REPUBLIC OF FIJI ECONOMIC AND FISCAL UPDATE: SUPPLEMENT TO THE 2012 BUDGET ADDRESS "Empowered Fijians and a Modern Economy" Ministry of Finance 25 November 2011 FOREWORD The 2012 Supplement to the Budget Address provides an overview of Fiji‟s economic & financial performance and outlines Government‟s fiscal strategy for the medium term which focuses on fostering economic growth and achieving fiscal sustainability. This report was compiled by the Ministry of Finance in consultation with relevant stakeholders from both the private and public sector. The update incorporates all the available economic and fiscal information as of November 2011. The Economic and Fiscal Update spells out in more detail economic and financial policies underlying the 2012 Budget. Filimone Waqabaca Permanent Secretary for Finance 25 November 2011 2 TABLE OF CONTENTS CHAPTER 1: ECONOMIC PERFORMANCE AND OUTLOOK 2010-2014 ........ 6 INTRODUCTION ................................................................................................................. 6 INTERNATIONAL OUTLOOK .............................................................................................. 6 FIJI‟S TRADING PARTNERS ............................................................................................... 7 DOMESTIC OUTLOOK ....................................................................................................... 8 OVERVIEW: 2011 .............................................................................................................. 8 OVERVIEW: 2012 ............................................................................................................ 10 OVERVIEW: 2013 & 2014 ............................................................................................... 10 INFLATION ...................................................................................................................... 11 EXPORTS AND IMPORTS .................................................................................................. 12 BALANCE OF PAYMENTS ................................................................................................ 13 MONETARY POLICY ....................................................................................................... 14 MONEY AND CREDIT ...................................................................................................... 15 INTEREST RATES ............................................................................................................ 15 EXCHANGE RATES .......................................................................................................... 16 CHAPTER 2: ROADMAP FOR DEMOCRACY AND SUSTAINABLE SOCIO - ECONOMIC DEVELOPMENT 2009-2014 .............................................................. 17 INTRODUCTION ............................................................................................................... 17 IMPLEMENTATION PROGRESS......................................................................................... 17 KEY FOCUS AREAS FOR 2012 AND BEYOND .................................................................. 19 CHAPTER 3: MEDIUM -TERM STRATEGY ........................................................ 20 INTRODUCTION ............................................................................................................... 20 MEDIUM TERM STRATEGY ............................................................................................. 20 FISCAL TARGETS ............................................................................................................ 21 REVENUE POLICY ........................................................................................................... 22 EXPENDITURE POLICY .................................................................................................... 23 DEBT POLICY .................................................................................................................. 23 STRUCTURAL REFORMS ................................................................................................. 24 Civil Service Reforms ..................................................................................................... 24 Public Enterprise Reforms ............................................................................................. 26 Financial Management Reforms .................................................................................... 28 Land Reforms ................................................................................................................. 30 Sugar Industry Reforms.................................................................................................. 31 Financial Sector Reforms ............................................................................................... 31 CHAPTER 4: GOVERNMENT’S FISCAL POSITION .......................................... 36 INTRODUCTION ............................................................................................................... 36 2010 REVISED BUDGET .................................................................................................. 36 2011 BUDGET ................................................................................................................. 36 2012 BUDGET ................................................................................................................. 37 Operating Receipts ......................................................................................................... 38 Operating Payments ....................................................................................................... 46 Government Savings....................................................................................................... 51 Government Investing Receipts ...................................................................................... 51 3 Government Investing Payments .................................................................................... 52 Net Cash Flows from Investing Activities ...................................................................... 55 Net Deficit ...................................................................................................................... 56 CHAPTER 5: GOVERNMENT’S BALANCE SHEET ........................................... 57 INTRODUCTION ............................................................................................................... 57 GOVERNMENT EQUITY INVESTMENT ............................................................................. 57 GOVERNMENT REFORM PROGRAMMES.......................................................................... 59 EQUITY INVESTMENT PERFORMANCE ............................................................................ 60 DIVIDEND FROM GOVERNMENT INVESTMENTS ............................................................. 61 ARREARS OF REVENUE ................................................................................................... 62 GOVERNMENT DEBT ...................................................................................................... 63 DOMESTIC DEBT STOCK ................................................................................................. 64 DOMESTIC INTEREST RATES .......................................................................................... 65 EXTERNAL DEBT ............................................................................................................ 65 DEBT COMPOSITION ....................................................................................................... 66 INTEREST RATES ............................................................................................................ 66 LOANS PREPAID IN 2010 ................................................................................................ 67 LOAN FUNDED PROJECTS COMPLETED IN 2010 ............................................................. 67 CONTINGENT LIABILITIES .............................................................................................. 67 CHAPTER 6: POVERTY ALLEVIATION AND RURAL DEVELOPMENT ..... 70 INTRODUCTION ............................................................................................................... 70 SOCIAL PROTECTION AND POVERTY ALLEVIATION INITIATIVES .................................. 70 RURAL AND OUTER ISLAND DEVELOPMENT.................................................................. 74 CHAPTER 7: PRIORITY ECONOMIC SECTORS ................................................ 77 AGRICULTURE ................................................................................................................ 77 FISHERIES ....................................................................................................................... 81 FORESTRY....................................................................................................................... 83 TOURISM ........................................................................................................................ 85 MINING & GROUNDWATER ............................................................................................ 87 Groundwater Resources ................................................................................................. 90 RENEWABLE ENERGY SECTOR ....................................................................................... 90 MICRO, SMALL & MEDIUM ENTERPRISES .....................................................................