It has warned that the financial crisis will affect Fiji through recession in its major markets and changes in the exchange rate.
Reserve Bank of Fiji Gov. Savenaca Narube said a snapshot of domestic economic conditions showed that Fiji’s economy declined heavily in 2007 but is recovering this year, albeit at a lower growth rate.
“The trade deficit is widening and exerting pressure on foreign reserves,” he told delegates at the Fiji Australia Business Council meeting in Nadi.
“Moreover, inflation rose to a 20-year high but is expected to moderate in 2009. Investment has fallen. Unemployment is rising and poverty is worsening and now Fiji faces the global financial crisis,” Narube said.
“The International Monetary Fund has revised world growth successively, down to 3.7 percent this year and is expecting a global recession, with growth forecast at 2.2 percent in 2009,” he said.
“Of our trading partners, New Zealand, Japan and the Euro-zone are in recession, while growth in the U.S. and Australia has slowed considerably,” he said.
“The crisis has resulted in sharp swings in the Fiji dollar vis a vis the currencies of our trading partners. However, the Nominal Effective Exchange Rate remains stable,” he added.
According to Narube, the crisis would have an impact on exports.
“These include a slowdown in exports which are demand driven like tourism, water and garments, supply driven exports and a slowdown in growth of total exports,” he said.
“The impact on services will reduce tourist arrivals — Japan, Europe and U.S. was already declining, NZ tourists were also flat, and Australia was the growth industry. The exchange rate will further dampen demand and remittances will decline further,” he said.
“As a result, imports will rise — the price of cars and auto parts will rise — demand will drop, oil price in Fiji dollar will rise and will partly offset the lower global price, the prices of food and manufactured items will drop — demand may be inelastic and the cement price will rise,” he added.
Narube said the major drivers of the economy would be tourism, agriculture — fishing, forestry, manufacturing, except garments, mining — gold and water.
He added that there were four key challenges for Fiji. “These are safeguarding Fiji’s external position, raising exports, raising investment and raising and sustaining growth.”
