RBF Chief: Economic Projection Better Than Prediction

Attributed to finance, wholesale & retail trade, transport & storage, accommodation & food services, construction and information & communication sectors

The latest assessment by the Macroeconomic Committee shows that the Fijian economy is estimated to have contracted by 15.7 per cent in 2020, lower than the 19.0 per cent contraction estimated earlier.

A release from the Reserve Bank of Fiji Governor Ariff Ali said the improvement was reflective of the latest available data, which show that major sectors such as finance, wholesale & retail trade, transport & storage, accommodation & food services, construction and information & communication performed better than initially expected.

Nonetheless, 2020 still represents the most severe economic contraction in Fiji’s modern history, as the collapse in visitor arrivals reverberated across the economy.

As tourism activity stalled, the negative knock-on effects were felt on overall economic activity leading to the deterioration in employment as well as business and household incomes.

This broad-based contraction in demand and economic activity also translated into lower tax revenue for Government, which also contributed to the negative GDP outcome for 2020.

The contraction in the Fijian economy is consistent with most emerging and developing economies, especially tourism-dependent countries, where economic activity contracted significantly and will take some time to return to prepandemic levels.

For 2021, with no community transmission for almost a year, there were strong prospects for positive growth this year as several economic indicators and business sentiments noted improvements.

However, the second wave of the coronavirus outbreak of the highly contagious Delta variant in Fiji has thwarted all chances of an economic recovery this year.

Cost of doing business

The localised lockdowns in Viti Levu, restrictions on certain economic activity and movement of people, and the mandatory “COVID 19- safe” operational requirements for many businesses have further curtailed economic activity and raised the cost of doing business.

The high unemployment and under-employment situation has worsened from last year, and Government finances have taken another hit, thereby further suppressing domestic demand.

Given these developments, the economy is forecast to contract further by 4.1 per cent this year, driven by the services and industrial sectors, which are expected to more than offset the positive contributions from the primary sector.

Outlook next year

From next year, economic recovery is expected on the assumption that the current outbreak is controlled, herd immunity is achieved through vaccination, and borders re-open towards the latter part of 2022. Hence, growth is expected to rebound to 6.2 per cent in 2022 and accelerate to 8.0 per cent in 2023.

While the economic recovery from next year is contingent on the resumption of tourism activity, visitor arrivals are not expected to return to pre-pandemic levels for some time.