Crisis impacts tourism, remittances: Reddy

www.fijilive.com-October 15, 2009

Fiji is beginning to feel the impact of the global financial crisis through a drop in earnings from tourism, remittances and the resource sectors, says economist Dr Mahendra Reddy, the dean of the Faculty of Commerce, Hospitality and Tourism Studies at the Fiji Institute of Technology.

In a paper titled “Understanding Financial Crisis: Some Implications on Remittances, Tourism and Resource Sectors”, Reddy said while Fiji had put in place policy responses to the global financial crisis, it is yet to be “out of the woods.”

“The global recession reduces demand for exports of goods and services. The fall in export and tourism earnings and in worker remittances also reduce private sector incomes and, therefore, demand for private consumption and residential housing. Also, business investment demand will be adversely affected by greater uncertainty about the prospects for the domestic and global economy and possibly also by a tightening of access to foreign capital,” Reddy said.

“Fiji’s tourism sector was already well below its past maximum performance due to political problems at home and the resulting negative publicity in the source countries, in particular Australia and New Zealand. However, while the sector started to get back on the growth track, the declining incomes in developed and emerging countries, where most tourist flows originate has dampened the rate of growth in tourism numbers.”

He said remittances, which have become a major source of external financing for Fiji, have been adversely affected by the slowdown in developed countries.

“The total volume of remittances to Fiji stood at F$310.9m in 2005 which further increased to F$322.3m in 2006. However, following 2006, it declined to F$256.4m in 2007 and further declined to F$188.0m in 2008. The decline in the volume of remittances has a direct negative impact on the well-being of households since such transfers - unlike other types of transfers - are directly used to cover primary needs such as food, education and healthcare,” Reddy said.

As a policy response, he said, Fiji has had to devalue its dollar, but rather than this being a competitive response, it was more a response to the dwindling level of international reserves and falling liquidity levels and has allowed it to buy time.

“While Fiji seems to be safe now, it is yet to be out of the woods - we need to examine government ability to repay some very large bonds which will be maturing in the next few years. That will be the crunch time.”

In the meantime, fiscal discipline along with prudent monetary policy tool use must be exercised,” Reddy said.