Press Release No. 24/185

IMF Executive Board Concludes 2024 Article IV Consultation with Fiji

May 28, 2024

Washington, DC: On May 22, 2024, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation.[1]

Fiji’s economy has recovered strongly from the pandemic. Tourist arrivals surpassed pre-pandemic levels in 2023, yielding GDP growth of an estimated 8.0 percent and erasing pandemic-related output losses. Inflation ticked up in mid-2023, reaching 4.6 percent year-on-year in March 2024. The current account deficit narrowed to 7.6 percent of GDP in 2023 aided by the strong rebound in tourism earnings, and FX reserves remained adequate. Supported by the strong economic recovery, the fiscal deficit narrowed to 7.1 percent of GDP, and the public debt-to-GDP ratio declined to 82.7 percent in FY2023 (August-July). Significant revenue-enhancing measures in the FY2024 budget are expected to further reduce the fiscal deficit and public debt ratios, although both are projected to remain elevated over the medium-term without further measures. Monetary conditions remain accommodative, although the authorities have begun tightening liquidity. The ratio of bank non-performing loans to total loans has improved but continues to be higher than pre-pandemic levels.

GDP growth is projected to moderate to 3.0 percent in 2024, owing in part to supply-side constraints in the tourism sector. Supported by a gradual rise in tourism sector capacity and policies to address immigration and investment bottlenecks, the economy is expected to grow around the pre-pandemic trend (which is estimated at around 3¼ percent) over the medium-term. Downside risks to the economic outlook include a slowdown in tourist arrivals, high emigration and worsening skilled labor shortages, higher global commodity prices and shipping costs, and limited fiscal space. On the upside, stronger reform momentum, including to improve the business climate, could stimulate private investment and boost growth.

Executive Board Assessment[2]

Executive Directors agreed with the thrust of the staff appraisal. Directors welcomed the strong economic rebound driven by the recovery in tourism. They noted, however, downside risks to the outlook given Fiji’s vulnerability to a slowdown in tourism, commodity price shocks, and climate change. Directors emphasized the importance of pursuing sound macroeconomic management, while advancing efforts to address structural challenges related to fiscal buffers, resilience and inclusive growth.

Directors commended the authorities for implementing significant revenue-enhancing measures in the FY2024 budget to reduce the fiscal deficit, reverse the debt trajectory, and finance increased social spending. They stressed that continued gradual fiscal consolidation is critical to rebuild fiscal buffers to respond to future shocks and to place debt firmly on a downward path. Directors emphasized the need to further increase revenue mobilization and expenditure efficiency, including by better targeting social spending and improving public investment capacity. They concurred that strengthening oversight of state-owned enterprises and reinforcing the fiscal institutional framework can help protect fiscal sustainability.

Noting excess liquidity and the closing negative output gap, Directors encouraged the authorities to gradually shift monetary policy to a neutral stance to create policy space, supported by a proactive communication strategy. Developing a more effective monetary transmission mechanism would also be important. Directors encouraged reversing the remaining pandemic-related current account exchange restrictions and capital flow management measures, and phasing out the pre-pandemic exchange restrictions.

While noting that the financial sector remains sound, Directors stressed the importance of further enhancing financial sector oversight, particularly for banks with high non-performing loans. Improving the financial supervision framework, implementing the remaining recommendations of the 2018 Financial Sector Stability Review, addressing deficiencies in the AML-CFT framework, and strengthening financial inclusion are also key.

Directors welcomed the authorities’ plans to undertake growth-enhancing reforms, including under the National Development Plan. They encouraged pursuing a prioritized growth strategy to foster diversification, enhance governance, and address labor shortages, including by promoting female labor force participation. Directors underscored the need to advance climate plans to enhance climate resilience and diversify energy sources. Noting the financing and capacity constraints, they stressed the importance of prioritizing projects and welcomed the planned C-PIMA in this regard. Enhancing data quality to better inform policymaking remains key.

It is expected that the next Article IV consultation with the Republic of Fiji will be held on the standard 12-month cycle.

   Sources: RBF, Ministry of Finance, and IMF staff estimates and projections.

[1] Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.

[2] At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summing up can be found here: http://www.IMF.org/external/np/sec/misc/qualifiers.htm.