ECONOMY High liquidity symptom of economic problems, says former RBF Governor
Fiji’s high liquidity level - over $ 2billion - is an unhealthy symptom reflecting poor economic growth, says former Reserve Bank of Fiji Governor Savenaca Narube. He said the country must find ways to make that money work for the economy, because its accumulation has only meant that this has not been the case.
“It’s not a healthy indicator at all. It’s reflecting the lack of economic activity. Lack of investments. And that’s a big concern,” he said.
“Where does this liquidity come from? It is coming from outside Fiji. What you call the foreign reserves. As the foreign reserves come in, they get converted into Fijian currency and they are there with the commercial banks.
“So when we have good healthy foreign reserves, which we have been having for a while, that’s why that liquidity is there. That’s the cause. But what’s not draining that liquidity is because the demand in the system for loans, for lending is not that high. Why? Because the economy has not been growing that much.”
Mr Narube said what shows up in the financial systems, such as the high liquidity, are often symptoms of issues happening elsewhere and they are usually where the problems are.
“So, don’t just look at the symptoms in the financial system. The causes are elsewhere in the end. Lack of investments, overall optimism and confidence in the economy and the future,” he said.
“Ultimately, it’s on the Government. Government stability and confidence. Having stability in the country. Looking at some issues that are blocking investments.”
RBF report on liquidity
In its April economic review released this week, the Reserve Bank of Fiji said while liquidity level had started to moderate, “it remains high at $2.3 billion as of April 2023, pushing outstanding lending rates to a historic low”.
Mr Narube said it remained unclear what “historical low” the RBF was referring to as lending rates are still high while deposit rates have dropped significantly, meaning that depositors are the ones paying a hefty price for Fiji’s high liquidity by earning low returns on their funds.
Last week, RBF significantly relaxed foreign exchange controls in a number of areas including profit remittances, withdrawal of investments, non-resident transfers offshore and loan repayments among other things.
“That’s a liquidity outlet. I think we should use the liquidity more and more internally to generate more income for us, more economic growth, more economic activities,” he said.
“Investors are reluctant. They are playing wait and see. They need more clarity on political stability. All those things come into consideration before investors put their money into the future,” Narube said.
“Production is the bottom line. We need to produce enough before we can export. Our production of our natural resources is really bad.
“We must free those sectors and put in place a programme for it. Agriculture alone is about three or four times lower than where it used to be. When you look at the value chain of production - processing/value adding and then to market. So for that chain, we haven’t even started on the first one. Huge problems there. Many issues. And we need to start tackling them. And that’s the challenge, if you really want to grow the economy on a sustainable footing,” Narube said.