20240609-IMF-Republic_of_Fiji_2024_Article_IV_Consultation-Press_Release_Staff_Report_and_Statement_by_the_Executive_Director_for_the_Republic_of_Fiji_76页_2mb

Fiji 2024 Article IV Consultation Summary

Core Content

The International Monetary Fund (IMF) conducted the 2024 Article IV consultation with Fiji, which concluded on May 22, 2024. The consultation included a press release, staff report, and a statement by the Executive Director for Fiji. The staff report was finalized on May 2, 2024, following discussions with Fiji officials from February 28 to March 12, 2024.

Economic Recovery and Performance

Fiji's economy has recovered strongly from the pandemic, with real GDP rebounding by around 30% in 2022-2023, surpassing pre-pandemic levels. In 2023, GDP growth reached an estimated 8.0%, driven by a surge in tourism arrivals, which exceeded 2019 levels by 104%. Inflation rose to 4.6% year-on-year in March 2024, primarily due to a temporary VAT increase. The current account deficit narrowed to 7.6% of GDP in 2023, supported by tourism earnings, and FX reserves remained adequate at 5.2 months of prospective imports.

The fiscal deficit declined to 7.1% of GDP in FY2023, with public debt-to-GDP ratio at 82.7%. The FY2024 budget includes significant revenue-enhancing measures, which are expected to further reduce the deficit and debt ratios, although both are projected to remain elevated over the medium-term without additional reforms.

Economic Outlook and Risks

GDP growth is expected to moderate to 3.0% in 2024, due to supply-side constraints in the tourism sector. Over the medium-term, growth is projected to return to the pre-pandemic trend of 3.25%, aided by increasing tourism capacity, immigration reforms, and investment policies. However, downside risks include a slowdown in tourism, high emigration, climate change, and rising global commodity prices. Upside risks include stronger reform momentum and a better business climate, which could boost private investment and growth.

Executive Board Assessment

The IMF Executive Board generally agreed with the staff appraisal and welcomed the strong economic recovery. However, they emphasized the need for continued fiscal consolidation to rebuild buffers and reduce public debt. Directors also encouraged a shift to a more neutral monetary policy stance to create policy space, and stressed the importance of enhancing financial sector oversight and improving monetary transmission mechanisms.

Key Policy Recommendations

• Fiscal Policies: Continue to rebuild fiscal buffers through gradual consolidation, improve the targeting of social spending, and prioritize capital spending for inclusive growth.
• Monetary and Exchange Rate Policies: Shift to a neutral monetary stance and develop an effective monetary transmission mechanism.
• Financial Sector Policies: Strengthen financial sector oversight, particularly for banks with high non-performing loans, and improve financial inclusion.
• Structural Reforms: Implement a prioritized growth strategy to address growth impediments and enhance climate resilience.

Fiscal and Debt Indicators

• Revenue: Increased to 24.7% of GDP in 2023.
• Expenditure: Remained at 30.6% of GDP in 2023.
• Overall Balance: Narrowed to -5.9% of GDP in 2023.
• Primary Balance: Improved to -1.9% of GDP in 2023.
• Public Debt-to-GDP: Declined to 82.7% in FY2023.
• External Debt-to-GDP: Stabilized at 28.1% in 2023.

Main Revenue Measures in FY2024 Budget

Key Challenges and Opportunities

• Challenges: Tourism sector constraints, labor shortages, high emigration, and limited fiscal space.
• Opportunities: Strengthened reform momentum, improved business climate, and increased private investment.

Conclusion

The IMF recognized Fiji's strong economic recovery but highlighted the need for continued fiscal and structural reforms to ensure long-term resilience and sustainable growth. The coalition government is working on a new National Development Plan and a "Growth Reset Committee" to drive these reforms.