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Fiji's Economic Woes

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Fiji's Economic Woes PACIFIC ECONOMIC BULLETIN Economic survey Fiji’s economic woes: a nation in search of development progress Sunil Kumar and Biman C. Prasad While recent economic stagnation is largely attributed to the Sunil Kumar May 2000 putsch, Fiji is still grappling with the political and Economics Department, economic problems triggered by the military coups of 1987. University of the South Despite efforts by various governments over the last two Pacific. decades, economic decline has not been reversed. The lack Biman C. Prasad of confidence in the economy and continuing decline in Fiji Centre and investment are major contributing factors to poor economic Department of growth. The immediate challenge for Fiji is to reverse the Economics, University economic decline through the promotion of private invest- of the South Pacific. ment and increasing export competitiveness. Continuing political instability and the lack of a solution to the problem of property rights in land present difficult challenges. Fiji’s economy has the potential to grow at a The SDL coalition government is faced much faster rate than that achieved over the with the challenge of repairing the damage last decade. While much of the blame for done to the economy by the attempted coup poor recent economic performance can be of May 2000. So far the government’s efforts attributed to political instability, a great deal in this direction have been mixed. While on of the blame can be ascribed to economic one hand the government rightly proposes policy failures. Following the putsch of May market-based economic growth and hopes 2000, efforts have been made to address for rejuvenation of the private sector, on the economic problems, but with little success. other hand, the 2002 Budget shows increased As a result of the political upheaval, most government expenditure which the govern- economic sectors have experienced slow ment hopes to finance through domestic growth. As expected, tourism came to a near borrowings. The government’s desire for standstill, while the garment industry and private sector initiatives is commendable but manufacturing suffered serious losses due the huge unproductive expenditure arising to international sanctions and industrial from the expansionary policy measures disruptions at home. The political crisis also under the 2002 Budget is incompatible with led to an escalation in the eviction of these ambitions, since ‘domestic’ financing sugarcane farmers from their native land of the 6 per cent net budget deficit is likely to leaseholdings and illegal occupation of put strong upward pressure on interest rates. commercial properties by landowners. The projected budget deficit for 2002 is a 67 1 Pacific Economic Bulletin Volume 17 Number 1 May 2002 © Asia Pacific Press PACIFIC ECONOMIC BULLETIN Economic survey per cent increase over the 2001 deficit (Reddy, Unfortunately, recent political instability Prasad, Naidu and Kumar 2001). If most of has seriously hampered efforts towards the F$244 million deficit is financed through building confidence in the economy. The local borrowing it may effectively lead to court battle between the SDL Coalition credit rationing and crowding out of private government and the Fiji Labour Party has investment. For its part, the government has diminished hope for a speedy settlement of argued that interest pressure may not be so the existing political conflict. As long ago as strong due to excess liquidity in the money 1998, Chand (1998) pointed out the urgent market. need for Fiji to resolve its political and land The expansionary policies of the govern- problems before confidence in the economy ment are a typical Keynesian prescription for can be restored. a depressed economy, but unfortunately, After the coups of 1987 Fiji made a expansionary policies alone will not lead to drastic economic policy shift from import higher levels of economic growth. In the short substitution to niche market exports and this run, expansionary fiscal policy may help paid significant dividends in the form of create economic activities and generate some increased garment exports and employment extra employment; but in the long run the creation. Much of the growth in the manu- crucial issue for the economy is how to create facturing sector, and in particular in the confidence to attract foreign direct investment garment sector, was realised as a result of and facilitate exports. To increase export the creation of tax-free zones (TFZ). Under capacity the Fijian economy needs to be the TFZ policy the government provided a competitive in international markets, and this 13-year tax holiday to investors. With depends on its ability to attract high levels of increased investment, garment exports foreign investment. increased significantly within a very short Table 1 Fiji’s basic economic and financial statistics, 1997–2000 1997 1998 1999 2000 2001 GDP at market prices (F$ million) 3,060.0 3,281.5 3,664.6R 3,504.8P 3,796.9P Per capita GDP at current factor cost (F$ million) 3,316.0 3,516.3 3,889.2R 3,769.2P 3,943.5P Constant price GDP growth rate (per cent) -0.9 1.4 9.7RR -2.8P 1.5P Wage and salary earners (mid-year) (‘000) 112.9 112.5 .. .. .. Inflation (year-on-year per cent change, all items) 2.9 8.1 0.2 3 2.3 Foreign debt outstanding (F$ million) 352.1 447.4 513.6P 529.7P .. Debt service ratio (per cent) 2.9 4.1 3.2 2.9 .. Foreign reserves (F$ million) 557.9 764.7 872.0 898.1 841.3E Domestic credit (F$ million) 1,187.6 1,232.2 1,285.1 1,358.8 .. Time deposit rate (per cent) 5.2 4.0 2.9 3.0 3.3E Lending rate (per cent) 10.2 9.1 8.5 8.4 8.4E E estimated using existing data R revised at source P projected Source: Reserve Bank of Fiji, 2001. Quarterly Review, December, Suva; Reserve Bank of Fiji, 2000. Quarterly Review, June, Suva. 2 Pacific Economic Bulletin Volume 17 Number 1 May 2002 © Asia Pacific Press PACIFIC ECONOMIC BULLETIN Economic survey time. The value of garment exports rose from GDP growth and economic F$8.8 million in 1987 to F$141 million in performance 1994. By 1999 garment exports had increased to a staggering F$332 million. Fiji’s GDP growth rate over the past 31 years In 1999 the economy experienced strong has been very low (Table 2). The economy growth of 9.7 per cent but contracted by grew only 124 per cent over the period 2.8 per cent in 2000 due to the political 1970–2001, equivalent to a 2.6 per cent disturbances (Table 1). In 2001 the economy average annual growth rate for this period. grew by a meagre 1.5 per cent, a slight Real per capita income, however, grew even improvement over the forecast of 1 per cent. more slowly, by a meagre 44 per cent in the In November 2001, the government projected same period—equivalent to an average 1.2 an economic growth rate of 3.5 per cent in per cent annual growth rate. 2002, based on its expansionary fiscal policy The highest level of GDP growth was (Fiji 2001a). This projection has been revised achieved between 1970 and 1975—the to 4.4 per cent (Reserve Bank of Fiji 2002c). period immediately after independence. The Reserve Bank’s revision reasserts the earlier period of lowest growth was in the 1981–85 argument by the government that increased period—the period during which Fiji’s domestic demand would augur well for the foreign debt was increasing and when a economy and induce economic growth. In decisive economic policy switch from import particular, the higher government allocation substitution to niche market exports was for capital spending is expected to generate implemented. It is, however, not implied here much-needed employment and spur activity that the decline in GDP was caused by these in the private sector (Reserve Bank of Fiji factors. It may be the case that the increase in 2001a). Economic growth for 2002 is expected foreign debt and the change in economic to be broad-based with the exception of policy were pursued as a result of declining sugar, which is projected to contract further. economic performance. The comparatively The major sectors and industries anticipated better economic growth rate during the to drive growth in 2002 are the wholesale 1986–90 period is observed to be as a result and retail trade, transport, community, social of growth in the garment and tourism sectors. and personal services, tourism, and mining The policy switch from import- and quarrying. substitution to export-oriented strategy, Table 2 Fiji: average real GDP growth and real per capita GDP growth, 1970–2000 (at constant 1990 prices) Average GDP growth rate Average per capita GDP growth rate 1970–75 9.7 7.5 1976–80 2.3 0.3 1981–85 -1.3 -3.1 1986–90 1.2 0.2 1991–95 2.4 0.8 1996–2000 2.1 1.5 Source: Derived from Appendix Table A1. 3 Pacific Economic Bulletin Volume 17 Number 1 May 2002 © Asia Pacific Press PACIFIC ECONOMIC BULLETIN Economic survey pursued vigorously after the coups of 1987, Sectoral performances led to modest economic recovery in the periods 1991–96 and 1996–2000. However, Sugar this policy shift has not as yet delivered a Sugar has been the mainstay of the Fijian higher average growth rate (Chand 1998). economy. It employs more than 25 per cent This result may be due to uncertainties on of Fiji’s total workforce and the prospect of the political front and in property rights the sector’s collapse points to a bleak to land ownership.
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