Fiji’s Short-term Outlook Uncertain and is Dependent on Length of COVID-19: Bank

MARAIA VULA

Fiji’s short-term outlook is uncertain and is dependent on the length of the COVID-19 crisis. This is according to the World Bank report East Asia AND PACIfiC IN THE TIME OF COVID-19, launched on Tuesday.

The report is an Economic Update for East Asia and the Pacific that deals directly with the economic challenges posed by the COVID-19 pandemic.

Outlook recommendation

In its outlook recommendation for Fiji, the report said: “The severity of the disruption to the global economy, and the impact on tourism, which is the mainstay of the Fijian economy.

“The economy is expected to contract in 2020 but return to trend from 2021 onwards, with growth strengthening to around three per cent in 2021–2022 if the COVID-19 crisis is contained, allowing the global environment to improve and tourism to remain robust, and assuming public investment increases and the private sector gains momentum.

“The modest outlook for import growth and an uptick in tourism and remittance inflows should keep international reserves at comfortable levels and the current account balance below five per cent of Gross Domestic Product over the medium term.

“The FY2020 budget, the government’s first since re-election for a second term in November 2018, had set out an ambitious commitment to fiscal consolidation driven by expenditure reduction measures, stabilisation of capital spending at pre-Tropical Cyclone Winston levels and tighter control over recurrent spending.

“However, given the severe implications of COVID-19 on the economy, the government announced on March 26 an economic package of over FJ$1.0 billion, equivalent to around 8.7 per cent of GDP, in its COVID-19 response budget.”

The package, the report said includes allocation of resources for containment and treatment of the virus; fiscal support to minimise economic disruptions; targeted spending and fiscal measures to boost disposable income and assistance for business.

“The deficit is expected to be financed through domestic borrowing as well as funds from the Asian Development Bank and the World Bank.

Risks and Challenges

“The potential impact of the current COVID-19 crisis poses heightened risks.

“The Fijian economy is particularly vulnerable to downside risks stemming from slower growth in main trading partners.

“These could impact tourism, remittances, and export receipts. Natural disasters are a constant threat, and delays in structural reforms aimed at mobilising private investment would also contribute to slower growth and a higher debtto-GDP ratio.

“On the upside, new air routes and code share arrangements with Asian and Indian carriers have the potential to boost tourism from these markets if the COVID-19 crisis is contained, and more stable oil prices would benefit inflation, imports, and foreign reserves.

“The poverty impacts of the COVID-19 crisis are also difficult to estimate due to this uncertainty.

“In 2013, 10 per cent of households had at least one member working in the tourism industry, with a further 2 per cent and 8 per cent with a member working in restaurants and transportation, respectively, which may be indirectly impacted. “While workers in these sectors are not disproportionally poor, more than 80 per cent of these jobs are formal sector salaried employment, which may be difficult to replace in a general economic downtown.

“As such, a shock to the tourism industry, which would also cause ripple effects in related industries, and could significantly increase the poverty rate and deepen the poverty gap.”

There are also specific sections and recommendations for Pacific countries.

“Countries in East Asia and the Pacific that were already coping with international trade tensions and the repercussions of the spread of COVID-19 in China are now faced with a global shock,” said Victoria Kwakwa, Vice President for East Asia and the Pacific at the World Bank.

“The good news is that the region has strengths it can tap, but countries will have to act fast and at a scale not previously imagined.”