July 13, 2010

Moving Fiji out of the doldrums

 Fiji Sun News - 13 July 2010
Association of Banks in Fiji chairman, Rakesh Sharma, shares his views to the Fiji Sun about the June issue of the Reserve Bank of Fiji’s Economic Review.

SUNBIZ: How does the global economic recovery and the International Monetary Fund forecasts affect Fiji and the ordinary people?

MR SHARMA: Let’s take Fiji. In the present global scenario, no economy can stay isolated from the global events more so from the negative impacts. It has been quite significantly demonstrated in East Asian Crisis in 90s, in Sub Prime Debacle and in more recent Sovereign crises of Greece and other European countries.
If these crises have negative shocks, the recoveries are surely going to have the much needed positive impact globally.
Fiji’s economy is characteristically very much dominated by the events happening in its major trading partners. Moreover, it is largely depending upon these partners for growth of major industries/sectors.
For instance, increase in tourist arrival of more than 22per cent in the first four months of current year in the direct effect of global recovery.
This can be attributed to the recovery in major trading economies.
Tourism being major foreign exchange earner, increase in tourist’s arrival will result in growth in other sector also.
It will result in increase in capacity utilization of tourism related sectors, increase in VAT and payee collections, growth in GDP, of which tourism sector in a prominent contributor and increase in foreign exchange.
Recovery in economies of trading partner will encourage buying from Fiji the products like fish, timber, gold, mineral water and consequently increase export earnings.
Indirect impact of global recovery can be observed in increase inward remittances also. We can therefore, expect a positive impact on Fiji in medium and long run, provided the recovery in major trading partners is consistent and sustained.
For the ordinary people; it’s an increase in employment in tourism and other sectors.
Resulting in increase in wages, purchasing power and consumption, which is the most positive contributors to the economic development. However, such impact may not prominently be visible in the short run.

SUNBIZ: The commercial banks lending for investment purposes rose. What are the benefits of this on Fiji’s economy?

MR SHARMA: Increased investment is a welcome feature and an important indicator of progress in economy.
It signifies increase in business and investor’s confidence. The positive growth in tourism has encouraged investment in real estate for increasing room inventory, building tourist resorts and development of lots for sale to foreigners.

Investment in infrastructure and manufacturing units (plant and machinery) is a very welcome feature as it is a prerequisite to any economic development.
These activities again result in employment generation, increased income, purchasing power and consumption.

SUNBIZ: How does inflation affect consumers?

MR SHARMA: Inflation is a phenomenon, which is prominently visible in almost all the economies in the world.
External stimuli employed to combat the global crises had direct bearing on rising inflation. However, in a developing economy inflation can never be neutralised but it can be at the most controlled.

Price rise is a welcome phenomenon, signifying economic development, unless the rise is hyper or galloping. Rise in prices is always a burden on people and consumers. In the current environment the people have no choice but to live with it.

SUNBIZ: Your comment on Fiji’s foreign reserves Fiji?

MR SHARMA: Foreign Reserves of Fiji constitute;
A) Foreign investments
B) Inward remittances
C) Special Drawing Rights

Special Drawing Rights (SDRs) are costless assets that increase a nation’s foreign exchange reserves without the need for an actual transfer of funds. Allocated to nations by the International Monetary Fund (IMF), a SDR represents a claim to foreign currencies for which it may be exchanged)
Overview of Economic Review is summarised as follows:
World Economy- Global economy is recovering and it is forecast to recover at 4.2per cent for the current year. Developing economies are expected to grow at a higher rate than the developed economies.

Fiji Economy- Fiji’s economy is improving. The economic performance of Fiji’s major trading partners has improved. Positive outlook for Fiji may be reinforced on the basis of following indicators:

1. In April, Tourists arrival increased by 22.7per cent.
2. VAT collection (April 2010) showed increase of 9.5per cent.
3. Commercial Banks lending for investment rose by 4.5per cent. Lending for consumption rose by 3.9per cent.
4. Inward remittance rose by 32.5per cent.
5. Inflation declined to 9.4per cent in May 2010 from 10.5per cent in April 2010.
6. Domestic export earning rose by 74.4per cent in Jan 2010 as compared to (-) 41.8per cent in 2009.
7. Foreign reserves position improved with 3.5 months of import.
8. Banks’ liquidity level is higher. Reserve Bank Fiji has increased SRD rate to suck extra liquidity to curb inflation.

However, uncertainty looms large over the growth of economy in the current year as is evident from the frequent change in growth forecast and other estimates.
In the most recent news, doubts are expressed on New Zealand’s economic recovery.
In this volatile situation, we need to keep our fingers crossed and hope no further global or natural crisis hits Fiji and the world.
(Note: Mr Sharma would like to clarify that views expressed in this interview are solely his and not of Bank of Baroda or any other organisation).

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