August 12, 2009

Confirmed: Fiji's Economy Is In The Toilet

Nasdaq reports that our economic outlook is looking pretty shabby.

Well with (military?) officials scurrying illegally all over the place on obviously unbudgetted expenses and unclear objectives, it's hardly surprising now is it?

Fiji Economic Outlook Bleak, To Contract Sharply - Analyst

CANBERRA -(Dow Jones)- The economic outlook for Fiji is bleak, with the gross domestic product to contract by at least 5%, Renuka Mahadevan, a senior academic at the School of Economics, University of Queensland, said Tuesday.

Three factors underpin the "very bleak" outlook for Fiji's economy, including the impact of the global financial crisis, which has compounded the dire consequences of the political situation, and ongoing unstable and sluggish growth since a political coup in 2000, she said.

It isn't far fetched to think that GDP growth could be "negative 5% or even lower," she said

"But that's very conservative," Mahadevan said in an update on Fiji for the Australian parliament organized by Australian National University.

GDP grew 0.2% in 2008 after a contraction of 6.6% due to the impact of a political coup in 2007, she said.

Fiji is a small island-based nation in the South Pacific with a population estimated at almost 950,000 in 2008. It has suffered a series of political coups over the past two decades. Main industries include tourism, sugar, fisheries and garment manufacture.

In a brief run through of key economic indicators, Mahadevan said the annual inflation rate is "pretty low" for now at 0.8% but a 20% devaluation the Fijian dollar on April 15 will cause inflation to accelerate to an estimated 9.5% annual rate by the end of the year, a disappointing return to last September's annual inflation rate of 9.8%, which was a 20 year high, she said.

The devaluation was undertaken to improve the export sector but its timing poor as the global financial crisis meant demand for exports was going to fall anyway, moderating the impact of the devaluation, she said.

Moreover, the devaluation approach to solve economic problems shifts focus way from a need for domestic economic reform, she said.

As for the impact of the global financial crisis, "Fiji banks are fairly well insulated," with the indirect impacts of this of greater concern, such as export demand for garments and tourism, both of which are major contributors to the economy, she added.

Government revenue will decline also as a result of the global financial crisis, with export revenues and remittances declining, so a government budget previously estimated at 3% of GDP this year "is going to be squeezed even further," Mahadevan said.

But this will be financed raises potential problems, with internal borrowings potentially pressuring interest rates upwards. While external borrowing is possible with external debt quite low at 7% of GDP, Fiji's ongoing political problems have caused Fiji's credit ratings to be downgraded so it isn't clear if external borrowing will help, she said.

A coherent, holistic reform process must be put in place increase efficiency and productivity in areas of governance, agricultural and nonagricultural industries and trade, Mahadevan said.

By Ray Brindal, Dow Jones Newswires; 612-6208-0902;

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