Bi­man Prasad gets it wrong on RBF

Fiji Sun - - EXPLAINER - Jy­oti Prat­i­bha Edited by Naisa Koroi Feed­back: jy­otip@fi­jisun.com.fj

Blam­ing the Re­serve Bank of Fiji to score some po­lit­i­cal points is cheap shot by the Na­tional Fed­er­a­tion Party leader Bi­man Prasad, and it is an at­tempt to re­main rel­e­vant.

In a press state­ment, Mr Prasad lev­elled some se­ri­ous al­le­ga­tions against the RBF.

He claimed that the RBF got it wrong. In that case, ev­ery Re­serve Bank around the world got their re­spec­tive fore­casts wrong.

Mr Prasad ques­tioned: “How did the Re­serve Bank get it so wrong? And why has it taken un­til July 2020 for the Re­serve Bank to ad­mit that in 2019 the econ­omy went down, not up? Was the Re­serve Bank un­der pres­sure from the Govern­ment to con­tinue to pre­tend that there was a “Bain­i­marama Boom” – when ev­ery­body knew dif­fer­ently?”

Some facts

There is nowhere in the RBF press re­lease that they blame the 2019 growth rate on COVID-19. In ad­di­tion, he knows very well that RBF does not re­vise GDP growth rate ev­ery day. They re­vise it twice a year.

Back­ground to the fore­cast­ing process in Fiji

The first Gov­er­nor of the Re­serve Bank of Fiji (RBF), the late Save­naca Si­wat­i­bau, set up the Macroe­co­nomic

Com­mit­tee (MC), which is made up of heads and se­nior rep­re­sen­ta­tives from the Min­istry of Econ­omy, Fiji Bureau of Statis­tics, Min­istry of Com­merce (MC), Trade, Tourism and Trans­port, Office of the Prime Min­is­ter, In­vest­ment Fiji, the Fiji Rev­enue and Cus­toms Ser­vice, and is chaired by the Gov­er­nor of the RBF. It is this com­mit­tee that con­firms and re­leases the fore­cast and pro­vi­sional GDP, ex­ports, im­ports and bal­ance of pay­ments es­ti­mates for Fiji.

The MC re­views and ap­proves the pro­jec­tions rec­om­mended by the Macro-Tech­ni­cal com­mit­tee, which com­prises se­nior tech­ni­cal staff from the or­gan­i­sa­tions listed above. This in­sti­tu­tional ar­range­ment has been the norm in Fiji over the last four decades and has worked well.

Why growth rate was re­vised from 0.5% to -1.3%?

The RBF has clar­i­fied that the Macroe­co­nomic Com­mit­tee was con­sis­tently down­grad­ing the 2019 growth fore­cast since early last year. In 2018, growth for 2019 was pro­jected at 3.4 per cent. When the fore­casts were re­viewed in May 2019, the Macroe­co­nomic Com­mit­tee low­ered the 2019 growth fore­cast to 2.7 per cent and then down­graded it fur­ther to 1.0 per cent in Novem­ber, 2019.

“These down­grades re­flected new data be­ing made avail­able to the tech­ni­cal staff in­clud­ing pro­duc­tion data from various sec­tors, re­vised fore­cast pro­vided by stake­hold­ers and RBF’s June 2019 Busi­ness Ex­pec­ta­tions and Re­tail Sales Sur­veys,” says RBF Gov­er­nor Ariff Ali

In prepa­ra­tion for the COVID-19 Re­sponse Bud­get in Fe­bru­ary this year, the RBF’s es­ti­mate for 2019 growth was down­graded fur­ther to 0.5 per cent. Later, when the Macroe­co­nomic Tech­ni­cal Com­mit­tee met in April and May in prepa­ra­tion for the 2020-21 Na­tional Bud­get, the es­ti­mate for 2019 was fur­ther down­graded to 1.3 per cent as the com­mit­tee now had ac­cess to ac­tual 2019 pro­duc­tion data for most of the sec­tors in­clud­ing govern­ment ac­counts.

“There­fore, eco­nomic fore­casts re­flect the most avail­able data and sen­ti­ments at the point in time and are then ad­justed up­wards or down­wards as new data and in­for­ma­tion comes to hand,” Mr Ariff said.

How often does RBF re­vise eco­nomic growth?

The Macroe­co­nomic Com­mit­tee con­ducts and re­views the fore­cast twice an­nu­ally. The first round of fore­cast­ing is un­der­taken just be­fore the re­lease of the Na­tional Bud­get around May or June and the sec­ond round is done around Oc­to­ber. It in­volves a lot of work and could last up to six weeks of data gath­er­ing from ma­jor play­ers in the econ­omy and vig­or­ous vet­ting by staff of the Min­istry of Econ­omy and Re­serve Bank of Fiji.

“The Re­serve Bank re­leases its monthly as­sess­ment of the various sec­tors of the econ­omy in its Eco­nomic Re­view and on a quar­terly ba­sis in the Quar­terly Re­view. A pe­rusal of these re­leases will re­veal that the Bank has been high­light­ing the slow­down in eco­nomic ac­tiv­ity based on the de­cline in various con­sump­tion and in­vest­ment indicators along with weak sec­toral per­for­mances,” Mr Ariff said.

Was Mr Prasad’s anal­y­sis cor­rect?

Def­i­nitely not. Be­low is the ex­tract from the press re­lease is­sued on July 2 re­gard­ing the 2019 growth rate.

“The pro­vi­sional GDP growth es­ti­mate for 2019 has been re­vised from a mar­ginal 0.5 per cent growth to a 1.3 per cent con­trac­tion, in line with the syn­chro­nised global slow­down and weak­ness in domestic de­mand from the sec­ond half of last year.” RBF Gov­er­nor Ali said: “I do not un­der­stand why Honourable Prasad is mis­lead­ing the pub­lic be­cause nowhere in the state­ment above it is claimed that the con­trac­tion in the econ­omy in 2019 has been blamed on COVID-19. He would be the best per­son to ex­plain his state­ment. “The 2019 growth rate was re­vised down­wards due to avail­abil­ity of ac­tual data and in­for­ma­tion for the year that was col­lated and an­a­lysed by the Macroe­co­nomic com­mit­tee in March and April of this year. How­ever, be­cause the Na­tional Bud­get for fis­cal year 2020-21 was de­layed to July, the Macroe­co­nomic Com­mit­tee met in early July in­stead of the usual May or early June.

“The ef­fects of COVID-19 is re­flected only in the 2020 con­trac­tion of 21.7 per cent.”

Photo: Ron­ald Kumar

Gov­er­nor of the Re­serve Bank of Fiji Ariff Ali.

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