ADB’s Outlook 2012 report describes Fiji’s economic growth as “weak… held back by policy uncertainty and structural constraints” resulting in low levels of private investment.
Private investment level last year fell to a record low of 2% of GDP compared to an average of 11.3% between 2000-2005 and 7.5% between 2006- 2010.
The Bank further warns: “Business level is unlikely to be restored until progress is made on political reform. The drafting of a new constitution this year and the holding of national elections in 2014 will be crucial in this respect.”
It foresaw greater poverty challenges as a result of the weak medium-term macro-economic outlook – unless structural reforms were carried out in a “coherent and coordinated manner”.
In a brief summary heading the report, the Asian Development Bank noted that while tourism was performing well “… other leading sectors such as sugar and textiles, are struggling to compete internationally. Economic prospects are further clouded by weak global markets. Public expenditure is limited by high levels of debt and, longer term, structural reforms are essential for the economy to achieve its growth potential.”
It projects a 1% growth in 2012 and 1.2% in 2013 – lower than government projections – based on likely weak global demand, slow growth in bank lending, low levels of private investment and the effects of the floods in the first quarter of the year.
The ADB noted government projections for a reduction in the debt to GDP ratio from 51% in 2012 to 49% in 2014 if “its economic and revenue growth targets are met”… but still short of its target of 40%.
But the warning was clear: “Crucially, if these targets are not achieved, the fiscal position could deteriorate. This would affect the provision of essential public services and increase public debt. There would be little scope for fiscal expansion.”
The ADB report concluded with the following sobering assessment:
}Fiji has experienced low economic growth, rising emigration, and high poverty over the past decade, mainly because of low domestic investment.
Private investment is low, there has been little new domestic lending, and public investment has been constrained by poor implementation. Since 2005, gross domestic investment has averaged 13.1% of GDP a year, well below the government’s target of 25%.
The ratio of private investment to GDP declined from an average of 11.3% in 2000–2005 to 7.5% in 2006–2010; in 2011 it was around 2%.
The government recognizes that the economy operates below its growth potential because of an array of difficult macroeconomic, structural, and sector policy constraints.
State-owned enterprise reform is progressing, and the government is seeking to divest its holdings in several enterprises. Yet the pace of reform is constrained by fiscal limits, a lack of technical capacity, limited stakeholder buy-in and consultation, and inconsistencies in the way reform principles are applied.
The medium-term macroeconomic outlook is weak and foreshadows greater poverty challenges—unless structural reforms are carried out in a coherent and coordinated manner.
Business confidence is unlikely to be restored until progress is made on political reform. The drafting of a new constitution this year and the holding of national elections in 2014 will be crucial in this respect.