Fiji’s Standards &Poors Global Ratings Improves

The Standard and Poors (S&P) Global Ratings raised its longterm local- and foreign-currency sovereign credit ratings for Fiji to ‘BB-’ from ‘B+’. According to S&P Global Ratings statement released recently, the outlook on the long-term ratings is stable.

“At the same time, we affirmed our short-term sovereign credit ratings at ‘B’. We also revised our transfer and convertibility (T&C) assessment to ‘BB-’ from ‘B+’,” the statement said.

Outlook

“The stable outlook reflects our expectation that Fiji’s economy will continue to grow during the next 12 months, and that the government’s medium-term fiscal consolidation plan will result in a stabilising debt burden.

“We also expect the country’s external position and foreign-exchange reserves to remain sound.

“We could lower our ratings within the next 12 months if we observe a reversal of recent improvements in political stability, resulting in a decline in investor confidence or the withdrawal of donor and multilateral support.

“We might also lower the ratings if the Government’s fiscal position were to weaken, leading to a substantial rise in interest expenses and net debt.

“We could raise our ratings within the next 12 months if Fiji’s institutional settings continue to improve, which would help to support policy stability and economic growth.

“We might also raise the ratings if the government loosens its foreignexchange restrictions while maintaining a healthy level of reserves or if fiscal consolidation progresses faster than we currently expect, resulting in a declining debt burden.

Rationale

“We have greater confidence in policy continuity in Fiji following the elections of November 2018. “The Fijian economy is entering its 10th consecutive year of growth, despite the severe damage inflicted by Tropical Cyclone Winston in 2016. “While the Government had sought to influence monetary policy in the past, we believe the Reserve Bank of Fiji has generally demonstrated improving operational independence during the past decade.

“We expect net government debt to be roughly stable as the government begins to consolidate its fiscal position.

“Our ratings on Fiji remain constrained by its middle-income economy, with per capita Gross Domestic Product (GDP) of around US$6,000 (FJ$13,120) a polarised political landscape, and limited monetary policy flexibility. “These weaknesses are partly mitigated by the government’s stable interest expenses, which should fall further as it accesses more lowinterest lending, as well as its sound external position.”

Institutional and economic profile:

Policy continuity supports creditworthiness; economic growth still solid

* After the 2018 general election, policy continuity should continue to support growth and investment. * Economic prospects remain solid, despite damage inflicted by Tropical Cyclone Winston.

* The economic base is somewhat narrow and reliant on the tourism sector.

Economic expansion

“We expect Fiji’s economic expansion--now in its 10th year--to continue at about three per cent per annum in real terms over the next few years. Per capita GDP is also growing, at about two per cent-three per cent per annum.

“We estimate GDP per capita in 2019 at US$6,000--up by 15 per cent during the past five years. “Growth rebounded in 2017 and 2018 after Tropical Cyclone Winston-the most intense cyclone ever recorded in the southern hemisphere-inflicted severe damage in February 2016.”

Sector highlights

■Fiji’s economic base is somewhat narrow and relies heavily on the tourism sector.

■Fiji also has a large subsistence agricultural sector, and its other industries include garment manufacturing, gold mining, fishing, and timber production.

■Fiji ranked 101st in the World Bank’s “Doing Business” survey for 2019, down from 86th in 2015.

■The decline over several years is largely attributable to the closure of Fiji’s single credit bureau in 2016; the country’s rank could improve now that a new credit bureau is being established.”

The stable outlook reflects our expectation that Fiji’s economy will continue to grow during the next 12 months, and that the government’s medium-term fiscal consolidation plan will result in a stabilising debt burden. Standard and Poors (S&P) Global Ratings