Biman Prasad gets it wrong on RBF
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?”
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.”
Governor of the Reserve Bank of Fiji Ariff Ali.