments, higher inflows of personal remittances and foreign direct investment in Energy Fiji Limited.