ECONOMY Credit Rating Firm Upbeat on Fiji

Fiji’s credit profile balances robust economic growth and improvements in institutional strength against moderately high government debt and limited economic diversification

Moody’s Investors Service says Fiji’s (Ba3 stable) credit profile is supported by continuing improvements in the country’s economic and institutional strength, aided by political stability and ongoing reforms. While government debt levels are moderately high, debt affordability is supported by a large captive source of domestic financing through the Fiji National Provident Fund and the country’s increasing engagement with international financial institutions. Ample foreign reserves reduce external vulnerability. Moody’s expects Fiji’s economic growth to remain robust, underpinned by the country’s expanding tourism sector. Moody’s also expects political stability to be maintained through general elections scheduled for the second half of 2018.

Credit challenges include a small, open and narrowly diversified economy that is vulnerable to shocks. In particular, the economy and public finances are highly vulnerable to sudden climate events and gradual climate change trends.

Wider fiscal deficits in recent years and moderately high government debt levels constrain the government’s fiscal flexibility to deal with potential shocks. Moreover, low levels of economic competitiveness weigh on diversification prospects beyond tourism and agriculture.

Moody’s conclusions are contained in its just-released annual credit analysis on Fiji, which examines the sovereign in four categories: economic strength, which Moody’s assesses as “low (+)”; institutional strength “low (+)”; fiscal strength “moderate”; and sus- ceptibility to event risk “moderate (-)”.

The report constitutes an annual update to investors and is not a rating action. The stable outlook on the sovereign’s rating reflects balanced risks to Fiji’s credit profile. Triggers for an upgrade include: (1) more robust economic growth, for example through improvements to the business climate that allow for a faster narrowing of deficits and debt consolidation than Moody’s currently expects; and (2) significant economic diversification, including in the tourism sector and expansion into new industries, which would enhance the economy’s resilience to shocks.

By contrast, triggers for a downgrade include: (1) a large external or domestic shock, possibly stemming from a natural disaster, that substantially weakens Fiji’s economic growth prospects and fiscal outcomes over a prolonged period; (2) the reemergence of domestic political risks that disrupt economic and fiscal management and potentially strain relationships with international financial institutions and/or key regional partners such as Australia and New Zealand, which would weaken institutional strength; and (3) balance of payments stresses that cause the country’s foreign reserve position to deteriorate and increase repayment risks on external debt obligations.