I apologise for not having this blog updated for a while. We have been busy conducting Corporate Planning consultancies for two Government Departments were also in discussion and have secured informal agreements with two local companies, Datec Fiji and Vt-Solutions, to collaborate on consultancies in the area of business continuity planning (BCP).
We have developed our own Strategic Planning and Business Continuity Planning models in-house from our various experiences and value-add by using professionals from outside our business to assist with our consultancies.
In addition to this, I have also been busy with my trustee duties for Unit Trust of Fiji. For our unitholders, we had declared some dividends that were paid out over the last two weeks.
If you require any assistance with Strategic or Corporate Planning and Business Continuity Planning for your businesses, please email us on info@gilbert.com.fj for our proposal and fee quote or call us on (679) 3342719 or (679) 9921427.
Tuesday, December 30, 2008
New Coins come into circulation in January 2009
The Reserve Bank of Fiji has issued new coins which will come into circulation on 13 January 2009. The coins are smaller and lighter compared to the current ones in circulation. There are also no longer any 1 cent and 2 cent coins. Both new and old coins will co-circulate until 31 March 2009 when the old coins will no longer circulate. For more information, pls email info@rbf.gov.fj.
ANZ Interest Rates (updated 30.12.08)
Schedule of interest rates released by ANZ Fiji are as follows:
- Business Index Rate - 10.25%;
- Residential Property Loan : Standard Variable Rate - 9.50%, 1 Year Fixed Rate - 7.50%;
- Investment Loan : Standard Variable Rate - 9.50%, 1 Year Fixed Rate - 7.50%;
- Personal Loans : Secured - 11.50%, Unsecured - 14.20%;
- Small Loans : Unsecured - 19.00%;
- Retail Term Deposits: 9 months to 1 year - 1.75%, 1 to 1.5 Years - 2.00%, 1.5 to 2 Years - 2.5%, 2 Years to 3 Years - 3.00%.
Interest rates are on a per annum basis and may be varied by ANZ without prior notice.
Sunday, November 30, 2008
Westpac Interest Rates (updated 1.12.08)
Schedule of interest rates released by Westpac Fiji are as follows:
- Business Lending Rate - 9.99%;
- Residential Property Loan : Variable Rate – 9.50%, 1 year Fixed Rate – 7.50%;
- Investment Loan : Variable Rate - 9.50%, 1 year Fixed Rate - 7.50%;
- Retail Term Deposits: 6 to less than 9 months - 1.25%, 9 months to less than 1 year - 1.75%, 1 year to less than 1.5 Years - 1.75%, 1.5 years to less than 2 Years - 2.00%, 2 years to less than 3 Years - 3.00%.
Interest rates are on a per annum basis and may be varied by the bank without prior notice.
Colonial National Bank Interest Rates (Updated 1.12.08)
Schedule of interest rates released by Colonial National Bank are as follows:
- Business Banking Base Rate – 9.20%;
- Residential Property Loan : Variable Rate – 9.50%, 1 Year Fixed Rate – 7.50%;
- Investment Loan : Variable Rate – 9.50%, 1 Year Fixed Rate – 7.50%;
- Retail Term Deposits: 9 months - 2.25%, 1 year - 2.50%, 1.5 Years - 2.50%, 2 Years - 3.00%, 3 Years - 3.50%.
Interest rates are on a per annum basis and may be varied by the bank without prior notice.
Individuals and groups that need investment advice, or advice with regard to capital markets issues, can use our company, Gilbert & Samuels Company Limited. We also do strategic planning, business continuity planning and capacity assessment consultancies. Our contacts are: telephones (679) 3342719, (679) 3544897 or e-mail: info@gilbert.com.fj.
Tuesday, November 25, 2008
2009 Fiji National Budget - Not much on Financial Sector Reforms
There is not much new initiatives to be undertaken on financial sector reforms in Fiji as announced in the 2009 National Budget that was delivered on Friday, 21 November 2008, by the Interim Prime Minister and Minister for Finance.
Much of the initiatives mentioned are those that the financial sector authorities have been saying that they were working on for a number of years past.
Of interest though is what is being said with regard to the deregulation of the superannuation industry. There is some mention for a detailed study to be done "on advancing the deregulation of this industry".
Will the deregulation of the industry attract new players, given that one of the primary concerns with regard to the industry is that their potential investments are mostly restricted to assets and projects in Fiji? Will the Fiji National Provident Fund still be "encouraged" to invest its the funds in government securities and to fund Government's borrowing needs, even if there are new competitors?
Also of interest is the work to be done on Micro, Small and Medium Enterprise Development. The Budget mentions that the Reserve Bank of Fiji is working with stakeholders on how Micro, Small and Medium Enterprises can be developed further in Fiji and what role the Reserve Bank of Fiji should play.
In summary, much more effort needs to be put in by the authorities to advance thinking and development of our financial sector. There needs to be critical thinking from our regulators and the players in the financial sector on how we can keep our financial sector vibrant and attractive to potential investors.
There will be a huge challenge to balance that and what happens on the political front, however, this does not stop everyone doing some critical thinking.
Is this a time to go into offshore banking? One where we can still provide services to foreign investors and offer rates and features that are not linked to how the domestic economy works. Funds obtained from foreign investors are not invested in Fiji but overseas so they are safe from domestic hiccups.
What services can our financial regulatory authorities provide in the region to regulators of other small island countries? Are we still able to maintain our competitive advantages in this area compared to our upcoming competitors, Samoa and Papua New Guinea.
How can we encourage more locally owned financial institutions to establish themselves in Fiji and then to branch out into the Pacific after having operated successfully over a number of years? This will serve as a way to hedge country risks of financial institutions incorporated in Fiji.
With regard to Micro, Small and Medium Enterprises, is the Reserve Bank considering a new facility to provide a volume of funds and/or concessionary rates for lending to Micro, Small and Medium Enterprises? Is it considering providing scholarships or paying for training on basic business operations and management for the large number of Fiji's population as an incentive to encourage people to set up their own businesses in light of potential downsizing of companies and organisations as a result of the global/local crisis in the business sector?
Again, as I had already mentioned above, more critical thinking needs to be done by the financial sector and regulatory authorities to advance Fiji's financial sector rather than give us the usual "this and that" that we have been hearing for a number of years now.
Individuals and groups that need investment advice, or advice with regard to capital markets issues, can use our company, Gilbert & Samuels Company Limited. We also do strategic planning, business continuity planning and capacity assessment consultancies. Our contacts are: telephones (679) 3342719, (679) 3544897 or e-mail: info@gilbert.com.fj.
Much of the initiatives mentioned are those that the financial sector authorities have been saying that they were working on for a number of years past.
Of interest though is what is being said with regard to the deregulation of the superannuation industry. There is some mention for a detailed study to be done "on advancing the deregulation of this industry".
Will the deregulation of the industry attract new players, given that one of the primary concerns with regard to the industry is that their potential investments are mostly restricted to assets and projects in Fiji? Will the Fiji National Provident Fund still be "encouraged" to invest its the funds in government securities and to fund Government's borrowing needs, even if there are new competitors?
Also of interest is the work to be done on Micro, Small and Medium Enterprise Development. The Budget mentions that the Reserve Bank of Fiji is working with stakeholders on how Micro, Small and Medium Enterprises can be developed further in Fiji and what role the Reserve Bank of Fiji should play.
In summary, much more effort needs to be put in by the authorities to advance thinking and development of our financial sector. There needs to be critical thinking from our regulators and the players in the financial sector on how we can keep our financial sector vibrant and attractive to potential investors.
There will be a huge challenge to balance that and what happens on the political front, however, this does not stop everyone doing some critical thinking.
Is this a time to go into offshore banking? One where we can still provide services to foreign investors and offer rates and features that are not linked to how the domestic economy works. Funds obtained from foreign investors are not invested in Fiji but overseas so they are safe from domestic hiccups.
What services can our financial regulatory authorities provide in the region to regulators of other small island countries? Are we still able to maintain our competitive advantages in this area compared to our upcoming competitors, Samoa and Papua New Guinea.
How can we encourage more locally owned financial institutions to establish themselves in Fiji and then to branch out into the Pacific after having operated successfully over a number of years? This will serve as a way to hedge country risks of financial institutions incorporated in Fiji.
With regard to Micro, Small and Medium Enterprises, is the Reserve Bank considering a new facility to provide a volume of funds and/or concessionary rates for lending to Micro, Small and Medium Enterprises? Is it considering providing scholarships or paying for training on basic business operations and management for the large number of Fiji's population as an incentive to encourage people to set up their own businesses in light of potential downsizing of companies and organisations as a result of the global/local crisis in the business sector?
Again, as I had already mentioned above, more critical thinking needs to be done by the financial sector and regulatory authorities to advance Fiji's financial sector rather than give us the usual "this and that" that we have been hearing for a number of years now.
Individuals and groups that need investment advice, or advice with regard to capital markets issues, can use our company, Gilbert & Samuels Company Limited. We also do strategic planning, business continuity planning and capacity assessment consultancies. Our contacts are: telephones (679) 3342719, (679) 3544897 or e-mail: info@gilbert.com.fj.
Monday, November 24, 2008
ANZ Interest Rates (updated 25.11.08)
Schedule of interest rates released by ANZ Fiji are as follows:
- Business Index Rate - 10.25%;
- Residential Property Loan : Standard Variable Rate - 9.50%, 1 Year Fixed Rate - 7.50%;
- Investment Loan : Standard Variable Rate - 9.50%, 1 Year Fixed Rate - 7.50%;
- Personal Loans : Secured - 11.50%, Unsecured - 14.20%;
- Small Loans : Unsecured - 19.00%;
- Retail Term Deposits: 9 months to 1 year - 1.75%, 1 to 1.5 Years - 2.00%, 1.5 to 2 Years - 2.5%, 2 Years to 3 Years - 3.00%.
Interest rates are on a per annum basis and may be varied by ANZ without prior notice.
Sunday, November 23, 2008
Dividends from unit trusts to be exempt from income tax
Dividends earned from individual citizen's investment with unit trusts based in Fiji will now be exempted from income tax to encourage the level of investments in unit trusts. The announcement was made by the Interim Government in its 2009 National Budget delivered last Friday, 21 November 2008. Unit trusts included in this are :
- Colonial First State Income Fund;
- Colonial First State Income and Growth Fund;
- Fijian Holdings Property Trust Fund;
- Fijian Holdings Unit Trust;
- Unit Trust of Fiji.
Our company, Gilbert & Samuels Company Limited, had worked on a proposal to request Government to remove taxes from dividends earned by individual citizens from their investment with unit trusts, for Colonial First State Investments, a subsidiary of the Colonial Fiji Group. That work was initiated in late 2006 / early 2007. It is encouraging to note that the exemption has now been granted.
Investors in unit trusts in Fiji are mainly those that do not profess to have technical skills to be able to manage their own investments with a majority being Fijian villagers and communities.
The Capital Markets Development Authority has brochures providing basic information about investment in unit trusts and what to look out for. For more information, pls call the Authority on (679) 3304944.
I act as one of the two trustees for Unit Trust of Fiji with the other being Ms Ulamila Fa-Tuituku, a lawyer by profession.
Individuals and groups that need investment advice, or advice with regard to capital markets issues, can use our company, Gilbert & Samuels Company Limited. We also do strategic planning and business continuity planning consultancy. Our contacts are: telephones (679) 3342719, (679) 3544897 or e-mail: info@gilbert.com.fj.
ICT-related Development and Activities in Fiji : Seminar
The School of Computing, Information & Mathematical Sciences (SCIMS), in collaboration with the Fiji Government's Information & Technology & Computing Services (ITC) and the South Pacific Computer Society (SPACS) will hold a seminar to highlight some of the important ICT-related developments and activities currently taking place in Fiji, on Wednesday, 26 November 2008, from 6pm to 7pm at the N111 Lecture Hall, Faculty of Science & Technology, University of the South Pacific, Laucala Bay, Suva, Fiji.
Currently, the Fiji Government is implementing Fiji's biggest ICT projects to date, some of which include :
Currently, the Fiji Government is implementing Fiji's biggest ICT projects to date, some of which include :
- development of e-applications;
- establishment of a Data Disaster Recovery Centre and a Public Call Centre;
- establishment of a network infrastructure program;
- VoIP and IP projects.
The seminar will provide an overview of the Fiji Government's e-Government program.
For further information, pls contact Ms Anshu Veenam, ITC on email anshu.veenam@itc.gov.fj or call (679) 3235098.
Individuals and groups that need investment advice can use our company, Gilbert & Samuels Company Limited. We also do strategic planning and business continuity planning consultancy. Our contacts are: telephones (679) 3342719, (679) 3544897 or e-mail: info@gilbert.com.fj.
Incentives for Small and Microenterprises in Fiji
Although not specifically mentioned in the 2009 National Budget by Fiji's Interim Government as its aims to attract the big investors, here are some of the incentives that small and micro-enterprises can benefit from :
- income tax threshold reduced to 29% in 2009 and down further to 28% in 2010 (mentioned in 2009 National Budget). This could bring about some tax savings for small and micro enterprises.
- personal income tax threshold for employees remains at FJD15,000.00 (mentioned in the 2009 National Budget). This means that companies will not have to pay Pay As You Earn taxes for its employees whose salary/wages fall below FJD15,000.00 per person.
The biggest incentive that remains, and which appears to be to have not been removed in the 2009 National Budget is the following, and I quote from the 2008 National Budget Address :
- "Government is mindful of the contribution of our Small and Micro Enterprises (SMEs). In this regard, threshold for tax exemption will be increased. Additionally, the scope of SME activities will be expanded. From 2008, SME with an annual turnover of $300,000 or less will be exempt from income tax. SME activities will also cover production of dalo, cassava and other root crops. It will also include supportive projects to the tourism industry."
So, while the 2009 National Budget appears to be aimed at attracting the large investors to Fiji, small and micro enterprises still do have incentives to set up.
One potential area that Government can emphasise again is the facilities and avenues that are available to encourage Fiji citizens to set up businesses. Educational institutions should also work towards providing entrepreneurship training for students. In some Asian countries, a course in entrepreneurship is compulsory as a degree unit for all students.
Individuals and groups that need investment advice can use our company, Gilbert & Samuels Company Limited. We also do strategic planning and business continuity planning consultancy. Our contacts are: telephones (679) 3342719, (679) 3544897 or e-mail: info@gilbert.com.fj.
2009 Fiji National Budget Incentive : Tax Free Regions
The Interim Government in Fiji has announced, in its 2009 National Budget, the set up of Tax Free Regions in the Northern Division and some of the outer islands to encourage encourage investment, support development and create employment opportunities in those areas.
The regions include Fiji's second largest island, Vanua Levu, and other islands including Rotuma, Kadavu, Taveuni, Levuka, Lomaiviti, Kioa, Rabi and Lau. These islands will be known as Tax Free Regions with effective from 1 January, 2009.
Incentives provided in these regions will include:
Individuals and groups that need investment advice can use our company, Gilbert & Samuels Company Limited. We also do strategic planning and business continuity planning consultancy. Our contacts are: telephone (679) 3342719 or e-mail: info@gilbert.com.fj.
The regions include Fiji's second largest island, Vanua Levu, and other islands including Rotuma, Kadavu, Taveuni, Levuka, Lomaiviti, Kioa, Rabi and Lau. These islands will be known as Tax Free Regions with effective from 1 January, 2009.
Incentives provided in these regions will include:
- 13 years tax holiday for new companies; and
- Import duty exemption on raw materials, machinery and equipment for initial setup.
- In addition, companies that start new projects with at least 25 per cent equity participation involving indigenous Fijians will be granted an additional 5 years tax holiday, that is, a total tax free status of 18 years.
The incentives are to be provided to new companies investing at least F$2 million.
Individuals and groups that need investment advice can use our company, Gilbert & Samuels Company Limited. We also do strategic planning and business continuity planning consultancy. Our contacts are: telephone (679) 3342719 or e-mail: info@gilbert.com.fj.
Saturday, November 22, 2008
2009 National Budget Incentive for non-Fiji citizens and former Fiji citizens
The Interim Government in Fiji has announced, in its 2009 National Budget, an incentive to attract non-Fiji citizens and former Fiji citizens working abroad to bring in their funds into the country. The incentive has an objective to attract non-residents and former Fiji Citizens to bring in their funds for placement with Fiji banks.
For tax purposes, any foreign currency account with fixed deposits above the equivalent of F$300,000.00 will have interest earned on the account exempted from local tax. The incentive comes into effect from 1 January 2009.
Individuals and groups that need investment advice can use our company, Gilbert & Samuels Company Limited. We also do strategic planning and business continuity planning consultancy. Our contacts are: telephone (679) 3342719 or e-mail: info@gilbert.com.fj.
For tax purposes, any foreign currency account with fixed deposits above the equivalent of F$300,000.00 will have interest earned on the account exempted from local tax. The incentive comes into effect from 1 January 2009.
Individuals and groups that need investment advice can use our company, Gilbert & Samuels Company Limited. We also do strategic planning and business continuity planning consultancy. Our contacts are: telephone (679) 3342719 or e-mail: info@gilbert.com.fj.
2009 National Budget Incentive for non-Fiji Residents and Retirees
The Interim Government in Fiji has announced an incentive to attract mature non-Fiji citizens to Fiji in its 2009 National Budget. The objective of the incentive is to attract foreign currency into Fiji and to cater for living expenses in Fiji for retirees.
Those that wish to take up this incentive are required to to have a fixed deposit of F$200,000.00, for those aged 50 and above, and F$300,000.00 for those aged below 50. Interest earned from such deposits will be exempted from tax. The incentive comes into effect from 1 January 2009.
Individuals and groups that need investment advice can use our company, Gilbert & Samuels Company Limited. We also do strategic planning and business continuity planning consultancy. Our contacts are: telephone (679) 3342719 or e-mail: info@gilbert.com.fj.
Those that wish to take up this incentive are required to to have a fixed deposit of F$200,000.00, for those aged 50 and above, and F$300,000.00 for those aged below 50. Interest earned from such deposits will be exempted from tax. The incentive comes into effect from 1 January 2009.
Individuals and groups that need investment advice can use our company, Gilbert & Samuels Company Limited. We also do strategic planning and business continuity planning consultancy. Our contacts are: telephone (679) 3342719 or e-mail: info@gilbert.com.fj.
Friday, November 21, 2008
2009 National Budget Address - Copy of Address by Interim Prime Minister and Minister for Finance
I could not get a copy of the 2009 National Budget Address in pdf form to post on our FijiSale Yahoo Group. I did, however, get a copy sent to me by email from Emily Moli, Senior Reporter, Fiji TV. Many thanks, Emily.
The text of the Address is provided below.
"2009 NATIONAL BUDGET ADDRESS BY THE PRIME MINISTER AND ACTING MINISTER FOR FINANCE & NATIONAL PLANNING, COMMODORE VOREQE BAINIMARAMA
1.0 Introduction
Your Excellencies,
Members of the Diplomatic Corps
Ministers
Distinguished Guests
Ladies and Gentlemen, and
Fellow Citizens of Fiji
A very good morning to you all.
It is my pleasure to welcome you to this presentation of the 2009 Budget.
This is the third Budget of the Interim Government; and one which has been prepared against the backdrop of unprecedented developments in the global financial system, and in the world economy in general.
We live today in a globalised, increasingly more intricate and inter-connected environment. Events that happen in other parts of the world tend to have quite immediate impacts on our lives.
The international economy today is going through a crisis, of a magnitude and depth, not experienced before in the world’s history. The richest nations are hit the hardest by this turbulence; and the indications are that the worst is yet to come. We can be certain that global economic growth, which slowed down significantly this year, will continue to decline in 2009. This also applies to the situation of Fiji’s major trading partners.
For over two decades, Fiji itself has been trapped in a low-investment, low-economic growth spiral, with our economy performing well below its potential.
Since its appointment in January, 2007, the Interim Government has been resolute, to move Fiji forward to sustainable peace, stability and prosperity. Among the key pillars in the draft Peoples Charter for Change, Peace and Progress are our quest for good and just governance; to grow the economy; and to reduce poverty.
During the period 2007 and 2008, we have made considerable progress, particularly in consolidating the public finances and in arresting the rapidly deteriorating fiscal imbalances, brought about through several years of financial indiscipline and mismanagement.
We achieved this through policies and measures that were not populist: curbing consumption; drastically trimming government expenditure; reducing salary in the public sector; reducing the size of government; and imposing import duties on a wide range of luxury items. We had to implement some drastic measures to stabilise the public finances and our foreign reserves. What is noteworthy is that we were able to achieve the stabilisation and consolidation of the fiscal situation within a short period of time.
It is also noteworthy that just when we felt that we have some room to provide the much needed stimulus for growth and development in our economy, we now have to contend with the unprecedented global financial crisis. These latest adverse external developments, which are beyond our control, have further compounded and magnified the challenges that we face, as a nation.
The 2008 Budget was described as a “Budget for Hope”. In the 2008 Budget, the Interim Government had announced a number of important initiatives and reforms: in the areas of infrastructure upgrading and development; private sector development; enhancing productivity and competition; trade reforms; labour reforms; public sector including civil service reforms; financial management reforms; public enterprise reforms. In most, if not all of these areas, we should, by now, be showing robust progress. Unfortunately, this is not the case. We could and should have done much better.
One key theme of the 2009 Budget must necessarily be continuity: to continue, but more vigorously implement the reforms outlined in the 2008 Budget.
Ladies and Gentlemen, Fiji must now deal with a number of problems and challenges, especially given the adverse developments in the global economy. These include the escalation in both fuel and food prices with flow on inflationary pressures, which in turn affect the cost and competitiveness of our products. In addition, the widening trade deficit is placing significant pressures on our balance of payments position.
Moreover, to raise income levels, to improve our living standards, to generate more jobs, and to reduce poverty, it is imperative that Fiji works itself out of the spiral of low investment, low productivity, and low growth.
What are the implications of all this for 2009 fiscal policy and strategy?
The evidence and overall experience to-date indicate that while it is important to outlay adequate resources to support the priority policy initiatives, it is equally, if not more important, to ensure effective and timely implementation. In many instances, it is not the lack of resources per se which has adversely affected or constrained the speedy implementation of the announced initiatives. More often than not, the poor implementation performance has been due to lack of advance planning and preparedness on the part of the Ministries and Departments. Also, generally, there is a lack of urgency to get things done.
2.0 Strategy for the 2009 Budget
The Government has been actively listening and paying attention to the views and concerns of various stakeholders, across the whole of the country. This has happened through the Draft Peoples Charter process, in which nationwide consultations have been undertaken at a level and depth that is unprecedented in Fiji’s history. In addition, the recent Mini Economic Summit and its Working Groups, as well as other representative bodies have provided invaluable feedback on issues that need to be addressed, to move Fiji forward. The 2009 Budget draws upon all this.
A three-prong strategy therefore has been adopted for the 2009 Budget with the dual objective of Raising Economic Growth and Alleviating Poverty
The first prong of the Budget Strategy is to grow the economy by rebuilding and revitalising confidence, particularly of the private sector, for it to invest more, and to generate the jobs and the incomes that our people need. Under this part of the overall strategy, high priority and urgent attention will be given to infrastructure rehabilitation and development; to stimulating and facilitating investment, especially by the private sector; and to enhancing productivity and innovation.
The second prong of the Budget Strategy, in parallel with the first prong, is to ensure that economic growth is pro-poor, and focuses on reducing poverty, improving access to service delivery as well improving the basic living conditions of all our people. Under this part of the strategy, attention will focus on basic infrastructure development in villages and settlements; on education and training; on health and hygiene; on housing, especially tackling the growing squatter problem in the urban and peri-urban areas; and on food production. Particular attention is to be given to the vulnerable and the disadvantaged in the society including the poorest of the poor; the disabled and the elderly; and women.
The third prong of the Budget Strategy, and one which is cross-cutting to the first two, concerns the public sector in terms of both its role and performance orientation. Under this part of the overall strategy, the public sector is to more effectively demonstrate its own commitment to change and modernize: by doing more with less; by raising its productivity and efficiency in service delivery; and by ensuring its own right-sizing through the needed, and long overdue, reform and restructuring. The policy-setting and regulatory roles of the public sector are to be strengthened and rationalized, to ensure that Government policies are transparent, consistent, compatible and sustainable, especially in promoting, facilitating and catalyzing private sector-led growth. Also, in this context, the partnering relationship between the Government, the civil society and the private sector, on issues relating to national social and economic development, are to be enhanced.
3.0 2009 Budget Framework
In the last two budgets, the Government’s strategy to stabilize and consolidate the fiscal position has been highly successful. For the years 2007-2008, the average annual net fiscal deficit is expected to be below 2 percent of GDP while total debt to GDP is expected to be 49 percent. This compares to the period 2000-2006 when the average annual net fiscal deficit was an unsustainable 4.43 percent, and debt was un-affordably high.
Public finances have stabilized over the past two years or so. For 2009, the Government, while continuing to vigilantly maintain an overall prudent stance and adhering strictly to fiscal discipline, is now in a position to increase the deficit to 3 percent. In this context, I should also emphasise that Government has reduced its debt level to 47.9 percent in 2008. The policy space, in the short term, to raise the deficit to support the 2009 Budget Strategy, will be utilised judiciously, to support productive expenditure, especially for infrastructure rehabilitation and development. In this regard, it may be noted that while during 2007-2008 operating expenditure accounted for an average annual 84 percent of total expenditure, in 2009, the share of operating expenditure is being reduced to 80 percent of total expenditure.
A central objective of expenditure policy is to improve the efficiency and effectiveness of Government spending. The Budget is forecast at $1.715 billion in 2009.
As I said before a major strategic thrust of the 2009 Budget is on infrastructure development. Government will actively pursue Public Private Partnership arrangements to finance infrastructure programs and also resort more to outsourcing to the private sector, to expedite implementation. This is a deliberate policy to stimulate investment and sustain growth but also to recognize the capacity constraints within the public sector, such as in the Public Works Department. Moreover, in 2009, we will emphasise the timely implementation of capital projects. In that regard, I will shortly convene a capital projects workshop for senior civil servants in key agencies to ensure a satisfactory state of project readiness so that implementation may commence by January next year.
In addition, increased resources have been made available to achieve our objective of caring for the poor. This means supporting the livelihoods of our people by focusing on areas and regions that have remained depressed and under-developed; and directing adequate resources towards the core priority sectors of health; education; housing; and poverty assistance. The Budget also directs resources for basic infrastructure development at the level of villages and settlements.
In line with the Budget Strategy, emphasis will be placed on supporting expenditure programmes capable of facilitating large-scale production of staple foods, dairy and meat products, and renewable energy sources.
To contain operational spending, each ministry and department have been instructed to spend within their allocated budgets for telecommunications, fuel and oil, stationery, spare parts and maintenance, and supplies and services. As an integral part of these efforts is the decision taken by the Government to, as much as possible, lease vehicles and explore the opportunity of leasing office equipment.
Ladies and Gentlemen
Financing our expenditure is dependent on our revenue performance. In principle, our operating revenue must cover operating expenditure. Prudent cash flow and forecasting management has enabled Government to achieve this objective during the year. We will maintain this discipline in 2009. Let me reiterate our policy that operating revenue drives operating expenditure. This allows for more capital projects to be met through debt financing.
In the 2009 Budget, we are projecting a revenue of $1.522 billion, of which $1.331 billion is from taxes and $191.2 million from non-tax revenue. In formulating our revenue policies we are mindful not to overtax the economy. Therefore, our key revenue policies are targeted at facilitating investment and sustainable economic growth, boosting exports and growth of competitive import substitution industries and protecting local and infant industries.
We also envisage in this Budget to raise non-tax revenue from a review of fees and charges, the divestment of Government shares and sale of Government assets. Revenue received from asset and share sales will be utilized to finance our debt repayments.
4.0 Priorities under the Strategic Thrusts for 2009
Before I discuss specific revenue measures, I will now highlight the priorities under the three-prong strategy of the 2009 Budget.
a) Pro Growth Initiatives and Measures
One of the most important strategic thrusts of the 2009 Budget is to grow the economy. We must increase the economic growth levels to create jobs and generate incomes that are needed and to enable people to get out of the poverty trap, and to prosper. We must also ensure that higher growth is accompanied with a more equitable distribution of its benefits. Without higher levels of growth, we cannot achieve any real progress in ensuring equity, access, and fair distribution of the benefits of development. We have to grow the size of our national economic cake to achieve poverty reduction and also prosperity.
The Government will rely on the private sector to lead the way to achieve higher growth through increased investment. Government, through its policy and regulatory roles, will ensure a more conducive environment for increased investment and confidence, to grow the economy.
In this particular regard the rehabilitation and development of infrastructure is being given very high priority in the 2009 budget. Government has committed significant targeted increases in funding for major road development, water supply and sanitation, and the upgrading of ports.
In addition, Government is fast tracking e-government projects including computerization of the various registries.In addition to budgetary allocations, Government has negotiated a self-funding road development and rehabilitation program, to commence in the first quarter of 2009, with a major foreign entity, to rehabilitate the Queen’s and King’s highways, upgrading approximately 68 kms of road from Wairiki Port to Dreketi; sealing roads around the Savusavu region, and completing the sealing of the Kings highway.
Furthermore through competitive sources of loan funding, work on upgrading and sealing of the roads in the following areas; Saweni-Serea Road; Sigatoka Valley Road; Buca Bay Road and Moto-Balevuto Road, will be undertaken. Efforts are being exerted for this work to commence in the first quarter of 2009.
Improving the supply of water and sewerage services for all in Fiji continues to be a high priority for Government.
As part of this process, consulting expertise has been mobilized to progress the transition from the Water and Sewerage Department to the Water Authority of Fiji.
The Consultant will initially work on Capital Works Review, Network Modeling and improvements to the existing system that will bring about immediate improvements to the current water supply challenges.
Government has allocated sufficient funds to complete the Rotuma Airstrip to facilitate the landing of ATR 42s and the upgrade of Matuku Airstrip. It has also allocated funds to initiate the development of modern port facilities for the Northern Division to support the Tax Free Region initiative.
Apart from infrastructure, particular emphasis will also be given to such strategic sectors as tourism, commercial agriculture, fisheries, forestry, and Information, Communication and Technology (‘ICT’).
The Government’s strategy is to put in place measures that will, in a tangible way, make it more attractive to value-add in Fiji. Value- adding is imperative, particularly if we are to create sustainable industries, earn more foreign exchange, substitute for imports, and generate employment opportunities and upskill our work force.
This Pro-Growth strategy will be combined with a Pro-Poor focus to ensure that those who are lagging behind or are disadvantaged will have greater and better access to opportunities. This also applies to the depressed regions and areas, such as the Northern Division and the Maritime Zones.
It is also imperative that the indigenous people of Fiji are brought into the mainstream of the modern sectors of the economy. This Budget gives particular attention to introducing measures to enable meaningful and tangible participation of the indigenous people in the economy.
Fiji has among the largest of Mahogany resource in the world. Yet the full potential benefit of this resource has for too long been unrealized. There has been much talk and even more uncertainty. In order to provide the trajectory required for this industry, Government is in the process of finalizing the transfer of the ownership of the mahogany plantations to the indigenous landowners through the Fiji Mahogany Trust. The scheme will involve the licensing of approved harvesters who, as criteria of getting a license, must, amongst other things, value-add in Fiji, pay a levy for reforestation, brand Fijian mahogany, provide employment. Applicants for licences will be given favorable consideration if they have indigenous land owner equity participation. Only licensed harvesters can have access to the mahogany. Fiji Hardwood Corporation Limited will be redirected to become a mahogany and forest manager. This initiative falls in line with my Government’s drive to bring indigenous Fijians into the mainstream economy, become equal partners in resource development, and address inequalities of the past. The transfer should be in place by 1 January 2009.
Government has through the Committee for Better Utilization of Land (‘CBUL’) facilitated the renewal of 77 percent of the expired land leases through its outreach program. Landowners through CBUL will receive an additional $8.5 million.Given this new partnership between the landowners, farmer and Government, vast areas will now be revitalized through targeted government spending and community and private sector initiatives and investment.
Fiji has had price controls and monitoring on a wide range of items for over three decades. As we move forward to enhance private sector-led growth of the economy, and to foster competition and level playing field conditions in the market, the merits of having such extensive price control and monitoring needs to be reviewed. The Government shall undertake such a review during 2009. As an immediate measure, Government will lift price controls on rent on commercial properties from 1 January 2009.
The 2009 Budget therefore, introduces a range of measures to grow the economy. These include reduction in corporate tax; establishment of tax free regions; and increased incentives for investment in the tourism, energy, agriculture and ICT sectors. Government shall also lift the moratorium on state agricultural land which are to be leased at commercial rentals for other productive use.
The participation of the commercial banks in Government economic strategy is imperative. In this regard over the past few days, Government and RBF have had consultations with the 5 commercial banks.
We discussed that these banks need to participate and partner Government in initiatives that will be pro-growth, pro-poor and improve and modernize Governmental operations.
The Government and the RBF will closely monitor and consult the banks on interest rates, interest rates spread, fees and charges and other determinants which will create the impetus and environment for a national approach to create better investment and savings opportunities.
It is envisaged that improved and new synergy between commercial banks, Government and the private sector will be realized by 1 January 2009.
To entice Former Fiji Citizens who continue to have strong links with Fiji, they, their spouses and immediate descendents will automatically be entitled to an indefinite permanent residency status, at a cost of $3000.00 per person. Such permanent residency will give them almost all the rights and privileges of a Fiji Citizen including the right to invest and work freely.
Most of the current financial threshold to be met by foreign investors will be reduced to create a more conducive environment for investment and encourage new investors. The new threshold will commence from 1 January 2009.
My Government is committed to a liberalized market within an appropriate legal framework. The Raddison Accord which was achieved because of this Government’s will and determination has led to the liberalization of the telecommunications sector. It has provided competitive pricing, increased and better consumer services and has reduced the cost of doing business in Fiji. With the opening up of the international gateway from 1 July 2009 we will enjoy further reduction in telecommunication costs. Government will continue to pursue such liberalization in other areas of our economy.
As part of facilitating investment Government will assist FNPF to expedite the private sector development of the Grand Pacific Hotel and Momi Bay Hotel projects. I expect the development of these projects to recommence within the first quarter of next year.
b) Pro-Poor Measures and Initiatives
Higher rates of growth must be accompanied by real improvement in the lives of the ordinary people of Fiji. While we need and must have high rates of economic growth to prosper, however, the benefits of such growth must be shared equitably across the nation. The needs of the poor, the vulnerable and disadvantaged must be met. They must be given access to opportunities and assistance, as appropriate. This is to ensure sustainable improvements in their livelihood.
The 2009 Budget seeks to address this by ensuring basic infrastructure for villages and settlements in rural areas; enhancing access to education and training; health and hygiene, and ensuring greater access to housing. Particular attention is to be given to addressing the problem of growing squatter settlements in the urban and peri-urban areas. At a time of increased prices for basic necessities, incentives are being given through the 2009 Budget to increase food production, and encourage self-help in the supply of water and sanitation.
Under the Peoples Charter outreach activities, consultations have been undertaken with people at the local level in the rural areas, in villages and settlements, across the country. A very strong and consistent feedback has been about very basic, “bread-and-butter” developmental issues, relating mainly to the provision of small-scale infrastructure services. Through this consultation process, the Peoples Charter teams identified a total of 854 small-scale projects, all ready for implementation but on which the people have been facing undue delays, in many instances for several years. During the fourth quarter of 2008, the Government has taken action to implement 201 out of the 854 projects at a cost of $1.95 million. All of these 201 projects will be completed within this year. Under the 2009 Budget, an allocation of $12.13 million is earmarked to complete implementation of the balance of 653 projects. Overall, a total of $21.4 million is allocated for rural development including self-help projects such as access roads, housing, electrification, water supply and community development.
Government has in this respect also reduced the amount of contribution required by communities for rural electrification. They will now only need to make a 5 per cent contribution.
Ensuring access to quality education for all is of paramount importance, especially as it is pivotal to liberating people from the vicious trap of poverty.
In our nation today, parents in very low income communities are not able to raise funds to supplement government grants to send their children to school. The level of dropouts from schools has been increasing year by year. According to the 2004-2005 Employment and Unemployment Survey, 10 per cent of children aged 5-14 years were not attending school, due mainly to the financial constraints faced by their parents. Worse still, more than half the total numbers in final year of primary school do not progress to secondary education.
Through the Peoples Charter process, it has been recommended that a Poverty Relief Fund for Education (PRFE) be established, to assist children of the poorest of the poor to gain access to education, at primary, secondary as well as tertiary levels. It is anticipated that the PRFE would be jointly established through the Prime Minister’s office, registered under the Charitable Trusts Act, involving participation and contributions from the Government, the private sector, civil society, charity organizations and external donors.
In the 2009 Budget, $200,000 is allocated, as Government’s initiating seed capital contribution, to get the proposed PRFE underway.
c) Pro- Public Sector Efficiency and Effectiveness
The overall efficiencies and effectiveness of the public service need to be enhanced. I acknowledge that the public service has some highly dedicated staff, and some who contribute above the normal calls of duty. However, generally, inertia is widespread within the public service; and motivation and productivity all need to be lifted. In some key areas, capacity is weak. We must fix these problems, not only through increased staffing but by ensuring availability of the needed competencies and through appropriate remuneration policies. However, the overall size of the public service is large for the size of Fiji as a country. In this context, the reform and right-sizing of the Fiji public service will remain a high priority.
As part of its efforts to provide the right incentives, motivation and improvements to the caliber of civil servants, Government will resume implementation of the Job Evaluation Review and introduce a merit pay system.
Government in its concerted effort to modernize and run its operations has, as a major step, commenced the leasing of vehicles. This will enable Government to reduce its capital outlay, modernize its fleet, bring about transparency and reduce its overall operational costs.
Last August, when launching the Draft Peoples Charter for extensive nationwide public consultations, I had indicated that Fiji’s overall political, social and economic situation is such that the case for change is very compelling. We in Fiji can and must achieve change for a more equitable and prosperous future for all our citizens. And for this, we all must share a collective vision and the will, to achieve the changes that are imperative. This applies in particular to the public service and the government as a whole. To put it simply, we cannot carry on “business-as-usual”. We must modernize the public service by transforming its performance orientation, service delivery effectiveness, and the overall productivity and efficiencies.
Moreover, in our collective efforts to move Fiji forward through the Peoples Charter, it is not only desirable, but, I would say imperative, that a strong partnership approach is now forged between the Government, the civil society and the private sector. This is central to the 2009 Budget strategy.
5.0 REVENUE MEASURES
Ladies and Gentlemen
I now turn to the key 2009 revenue measures.
Our revenue measures are targeted at addressing the challenges I highlighted earlier. These are:
i) addressing our widening trade deficit by supporting export promotion and import substitution; and
ii) introducing targeted incentive packages for resource based industries, value-adding including manufacturing; and ICT development.
The strengthening of revenue collection through improved compliance and facilitating investment and sustainable economic growth are the guiding principles of Government’s revenue policies in 2009. Government is conscious of the need to create and sustain an enabling climate for investment to develop our priority sectors: Infrastructure, Agriculture and Fisheries; Forestry; Tourism and ICT.
The following are some of the major tax incentives that will be available from 1 January, 2009:
(1) Direct tax measures
a) Reduction in Corporate Tax
In 2009, the company tax rate will be reduced to 29 percent and then further reduced to 28 per cent in 2010.
b) Personal Income Tax
From 1 June this year, the income tax threshold was increased from $9,000 to $15, 000. The intention of increased income tax threshold was to alleviate the extra burden on low income earners from the increases in the food and fuel prices this year. This policy will remain unchanged in 2009 and 2010.
c) Establishment of Tax Fee Region(TFR)
The economically depressed Northern and Maritime Island region are in need of special consideration and assistance.
To encourage investment, support development and create employment opportunities in the North and the Maritime islands, Government will declare Vanua Levu, Rotuma, Kadavu, Taveuni, Levuka, Lomaiviti, Kioa, Rabi and Lau as Tax Free Regions(TFR), effective from 1 January, 2009. The TFR incentives will include:
· 13 years tax holiday for new companies; and
· Import duty exemption on raw materials, machinery and equipment for initial setup
In addition, companies that start new projects with at least 25 per cent equity participation involving indigenous Fijians will be granted an additional 5 years tax holiday, that is, a total tax free status of 18 years. Such incentives shall be provided to new companies investing at least $2 million.
d) Tourism Incentive Package
In the 2008 Budget, it was announced that a new incentive package will be introduced to replace the existing short life investment package which expires on 31 December, 2008.
The 2009 Tourism Incentive Package replaces the former that was announced in the 2008 Budget. The Incentives will be in two parts: Standard Allowance and Hotel Incentive Package.
The Standard Allowance provides for 55 percent investment allowance on total capital expenditure as long as there is no shift of revenue offshore.
The second segment of the incentive package will have the following:
. 10 years tax holiday for capital investment not less than $7 million ;and
. Import duty exemption on all capital goods (including capital equipment, plant and machinery) not available in Fiji that is utilized to carry out the investment.
Further, any hotel development in the TFR that entails 25 percent equity by indigenous Fijian land owners, will qualify for an additional 7 years tax holiday on top of the 13 years given under the TFR. For new hotel projects set up in other parts of Fiji, in which indigenous Fijian land owners own at least 25 percent equity will qualify for ten years tax holiday.
It should also be noted that Government has allocated $23.5 million dollars to Tourism Fiji. Government recognizes that Marketing Fiji Tourism is essential. It will continue to provide such funding with certain bench marks to be achieved by Tourism Fiji.
e) Agricultural Incentives
Ten years tax holiday will be granted to new projects by companies undertaking commercial agriculture farming and agro-processing. The incentive will be available from 1 January, 2009 to 31 December, 2014 and to qualify for tax exemption, a minimum of $2 million investment is required and the generation of employment of at least 30 local employees.
f) Bio-fuel Projects
Government is of the view that investment in bio-fuel production needs to be supported given the considerable benefits to the nation in reducing mineral fuel imports. We have an abundance of local resources that can be converted to bio-fuel. To encourage investment in such projects, ten years tax holiday will be granted to companies that will be involved in processing agricultural commodities such as sugar, coconut, cassava etc into bio-fuel. The incentive will be available from 1 January, 2009 to 31 December, 2014. To qualify for the corporate tax exemption, a minimum of $1 million level of investment is required and the generation of employment of at least 20 local employees or more.
In addition, any plant, machinery, equipment and chemicals used for the initial establishment of such new projects will be granted duty free concession.
g) Renewable Energy Incentives
To encourage energy conservation and development of alternative fuel, five years tax holidays will be granted to companies undertaking renewable energy projects and those pursuing investment in power cogeneration. To qualify for tax exemption, a minimum of $250,000.00 level investment is required
To encourage energy use efficiency, energy saver light bulbs will attract zero duty, while duty on non-energy saving light bulbs will be increased.
All importation of renewable energy and energy conservation goods and equipment will be granted duty free concessions. In the same context, fiscal duty and import excise on motor vehicles to be licensed as public service passenger vehicles which operate on Liquefied Petroleum Gas (LPG) or Compressed Natural Gas (CNG) will be reduced from 27 percent to zero percent and 15 percent to zero percent respectively.
h) iCT Incentives
There exists a considerable opportunity for Fiji to benefit from ICT investments. Government has, over the years, introduced a number of incentives to attract ICT business. In 2009, we will:
. Align the incentives available inside and outside the Kalabu Zone;
. The current 10 years tax holiday granted to ICT operators will be increased to 13 years for new operators; and,
. Duty free concession on the importation of computers, specialized plant, equipment and fittings and specialised furniture will be granted for the initial establishment of business.
i) Audio Visual Incentives
In order to enhance Fiji’s competitiveness in attracting foreign film makers, the current film tax rebate of 15 percent will be raised to 35 percent in 2009.
Fiji will be hosting “The Fiji International Film Festival” in 2010 aimed at raising the profile of Fiji. To encourage corporate sponsorship of this event, 200 percent tax deduction will be granted for any corporate contributions made to the Fiji International Film Festival.
j) Education for the Poor
to support access to education for the children of the poorest of the poor families, a Poverty Relief Fund for Education is proposed for which seed funding is included in the 2009 Budget.
It is anticipated that the bulk of funding for this initiative will come from the private sector, individuals, community and voluntary organizations and aid donors. To encourage such funding support, a 200 per cent tax deduction for contributions in excess of $50,000 will be available.
k) Other Incentives
To encourage exports, the following incentives will be extended:
. Export Income deduction will remain at 50 per cent until 2010;
. Employment Taxation Scheme will be extended to 31 December, 2010; and
. 40 percent Investment Allowance will be extended to 31 December, 2010.
(l) “Fiji My Second Home” Programme: This programme is to allow non citizens to reside in Fiji on a multiple entry social visit pass. The goal of this programme is to attract foreign currency funds into Fiji including expenditures locally for retirement living by non-citizens. Those who use this facility will need to satisfy certain criteria including a fixed deposit placement of $200,000.00 for those aged 50 and above; and $300,000.00 for those aged below 50). Interest earned from such deposits will be exempted from tax. This scheme will be operational from 1 January 2009.
(m) Foreign Currency Account Scheme: This scheme is to attract non-residents, including former Fiji Citizens, to send their funds through the banking system to deposit in local bank accounts. For foreign currency accounts, any amount maybe placed in fixed deposit but interest income for deposits above the equivalent of $300,000.00 will be exempt from local tax. This scheme is expected to impact positively on our foreign reserves and will be operational from 1 January 2009.
(2) INDIRECT TAX MEASURES:
a) Tourist Yachts
The duration of stay on tourist’s vessel allowable in Fiji waters will be increased from 9 months to 18 months. The re-entry condition of 9 months will be removed.
b) Super Yachts
To facilitate the “Superyacht” industry in Fiji, Government will formulate a National Yacht Charter Policy. This policy will be ready for implementation by 1 January, 2009.
c) Tariff Changes
The fiscal duty on all items under the 27 percent duty band will now be raised to 32 percent with immediate effect. The increase in the duty rate aims to encourage import substitution of local products, dampen demand and provide stimulus to domestic industries.
The following are additional customs and import excise duties measures that will be made effective immediately:
. Increase fiscal duty of multi-wick kerosene stoves and spare parts from 5 to 32 percent;
. Increase fiscal duty of golf cars and similar vehicles from 15 to 32 percent; and
. Removal of import excise duty of 10 percent on prime movers and specialized earth moving machinery.
d) Petroleum Prices
Government will revert to normal duty rates as follows:
. Motor spirits from 34 cents to 44 cents per litre;
. Diesel from 9 cents to 18 cents per litre; and
. Motor spirits used for blending pre-mixed outboard fuel from 17 cents to 27 cents per litre.
Notwithstanding the reinstatement of the normal petroleum duty rates, given the decrease in the world oil prices the new domestic retail prices to be effective from 1 December 2008 are expected to be lower than the current retail prices.
e) Concessions on Basic Food Items
In June this year, Government reduced fiscal duty to zero percent on a number of basic food items such as rice, edible oil and tin fish. This measure was introduced to cushion the impact of inflationary pressures arising from the hike in global food prices. Government will maintain the zero percent fiscal duty concession on these items in 2009. Moreover, the zero rating of locally produced eggs will remain in 2009.
f) Fishing Industry
To create a level playing field for local and foreign owned fishing vessels, the following concessions will be granted to the fishing industry:
. Reduction in fiscal duty on fuel from 8 cents to 2 cents;
. Reduction in fiscal duty on specialized fishing gear & equipment from 3 per cent to zero per cent;
. Reduction in fiscal duty on specialized fishing vessels from 10 per cent to zero per cent;
. Reduction in fiscal duty on fish baits from 3 per cent to zero per cent; and,
. To encourage value adding a 3 per cent export duty on exports of unprocessed fish will be introduced from 1 January 2009
g) Timber
Introduction of 3 per cent export duty on exports of all unprocessed timber from 1 January 2009.
(3) OTHER
Road User Charge
A road user levy, differentiated by vehicle category and classification, will be introduced effective 1 January 2009 on all vehicles. The revenue generated by this measure will be specifically set aside into an Infrastructure Rehabilitation and Development Fund, and utilized only for the purpose of road maintenance upgrading and development
Ladies and Gentlemen, a complete list of the direct and indirect tax measures are provided for in the 2009 Budget Supplement.
Going forward, Government will ensure consistency, transparency and sustainability of its policies and measures aimed at growing the economy, increasing investor confidence and reducing poverty.
Extraction of Mineral Water
A levy for the extraction of mineral water based on volume will be levied from 1st January, 2009. The levy has been arrived at following consultations with the mineral water extracting companies.
Second Hand Vehicles
Second hand and reconditioned vehicles up to 8 years old can now be imported to allow accessibility to the lower income earners and other users.
7.0 Development Partners
Before I conclude, I wish to acknowledge our appreciation to those development partners who have extended their understanding and assistance to Fiji during these challenging times. I submit to all our development partners, that Fiji seeks your support for our efforts towards national development, to promoting good governance, and for laying a platform for a return to parliamentary democracy. We remain committed to pursuing constructive dialogue and engagement with all our partners in the international community.
8.0 Conclusion
This Budget has been prepared at a time of unprecedented developments in the global financial system and economy. The overall environment is one of growing uncertainties and is becoming increasingly more constraining. What we do know is that Fiji is not sheltered from this external turbulence. Over the coming months, as we enter into our cyclone season and must take all the necessary precautions, in the wake of the global financial and economic crisis, Fiji and its people must be prepared to absorb the shocks. We will need to be prepared to sacrifice; to work harder and smarter; and perhaps above all, to draw upon our inner strengths as a nation and as one people, to work together, to chart our way forward.
In conclusion, I am heartened by the support of the people of our nation as is evidenced from the strong and growing positive response to the draft Peoples Charter. I extend an invitation to every section and individual citizen, and to all our development partners, to join us and make a meaningful contribution to our efforts in nation building. This task of Nation building and National development is not easy and requires much effort, goodwill and resolve, to see it succeed.
The 2009 Budget, being pro-growth and pro-poor, goes a long way to facilitate this. Together with our draft Peoples Charter, this gives me much optimism and hope in our quest for “Building a Better Fiji” for all our people.
I thank you for your attention during this Address and look forward to your continuing support now and, in the year to come. I commend this Budget to our nation, and do so with the support of Cabinet.
May God Bless Fiji.
- ENDS -"
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The text of the Address is provided below.
"2009 NATIONAL BUDGET ADDRESS BY THE PRIME MINISTER AND ACTING MINISTER FOR FINANCE & NATIONAL PLANNING, COMMODORE VOREQE BAINIMARAMA
1.0 Introduction
Your Excellencies,
Members of the Diplomatic Corps
Ministers
Distinguished Guests
Ladies and Gentlemen, and
Fellow Citizens of Fiji
A very good morning to you all.
It is my pleasure to welcome you to this presentation of the 2009 Budget.
This is the third Budget of the Interim Government; and one which has been prepared against the backdrop of unprecedented developments in the global financial system, and in the world economy in general.
We live today in a globalised, increasingly more intricate and inter-connected environment. Events that happen in other parts of the world tend to have quite immediate impacts on our lives.
The international economy today is going through a crisis, of a magnitude and depth, not experienced before in the world’s history. The richest nations are hit the hardest by this turbulence; and the indications are that the worst is yet to come. We can be certain that global economic growth, which slowed down significantly this year, will continue to decline in 2009. This also applies to the situation of Fiji’s major trading partners.
For over two decades, Fiji itself has been trapped in a low-investment, low-economic growth spiral, with our economy performing well below its potential.
Since its appointment in January, 2007, the Interim Government has been resolute, to move Fiji forward to sustainable peace, stability and prosperity. Among the key pillars in the draft Peoples Charter for Change, Peace and Progress are our quest for good and just governance; to grow the economy; and to reduce poverty.
During the period 2007 and 2008, we have made considerable progress, particularly in consolidating the public finances and in arresting the rapidly deteriorating fiscal imbalances, brought about through several years of financial indiscipline and mismanagement.
We achieved this through policies and measures that were not populist: curbing consumption; drastically trimming government expenditure; reducing salary in the public sector; reducing the size of government; and imposing import duties on a wide range of luxury items. We had to implement some drastic measures to stabilise the public finances and our foreign reserves. What is noteworthy is that we were able to achieve the stabilisation and consolidation of the fiscal situation within a short period of time.
It is also noteworthy that just when we felt that we have some room to provide the much needed stimulus for growth and development in our economy, we now have to contend with the unprecedented global financial crisis. These latest adverse external developments, which are beyond our control, have further compounded and magnified the challenges that we face, as a nation.
The 2008 Budget was described as a “Budget for Hope”. In the 2008 Budget, the Interim Government had announced a number of important initiatives and reforms: in the areas of infrastructure upgrading and development; private sector development; enhancing productivity and competition; trade reforms; labour reforms; public sector including civil service reforms; financial management reforms; public enterprise reforms. In most, if not all of these areas, we should, by now, be showing robust progress. Unfortunately, this is not the case. We could and should have done much better.
One key theme of the 2009 Budget must necessarily be continuity: to continue, but more vigorously implement the reforms outlined in the 2008 Budget.
Ladies and Gentlemen, Fiji must now deal with a number of problems and challenges, especially given the adverse developments in the global economy. These include the escalation in both fuel and food prices with flow on inflationary pressures, which in turn affect the cost and competitiveness of our products. In addition, the widening trade deficit is placing significant pressures on our balance of payments position.
Moreover, to raise income levels, to improve our living standards, to generate more jobs, and to reduce poverty, it is imperative that Fiji works itself out of the spiral of low investment, low productivity, and low growth.
What are the implications of all this for 2009 fiscal policy and strategy?
The evidence and overall experience to-date indicate that while it is important to outlay adequate resources to support the priority policy initiatives, it is equally, if not more important, to ensure effective and timely implementation. In many instances, it is not the lack of resources per se which has adversely affected or constrained the speedy implementation of the announced initiatives. More often than not, the poor implementation performance has been due to lack of advance planning and preparedness on the part of the Ministries and Departments. Also, generally, there is a lack of urgency to get things done.
2.0 Strategy for the 2009 Budget
The Government has been actively listening and paying attention to the views and concerns of various stakeholders, across the whole of the country. This has happened through the Draft Peoples Charter process, in which nationwide consultations have been undertaken at a level and depth that is unprecedented in Fiji’s history. In addition, the recent Mini Economic Summit and its Working Groups, as well as other representative bodies have provided invaluable feedback on issues that need to be addressed, to move Fiji forward. The 2009 Budget draws upon all this.
A three-prong strategy therefore has been adopted for the 2009 Budget with the dual objective of Raising Economic Growth and Alleviating Poverty
The first prong of the Budget Strategy is to grow the economy by rebuilding and revitalising confidence, particularly of the private sector, for it to invest more, and to generate the jobs and the incomes that our people need. Under this part of the overall strategy, high priority and urgent attention will be given to infrastructure rehabilitation and development; to stimulating and facilitating investment, especially by the private sector; and to enhancing productivity and innovation.
The second prong of the Budget Strategy, in parallel with the first prong, is to ensure that economic growth is pro-poor, and focuses on reducing poverty, improving access to service delivery as well improving the basic living conditions of all our people. Under this part of the strategy, attention will focus on basic infrastructure development in villages and settlements; on education and training; on health and hygiene; on housing, especially tackling the growing squatter problem in the urban and peri-urban areas; and on food production. Particular attention is to be given to the vulnerable and the disadvantaged in the society including the poorest of the poor; the disabled and the elderly; and women.
The third prong of the Budget Strategy, and one which is cross-cutting to the first two, concerns the public sector in terms of both its role and performance orientation. Under this part of the overall strategy, the public sector is to more effectively demonstrate its own commitment to change and modernize: by doing more with less; by raising its productivity and efficiency in service delivery; and by ensuring its own right-sizing through the needed, and long overdue, reform and restructuring. The policy-setting and regulatory roles of the public sector are to be strengthened and rationalized, to ensure that Government policies are transparent, consistent, compatible and sustainable, especially in promoting, facilitating and catalyzing private sector-led growth. Also, in this context, the partnering relationship between the Government, the civil society and the private sector, on issues relating to national social and economic development, are to be enhanced.
3.0 2009 Budget Framework
In the last two budgets, the Government’s strategy to stabilize and consolidate the fiscal position has been highly successful. For the years 2007-2008, the average annual net fiscal deficit is expected to be below 2 percent of GDP while total debt to GDP is expected to be 49 percent. This compares to the period 2000-2006 when the average annual net fiscal deficit was an unsustainable 4.43 percent, and debt was un-affordably high.
Public finances have stabilized over the past two years or so. For 2009, the Government, while continuing to vigilantly maintain an overall prudent stance and adhering strictly to fiscal discipline, is now in a position to increase the deficit to 3 percent. In this context, I should also emphasise that Government has reduced its debt level to 47.9 percent in 2008. The policy space, in the short term, to raise the deficit to support the 2009 Budget Strategy, will be utilised judiciously, to support productive expenditure, especially for infrastructure rehabilitation and development. In this regard, it may be noted that while during 2007-2008 operating expenditure accounted for an average annual 84 percent of total expenditure, in 2009, the share of operating expenditure is being reduced to 80 percent of total expenditure.
A central objective of expenditure policy is to improve the efficiency and effectiveness of Government spending. The Budget is forecast at $1.715 billion in 2009.
As I said before a major strategic thrust of the 2009 Budget is on infrastructure development. Government will actively pursue Public Private Partnership arrangements to finance infrastructure programs and also resort more to outsourcing to the private sector, to expedite implementation. This is a deliberate policy to stimulate investment and sustain growth but also to recognize the capacity constraints within the public sector, such as in the Public Works Department. Moreover, in 2009, we will emphasise the timely implementation of capital projects. In that regard, I will shortly convene a capital projects workshop for senior civil servants in key agencies to ensure a satisfactory state of project readiness so that implementation may commence by January next year.
In addition, increased resources have been made available to achieve our objective of caring for the poor. This means supporting the livelihoods of our people by focusing on areas and regions that have remained depressed and under-developed; and directing adequate resources towards the core priority sectors of health; education; housing; and poverty assistance. The Budget also directs resources for basic infrastructure development at the level of villages and settlements.
In line with the Budget Strategy, emphasis will be placed on supporting expenditure programmes capable of facilitating large-scale production of staple foods, dairy and meat products, and renewable energy sources.
To contain operational spending, each ministry and department have been instructed to spend within their allocated budgets for telecommunications, fuel and oil, stationery, spare parts and maintenance, and supplies and services. As an integral part of these efforts is the decision taken by the Government to, as much as possible, lease vehicles and explore the opportunity of leasing office equipment.
Ladies and Gentlemen
Financing our expenditure is dependent on our revenue performance. In principle, our operating revenue must cover operating expenditure. Prudent cash flow and forecasting management has enabled Government to achieve this objective during the year. We will maintain this discipline in 2009. Let me reiterate our policy that operating revenue drives operating expenditure. This allows for more capital projects to be met through debt financing.
In the 2009 Budget, we are projecting a revenue of $1.522 billion, of which $1.331 billion is from taxes and $191.2 million from non-tax revenue. In formulating our revenue policies we are mindful not to overtax the economy. Therefore, our key revenue policies are targeted at facilitating investment and sustainable economic growth, boosting exports and growth of competitive import substitution industries and protecting local and infant industries.
We also envisage in this Budget to raise non-tax revenue from a review of fees and charges, the divestment of Government shares and sale of Government assets. Revenue received from asset and share sales will be utilized to finance our debt repayments.
4.0 Priorities under the Strategic Thrusts for 2009
Before I discuss specific revenue measures, I will now highlight the priorities under the three-prong strategy of the 2009 Budget.
a) Pro Growth Initiatives and Measures
One of the most important strategic thrusts of the 2009 Budget is to grow the economy. We must increase the economic growth levels to create jobs and generate incomes that are needed and to enable people to get out of the poverty trap, and to prosper. We must also ensure that higher growth is accompanied with a more equitable distribution of its benefits. Without higher levels of growth, we cannot achieve any real progress in ensuring equity, access, and fair distribution of the benefits of development. We have to grow the size of our national economic cake to achieve poverty reduction and also prosperity.
The Government will rely on the private sector to lead the way to achieve higher growth through increased investment. Government, through its policy and regulatory roles, will ensure a more conducive environment for increased investment and confidence, to grow the economy.
In this particular regard the rehabilitation and development of infrastructure is being given very high priority in the 2009 budget. Government has committed significant targeted increases in funding for major road development, water supply and sanitation, and the upgrading of ports.
In addition, Government is fast tracking e-government projects including computerization of the various registries.In addition to budgetary allocations, Government has negotiated a self-funding road development and rehabilitation program, to commence in the first quarter of 2009, with a major foreign entity, to rehabilitate the Queen’s and King’s highways, upgrading approximately 68 kms of road from Wairiki Port to Dreketi; sealing roads around the Savusavu region, and completing the sealing of the Kings highway.
Furthermore through competitive sources of loan funding, work on upgrading and sealing of the roads in the following areas; Saweni-Serea Road; Sigatoka Valley Road; Buca Bay Road and Moto-Balevuto Road, will be undertaken. Efforts are being exerted for this work to commence in the first quarter of 2009.
Improving the supply of water and sewerage services for all in Fiji continues to be a high priority for Government.
As part of this process, consulting expertise has been mobilized to progress the transition from the Water and Sewerage Department to the Water Authority of Fiji.
The Consultant will initially work on Capital Works Review, Network Modeling and improvements to the existing system that will bring about immediate improvements to the current water supply challenges.
Government has allocated sufficient funds to complete the Rotuma Airstrip to facilitate the landing of ATR 42s and the upgrade of Matuku Airstrip. It has also allocated funds to initiate the development of modern port facilities for the Northern Division to support the Tax Free Region initiative.
Apart from infrastructure, particular emphasis will also be given to such strategic sectors as tourism, commercial agriculture, fisheries, forestry, and Information, Communication and Technology (‘ICT’).
The Government’s strategy is to put in place measures that will, in a tangible way, make it more attractive to value-add in Fiji. Value- adding is imperative, particularly if we are to create sustainable industries, earn more foreign exchange, substitute for imports, and generate employment opportunities and upskill our work force.
This Pro-Growth strategy will be combined with a Pro-Poor focus to ensure that those who are lagging behind or are disadvantaged will have greater and better access to opportunities. This also applies to the depressed regions and areas, such as the Northern Division and the Maritime Zones.
It is also imperative that the indigenous people of Fiji are brought into the mainstream of the modern sectors of the economy. This Budget gives particular attention to introducing measures to enable meaningful and tangible participation of the indigenous people in the economy.
Fiji has among the largest of Mahogany resource in the world. Yet the full potential benefit of this resource has for too long been unrealized. There has been much talk and even more uncertainty. In order to provide the trajectory required for this industry, Government is in the process of finalizing the transfer of the ownership of the mahogany plantations to the indigenous landowners through the Fiji Mahogany Trust. The scheme will involve the licensing of approved harvesters who, as criteria of getting a license, must, amongst other things, value-add in Fiji, pay a levy for reforestation, brand Fijian mahogany, provide employment. Applicants for licences will be given favorable consideration if they have indigenous land owner equity participation. Only licensed harvesters can have access to the mahogany. Fiji Hardwood Corporation Limited will be redirected to become a mahogany and forest manager. This initiative falls in line with my Government’s drive to bring indigenous Fijians into the mainstream economy, become equal partners in resource development, and address inequalities of the past. The transfer should be in place by 1 January 2009.
Government has through the Committee for Better Utilization of Land (‘CBUL’) facilitated the renewal of 77 percent of the expired land leases through its outreach program. Landowners through CBUL will receive an additional $8.5 million.Given this new partnership between the landowners, farmer and Government, vast areas will now be revitalized through targeted government spending and community and private sector initiatives and investment.
Fiji has had price controls and monitoring on a wide range of items for over three decades. As we move forward to enhance private sector-led growth of the economy, and to foster competition and level playing field conditions in the market, the merits of having such extensive price control and monitoring needs to be reviewed. The Government shall undertake such a review during 2009. As an immediate measure, Government will lift price controls on rent on commercial properties from 1 January 2009.
The 2009 Budget therefore, introduces a range of measures to grow the economy. These include reduction in corporate tax; establishment of tax free regions; and increased incentives for investment in the tourism, energy, agriculture and ICT sectors. Government shall also lift the moratorium on state agricultural land which are to be leased at commercial rentals for other productive use.
The participation of the commercial banks in Government economic strategy is imperative. In this regard over the past few days, Government and RBF have had consultations with the 5 commercial banks.
We discussed that these banks need to participate and partner Government in initiatives that will be pro-growth, pro-poor and improve and modernize Governmental operations.
The Government and the RBF will closely monitor and consult the banks on interest rates, interest rates spread, fees and charges and other determinants which will create the impetus and environment for a national approach to create better investment and savings opportunities.
It is envisaged that improved and new synergy between commercial banks, Government and the private sector will be realized by 1 January 2009.
To entice Former Fiji Citizens who continue to have strong links with Fiji, they, their spouses and immediate descendents will automatically be entitled to an indefinite permanent residency status, at a cost of $3000.00 per person. Such permanent residency will give them almost all the rights and privileges of a Fiji Citizen including the right to invest and work freely.
Most of the current financial threshold to be met by foreign investors will be reduced to create a more conducive environment for investment and encourage new investors. The new threshold will commence from 1 January 2009.
My Government is committed to a liberalized market within an appropriate legal framework. The Raddison Accord which was achieved because of this Government’s will and determination has led to the liberalization of the telecommunications sector. It has provided competitive pricing, increased and better consumer services and has reduced the cost of doing business in Fiji. With the opening up of the international gateway from 1 July 2009 we will enjoy further reduction in telecommunication costs. Government will continue to pursue such liberalization in other areas of our economy.
As part of facilitating investment Government will assist FNPF to expedite the private sector development of the Grand Pacific Hotel and Momi Bay Hotel projects. I expect the development of these projects to recommence within the first quarter of next year.
b) Pro-Poor Measures and Initiatives
Higher rates of growth must be accompanied by real improvement in the lives of the ordinary people of Fiji. While we need and must have high rates of economic growth to prosper, however, the benefits of such growth must be shared equitably across the nation. The needs of the poor, the vulnerable and disadvantaged must be met. They must be given access to opportunities and assistance, as appropriate. This is to ensure sustainable improvements in their livelihood.
The 2009 Budget seeks to address this by ensuring basic infrastructure for villages and settlements in rural areas; enhancing access to education and training; health and hygiene, and ensuring greater access to housing. Particular attention is to be given to addressing the problem of growing squatter settlements in the urban and peri-urban areas. At a time of increased prices for basic necessities, incentives are being given through the 2009 Budget to increase food production, and encourage self-help in the supply of water and sanitation.
Under the Peoples Charter outreach activities, consultations have been undertaken with people at the local level in the rural areas, in villages and settlements, across the country. A very strong and consistent feedback has been about very basic, “bread-and-butter” developmental issues, relating mainly to the provision of small-scale infrastructure services. Through this consultation process, the Peoples Charter teams identified a total of 854 small-scale projects, all ready for implementation but on which the people have been facing undue delays, in many instances for several years. During the fourth quarter of 2008, the Government has taken action to implement 201 out of the 854 projects at a cost of $1.95 million. All of these 201 projects will be completed within this year. Under the 2009 Budget, an allocation of $12.13 million is earmarked to complete implementation of the balance of 653 projects. Overall, a total of $21.4 million is allocated for rural development including self-help projects such as access roads, housing, electrification, water supply and community development.
Government has in this respect also reduced the amount of contribution required by communities for rural electrification. They will now only need to make a 5 per cent contribution.
Ensuring access to quality education for all is of paramount importance, especially as it is pivotal to liberating people from the vicious trap of poverty.
In our nation today, parents in very low income communities are not able to raise funds to supplement government grants to send their children to school. The level of dropouts from schools has been increasing year by year. According to the 2004-2005 Employment and Unemployment Survey, 10 per cent of children aged 5-14 years were not attending school, due mainly to the financial constraints faced by their parents. Worse still, more than half the total numbers in final year of primary school do not progress to secondary education.
Through the Peoples Charter process, it has been recommended that a Poverty Relief Fund for Education (PRFE) be established, to assist children of the poorest of the poor to gain access to education, at primary, secondary as well as tertiary levels. It is anticipated that the PRFE would be jointly established through the Prime Minister’s office, registered under the Charitable Trusts Act, involving participation and contributions from the Government, the private sector, civil society, charity organizations and external donors.
In the 2009 Budget, $200,000 is allocated, as Government’s initiating seed capital contribution, to get the proposed PRFE underway.
c) Pro- Public Sector Efficiency and Effectiveness
The overall efficiencies and effectiveness of the public service need to be enhanced. I acknowledge that the public service has some highly dedicated staff, and some who contribute above the normal calls of duty. However, generally, inertia is widespread within the public service; and motivation and productivity all need to be lifted. In some key areas, capacity is weak. We must fix these problems, not only through increased staffing but by ensuring availability of the needed competencies and through appropriate remuneration policies. However, the overall size of the public service is large for the size of Fiji as a country. In this context, the reform and right-sizing of the Fiji public service will remain a high priority.
As part of its efforts to provide the right incentives, motivation and improvements to the caliber of civil servants, Government will resume implementation of the Job Evaluation Review and introduce a merit pay system.
Government in its concerted effort to modernize and run its operations has, as a major step, commenced the leasing of vehicles. This will enable Government to reduce its capital outlay, modernize its fleet, bring about transparency and reduce its overall operational costs.
Last August, when launching the Draft Peoples Charter for extensive nationwide public consultations, I had indicated that Fiji’s overall political, social and economic situation is such that the case for change is very compelling. We in Fiji can and must achieve change for a more equitable and prosperous future for all our citizens. And for this, we all must share a collective vision and the will, to achieve the changes that are imperative. This applies in particular to the public service and the government as a whole. To put it simply, we cannot carry on “business-as-usual”. We must modernize the public service by transforming its performance orientation, service delivery effectiveness, and the overall productivity and efficiencies.
Moreover, in our collective efforts to move Fiji forward through the Peoples Charter, it is not only desirable, but, I would say imperative, that a strong partnership approach is now forged between the Government, the civil society and the private sector. This is central to the 2009 Budget strategy.
5.0 REVENUE MEASURES
Ladies and Gentlemen
I now turn to the key 2009 revenue measures.
Our revenue measures are targeted at addressing the challenges I highlighted earlier. These are:
i) addressing our widening trade deficit by supporting export promotion and import substitution; and
ii) introducing targeted incentive packages for resource based industries, value-adding including manufacturing; and ICT development.
The strengthening of revenue collection through improved compliance and facilitating investment and sustainable economic growth are the guiding principles of Government’s revenue policies in 2009. Government is conscious of the need to create and sustain an enabling climate for investment to develop our priority sectors: Infrastructure, Agriculture and Fisheries; Forestry; Tourism and ICT.
The following are some of the major tax incentives that will be available from 1 January, 2009:
(1) Direct tax measures
a) Reduction in Corporate Tax
In 2009, the company tax rate will be reduced to 29 percent and then further reduced to 28 per cent in 2010.
b) Personal Income Tax
From 1 June this year, the income tax threshold was increased from $9,000 to $15, 000. The intention of increased income tax threshold was to alleviate the extra burden on low income earners from the increases in the food and fuel prices this year. This policy will remain unchanged in 2009 and 2010.
c) Establishment of Tax Fee Region(TFR)
The economically depressed Northern and Maritime Island region are in need of special consideration and assistance.
To encourage investment, support development and create employment opportunities in the North and the Maritime islands, Government will declare Vanua Levu, Rotuma, Kadavu, Taveuni, Levuka, Lomaiviti, Kioa, Rabi and Lau as Tax Free Regions(TFR), effective from 1 January, 2009. The TFR incentives will include:
· 13 years tax holiday for new companies; and
· Import duty exemption on raw materials, machinery and equipment for initial setup
In addition, companies that start new projects with at least 25 per cent equity participation involving indigenous Fijians will be granted an additional 5 years tax holiday, that is, a total tax free status of 18 years. Such incentives shall be provided to new companies investing at least $2 million.
d) Tourism Incentive Package
In the 2008 Budget, it was announced that a new incentive package will be introduced to replace the existing short life investment package which expires on 31 December, 2008.
The 2009 Tourism Incentive Package replaces the former that was announced in the 2008 Budget. The Incentives will be in two parts: Standard Allowance and Hotel Incentive Package.
The Standard Allowance provides for 55 percent investment allowance on total capital expenditure as long as there is no shift of revenue offshore.
The second segment of the incentive package will have the following:
. 10 years tax holiday for capital investment not less than $7 million ;and
. Import duty exemption on all capital goods (including capital equipment, plant and machinery) not available in Fiji that is utilized to carry out the investment.
Further, any hotel development in the TFR that entails 25 percent equity by indigenous Fijian land owners, will qualify for an additional 7 years tax holiday on top of the 13 years given under the TFR. For new hotel projects set up in other parts of Fiji, in which indigenous Fijian land owners own at least 25 percent equity will qualify for ten years tax holiday.
It should also be noted that Government has allocated $23.5 million dollars to Tourism Fiji. Government recognizes that Marketing Fiji Tourism is essential. It will continue to provide such funding with certain bench marks to be achieved by Tourism Fiji.
e) Agricultural Incentives
Ten years tax holiday will be granted to new projects by companies undertaking commercial agriculture farming and agro-processing. The incentive will be available from 1 January, 2009 to 31 December, 2014 and to qualify for tax exemption, a minimum of $2 million investment is required and the generation of employment of at least 30 local employees.
f) Bio-fuel Projects
Government is of the view that investment in bio-fuel production needs to be supported given the considerable benefits to the nation in reducing mineral fuel imports. We have an abundance of local resources that can be converted to bio-fuel. To encourage investment in such projects, ten years tax holiday will be granted to companies that will be involved in processing agricultural commodities such as sugar, coconut, cassava etc into bio-fuel. The incentive will be available from 1 January, 2009 to 31 December, 2014. To qualify for the corporate tax exemption, a minimum of $1 million level of investment is required and the generation of employment of at least 20 local employees or more.
In addition, any plant, machinery, equipment and chemicals used for the initial establishment of such new projects will be granted duty free concession.
g) Renewable Energy Incentives
To encourage energy conservation and development of alternative fuel, five years tax holidays will be granted to companies undertaking renewable energy projects and those pursuing investment in power cogeneration. To qualify for tax exemption, a minimum of $250,000.00 level investment is required
To encourage energy use efficiency, energy saver light bulbs will attract zero duty, while duty on non-energy saving light bulbs will be increased.
All importation of renewable energy and energy conservation goods and equipment will be granted duty free concessions. In the same context, fiscal duty and import excise on motor vehicles to be licensed as public service passenger vehicles which operate on Liquefied Petroleum Gas (LPG) or Compressed Natural Gas (CNG) will be reduced from 27 percent to zero percent and 15 percent to zero percent respectively.
h) iCT Incentives
There exists a considerable opportunity for Fiji to benefit from ICT investments. Government has, over the years, introduced a number of incentives to attract ICT business. In 2009, we will:
. Align the incentives available inside and outside the Kalabu Zone;
. The current 10 years tax holiday granted to ICT operators will be increased to 13 years for new operators; and,
. Duty free concession on the importation of computers, specialized plant, equipment and fittings and specialised furniture will be granted for the initial establishment of business.
i) Audio Visual Incentives
In order to enhance Fiji’s competitiveness in attracting foreign film makers, the current film tax rebate of 15 percent will be raised to 35 percent in 2009.
Fiji will be hosting “The Fiji International Film Festival” in 2010 aimed at raising the profile of Fiji. To encourage corporate sponsorship of this event, 200 percent tax deduction will be granted for any corporate contributions made to the Fiji International Film Festival.
j) Education for the Poor
to support access to education for the children of the poorest of the poor families, a Poverty Relief Fund for Education is proposed for which seed funding is included in the 2009 Budget.
It is anticipated that the bulk of funding for this initiative will come from the private sector, individuals, community and voluntary organizations and aid donors. To encourage such funding support, a 200 per cent tax deduction for contributions in excess of $50,000 will be available.
k) Other Incentives
To encourage exports, the following incentives will be extended:
. Export Income deduction will remain at 50 per cent until 2010;
. Employment Taxation Scheme will be extended to 31 December, 2010; and
. 40 percent Investment Allowance will be extended to 31 December, 2010.
(l) “Fiji My Second Home” Programme: This programme is to allow non citizens to reside in Fiji on a multiple entry social visit pass. The goal of this programme is to attract foreign currency funds into Fiji including expenditures locally for retirement living by non-citizens. Those who use this facility will need to satisfy certain criteria including a fixed deposit placement of $200,000.00 for those aged 50 and above; and $300,000.00 for those aged below 50). Interest earned from such deposits will be exempted from tax. This scheme will be operational from 1 January 2009.
(m) Foreign Currency Account Scheme: This scheme is to attract non-residents, including former Fiji Citizens, to send their funds through the banking system to deposit in local bank accounts. For foreign currency accounts, any amount maybe placed in fixed deposit but interest income for deposits above the equivalent of $300,000.00 will be exempt from local tax. This scheme is expected to impact positively on our foreign reserves and will be operational from 1 January 2009.
(2) INDIRECT TAX MEASURES:
a) Tourist Yachts
The duration of stay on tourist’s vessel allowable in Fiji waters will be increased from 9 months to 18 months. The re-entry condition of 9 months will be removed.
b) Super Yachts
To facilitate the “Superyacht” industry in Fiji, Government will formulate a National Yacht Charter Policy. This policy will be ready for implementation by 1 January, 2009.
c) Tariff Changes
The fiscal duty on all items under the 27 percent duty band will now be raised to 32 percent with immediate effect. The increase in the duty rate aims to encourage import substitution of local products, dampen demand and provide stimulus to domestic industries.
The following are additional customs and import excise duties measures that will be made effective immediately:
. Increase fiscal duty of multi-wick kerosene stoves and spare parts from 5 to 32 percent;
. Increase fiscal duty of golf cars and similar vehicles from 15 to 32 percent; and
. Removal of import excise duty of 10 percent on prime movers and specialized earth moving machinery.
d) Petroleum Prices
Government will revert to normal duty rates as follows:
. Motor spirits from 34 cents to 44 cents per litre;
. Diesel from 9 cents to 18 cents per litre; and
. Motor spirits used for blending pre-mixed outboard fuel from 17 cents to 27 cents per litre.
Notwithstanding the reinstatement of the normal petroleum duty rates, given the decrease in the world oil prices the new domestic retail prices to be effective from 1 December 2008 are expected to be lower than the current retail prices.
e) Concessions on Basic Food Items
In June this year, Government reduced fiscal duty to zero percent on a number of basic food items such as rice, edible oil and tin fish. This measure was introduced to cushion the impact of inflationary pressures arising from the hike in global food prices. Government will maintain the zero percent fiscal duty concession on these items in 2009. Moreover, the zero rating of locally produced eggs will remain in 2009.
f) Fishing Industry
To create a level playing field for local and foreign owned fishing vessels, the following concessions will be granted to the fishing industry:
. Reduction in fiscal duty on fuel from 8 cents to 2 cents;
. Reduction in fiscal duty on specialized fishing gear & equipment from 3 per cent to zero per cent;
. Reduction in fiscal duty on specialized fishing vessels from 10 per cent to zero per cent;
. Reduction in fiscal duty on fish baits from 3 per cent to zero per cent; and,
. To encourage value adding a 3 per cent export duty on exports of unprocessed fish will be introduced from 1 January 2009
g) Timber
Introduction of 3 per cent export duty on exports of all unprocessed timber from 1 January 2009.
(3) OTHER
Road User Charge
A road user levy, differentiated by vehicle category and classification, will be introduced effective 1 January 2009 on all vehicles. The revenue generated by this measure will be specifically set aside into an Infrastructure Rehabilitation and Development Fund, and utilized only for the purpose of road maintenance upgrading and development
Ladies and Gentlemen, a complete list of the direct and indirect tax measures are provided for in the 2009 Budget Supplement.
Going forward, Government will ensure consistency, transparency and sustainability of its policies and measures aimed at growing the economy, increasing investor confidence and reducing poverty.
Extraction of Mineral Water
A levy for the extraction of mineral water based on volume will be levied from 1st January, 2009. The levy has been arrived at following consultations with the mineral water extracting companies.
Second Hand Vehicles
Second hand and reconditioned vehicles up to 8 years old can now be imported to allow accessibility to the lower income earners and other users.
7.0 Development Partners
Before I conclude, I wish to acknowledge our appreciation to those development partners who have extended their understanding and assistance to Fiji during these challenging times. I submit to all our development partners, that Fiji seeks your support for our efforts towards national development, to promoting good governance, and for laying a platform for a return to parliamentary democracy. We remain committed to pursuing constructive dialogue and engagement with all our partners in the international community.
8.0 Conclusion
This Budget has been prepared at a time of unprecedented developments in the global financial system and economy. The overall environment is one of growing uncertainties and is becoming increasingly more constraining. What we do know is that Fiji is not sheltered from this external turbulence. Over the coming months, as we enter into our cyclone season and must take all the necessary precautions, in the wake of the global financial and economic crisis, Fiji and its people must be prepared to absorb the shocks. We will need to be prepared to sacrifice; to work harder and smarter; and perhaps above all, to draw upon our inner strengths as a nation and as one people, to work together, to chart our way forward.
In conclusion, I am heartened by the support of the people of our nation as is evidenced from the strong and growing positive response to the draft Peoples Charter. I extend an invitation to every section and individual citizen, and to all our development partners, to join us and make a meaningful contribution to our efforts in nation building. This task of Nation building and National development is not easy and requires much effort, goodwill and resolve, to see it succeed.
The 2009 Budget, being pro-growth and pro-poor, goes a long way to facilitate this. Together with our draft Peoples Charter, this gives me much optimism and hope in our quest for “Building a Better Fiji” for all our people.
I thank you for your attention during this Address and look forward to your continuing support now and, in the year to come. I commend this Budget to our nation, and do so with the support of Cabinet.
May God Bless Fiji.
- ENDS -"
Individuals and groups that need investment advice can use our company, Gilbert & Samuels Company Limited. We also do strategic planning and business continuity planning consultancy. Our contacts are: telephone (679) 3342719 or e-mail: info@gilbert.com.fj.
Thursday, November 20, 2008
2009 National Budget - Some features
The 2009 National Budget has just been delivered by the Interim Prime Minister and Minister for Finance at the Raffles Tradewinds Hotel, Suva, Fiji.
Some of the features that I caught being said included :
Some of the features that I caught being said included :
- incentives provided to increase local food production including teh raising of duties on some imported food items;
- company tax rate to be reduced to 29% in 2009 and down further to 28% in 2010;
- tax free regions to be set up in the outer islands including Rotuma, Lau, Kioa, etc, (to encourage development in those islands) with tax free status between 13 years to 18 years;
- 10 year tax free holiday for companies setting up commercial agriculture businesses;
- 10 year tax free holiday for companies setting up to produce bio fuels;
- 5 year tax free holiday for companies setting up to produce renewable energy;
- 13 year fax free holiday for ICT companies including tax free duties for purchasing computers etc from overseas;
- 200% tax deduction for companies contributing/donating to the film industry in Fiji;
- road user levy to be introduced for all vehicles and for certain regions in Fiji;
- second hand vehicles up to 8 years old can be imported again;
- unlimited Permanent Residency status to former Fiji residents at a cost of F$3,000.00 per person;
- multiple entry visas to non-residents who are required to hold a Term Deposit with one of the banks in Fiji of over F$300,000.00; and
- Foreign currency accounts with balances over F$300,000.00 will not be taxed to encourage remittances to Fiji by Fiji residents and former Fiji residents.
I will post more information once I get a copy of the 2009 National Budget Address from my contacts. A copy will be loaded onto our FijiSale Yahoo Group. To subscribe for membership of the Group, enter your email address on the "Subscribe to Fiji Sale - Lists Properties on Mortgagee Sale in Fiji" above.
Individuals and groups that need investment advice can use our company, Gilbert & Samuels Company Limited. We also do strategic planning and business continuity planning consultancy. Our contacts are: telephone (679) 3342719 or e-mail: info@gilbert.com.fj.
Fiji Electricity Authority increases surcharges and reveals incompetence
Another opinion piece from me!
The Fiji Electricity Authority has again increased consumer surcharges continuing to blame the high international fuel prices and the need to fund some of its alternative fuel projects as a reason for the increase.
In the ensuing discussions by the Authority's Chief Executive Officer, there is no mention of any use of "free" energy e.g. solar or wind and how customers can be encouraged to use these.
After the announcement of the increase in surcharges, a multitude of complaints has flowed in with businesses and business groups complaining of the increase and how it would impact on their bottom lines.
What the Authority needs is a good review of its direction again. Instead of having an objective of trying to milk consumers for all they are worth, perhaps it could put the national objective of reducing reliance on imports (of fuel/oil) and contributing to improving Fiji's foreign reserves first and foremost.
The Fiji Electricity Authority has again increased consumer surcharges continuing to blame the high international fuel prices and the need to fund some of its alternative fuel projects as a reason for the increase.
In the ensuing discussions by the Authority's Chief Executive Officer, there is no mention of any use of "free" energy e.g. solar or wind and how customers can be encouraged to use these.
After the announcement of the increase in surcharges, a multitude of complaints has flowed in with businesses and business groups complaining of the increase and how it would impact on their bottom lines.
What the Authority needs is a good review of its direction again. Instead of having an objective of trying to milk consumers for all they are worth, perhaps it could put the national objective of reducing reliance on imports (of fuel/oil) and contributing to improving Fiji's foreign reserves first and foremost.
Vodafone Fiji launches 3G network
Vodafone Fiji has launched its 3G network over the past few days. The 3G network will bring about more speed and data capacity on the company's mobile network. Improvements that users can expect include :
- watching TV and movies on your mobile handsets at high speeds;
- video calling;
- high speed picture messaging;
- high speed Internet services.
The company could also consider reducing its rates further and improving speeds on its mobile Internet gadgets.
Individuals and groups that need investment advice can use our company, Gilbert & Samuels Company Limited. We also do strategic planning and business continuity planning consultancy. Our contacts are: telephone (679) 3342719 or e-mail: info@gilbert.com.fj.
Tuesday, November 18, 2008
Review of our Transport Infrastructure and Strategic Plans
Here is another opinion piece from me with regard to the state of our roads and transport systems.
I would really love to see what our transport and communications experts have in any Strategic Plans that they might have for Fiji in the area of transport and communications.
One look at the import figures shows what a heavy reliance Fiji has on oil imports to meet, both industrial and consumer needs.
Secondly, our roads are becoming very busy and congested, particularly the routes between Suva and Nausori, Nadi and Lautoka, during the morning and afternoon rush hours.
I had posted a piece on suggestions to help improve on our road congestion problem on our other blog, http://promotingsuva.blogspot.com/ some time ago.
One simple and quick solution is to put in place a rail system between these two towns/cities and then restructure the fare and tax rebates to encourage residents to use the rail system rather than their own or other vehicles for travelling between any of the two locations.
The initial outlay cost might be too foreboding, but I am sure the long term benefits will much outweigh the short term costs. Some of these benefits include :
I would really love to see what our transport and communications experts have in any Strategic Plans that they might have for Fiji in the area of transport and communications.
One look at the import figures shows what a heavy reliance Fiji has on oil imports to meet, both industrial and consumer needs.
Secondly, our roads are becoming very busy and congested, particularly the routes between Suva and Nausori, Nadi and Lautoka, during the morning and afternoon rush hours.
I had posted a piece on suggestions to help improve on our road congestion problem on our other blog, http://promotingsuva.blogspot.com/ some time ago.
One simple and quick solution is to put in place a rail system between these two towns/cities and then restructure the fare and tax rebates to encourage residents to use the rail system rather than their own or other vehicles for travelling between any of the two locations.
The initial outlay cost might be too foreboding, but I am sure the long term benefits will much outweigh the short term costs. Some of these benefits include :
- reduced oil import costs;
- reduced pollution from vehicle exhaust fumes;
- reduced traffic noise (which is made even more worse by vehicle owners who carry the music and sound systems of auditoriums in their vehicles);
- less traffic accidents;
- reduced road rage;
- reduced complaints from residents;
- better health for residents, etc.
Individuals and groups that need investment advice can use our company, Gilbert & Samuels Company Limited. We also do strategic planning and business continuity planning consultancy. Our contacts are: telephone (679) 3342719 or e-mail: info@gilbert.com.fj.
Monday, November 17, 2008
Power Rationing by the Fiji Electricity Authority
The Chief Executive Officer, Fiji Electricity Authority, has recently refuted claims that the power authority is rationing electricity in Fiji.
In recent years, the Authority has constantly informed consumers of the reducing water levels at its Monasavu Dam, the need to import and run diesel generated engines to supplement power needs and the increasing cost of world fuel and therefore the need for a fuel surcharge to be paid by each consumer.
Over recent years, those of us living and working outside the Central Business District have to go through at least one or two days without power each month, during most of the day on those days, when the Authority is supposedly doing maintenance and upgrades in our various locations.
From my own memory, in the 1970s and 1980s and even into the 1990s, I cannot recall such shutdowns being done for maintenance and upgrades.
In itself, those shutdowns are to me, a form of power rationing. What else can they be?
One cannot reconcile the fact that in this day and age of progressive development in machines and systems, the Authority still has to introduce days without power to do maintenance and upgrades.
What are the solutions? Competition? Shall we open up the market to other providers?
One simple solution is for the Authority to simply say that it cannot provide the service and to allow consumers to supplement their own needs with other forms of power e.g. solar and wind.
These other forms of power are provided by God for free so why don't we use them?
Consumers with excess power for their own use can sell their surplus back into the national grid that can be made available to others who will need them.
Some countries e.g. one Scandinavian country has a successful scheme whereby individual households sell power surplus to their needs back into the national grid for use by others that might need them. This has made the country one of the only ones in the area being self sufficient in terms of electricity and power.
Individuals and groups that need investment advice can use our company, Gilbert & Samuels Company Limited. Our contacts are: telephone (679) 3342719 or e-mail: info@gilbert.com.fj.
In recent years, the Authority has constantly informed consumers of the reducing water levels at its Monasavu Dam, the need to import and run diesel generated engines to supplement power needs and the increasing cost of world fuel and therefore the need for a fuel surcharge to be paid by each consumer.
Over recent years, those of us living and working outside the Central Business District have to go through at least one or two days without power each month, during most of the day on those days, when the Authority is supposedly doing maintenance and upgrades in our various locations.
From my own memory, in the 1970s and 1980s and even into the 1990s, I cannot recall such shutdowns being done for maintenance and upgrades.
In itself, those shutdowns are to me, a form of power rationing. What else can they be?
One cannot reconcile the fact that in this day and age of progressive development in machines and systems, the Authority still has to introduce days without power to do maintenance and upgrades.
What are the solutions? Competition? Shall we open up the market to other providers?
One simple solution is for the Authority to simply say that it cannot provide the service and to allow consumers to supplement their own needs with other forms of power e.g. solar and wind.
These other forms of power are provided by God for free so why don't we use them?
Consumers with excess power for their own use can sell their surplus back into the national grid that can be made available to others who will need them.
Some countries e.g. one Scandinavian country has a successful scheme whereby individual households sell power surplus to their needs back into the national grid for use by others that might need them. This has made the country one of the only ones in the area being self sufficient in terms of electricity and power.
Individuals and groups that need investment advice can use our company, Gilbert & Samuels Company Limited. Our contacts are: telephone (679) 3342719 or e-mail: info@gilbert.com.fj.
Thursday, November 6, 2008
FTIB Roadshow
The Fiji Islands Trade and Investment Bureau is organising a Roadshow to raise awareness on new regulations regarding reserved and restricted lists that came into effect on 11 July 2008. The Roadshow will be held on Wednesday, 12 November, from 8.30am to 11.30am, at the Southern Cross Hotel, Suva. For more information, pls call Florence Nand on telephone (679) 3315988 or email florence@ftib.org.fj.
For advice on investment in Fiji, pls contact our company, Gilbert & Samuels Company Limited, on telephones (679) 3342719 or (679) 3544897 or email info@gilbert.com.fj.
For advice on investment in Fiji, pls contact our company, Gilbert & Samuels Company Limited, on telephones (679) 3342719 or (679) 3544897 or email info@gilbert.com.fj.
Tuesday, November 4, 2008
Global Prospects and Policies - Speech by John Lipsky, First Deputy Managing Director, International Monetary Fund
Provided below is a copy of the speech by the First Deputy Managing Director, International Monetary Fund on "Global Prospects and Policies"
"I would like to thank Tim Ryan and his SIFMA colleagues for inviting me here today. It is a pleasure and an honor to have the opportunity to address this distinguished audience, and to share the podium with Under Secretary Ryan.
In discussing global prospects and policies this morning, I will focus on two key themes:
First, to state the obvious, these are very turbulent and uncertain times for the global economy. The world economy is entering a major slowdown, driven by the worst financial crisis in 75 years. As we all know, the current challenges are unprecedented in many important ways. As a result, visibility is unusually imperfect with respect to global economic prospects. Many plausible voices today are predicting dramatic - and, in some cases, dire - outcomes. Regardless, developments continue to evolve rapidly, especially with respect to conditions facing emerging economies. For our part, my IMF colleagues and I are paying close attention to the latest results, and doing our best to anticipate future challenges.
Second, these very difficult financial and economic circumstances call for timely, decisive and cooperative action. Given the global and systemic nature of the current crisis, policy responses need to be scaled commensurately. Our double mantra is straightforward: Global problems call for global solutions; systemic challenges require a systemic response. Increasingly, policymakers around the world share these basic tenets. Already, many unprecedented measures have been announced, and they need to be implemented quickly. Nonetheless, there is scope for further action-particularly with respect to guarding emerging economies from adverse external developments.
I will begin with a very brief overview of the global outlook.
The global economy is in a major slowdown, and there is a risk that it could turn into an outright downturn. Global growth is slowing sharply. Already in this year's first half, growth had slowed to 3½ percent (annualized), down from the 5 percent annual pace sustained over the four previous years.
a. Advanced economies are contracting at end-2008. Advanced economy growth slowed to a standstill during this year's first half. Momentum subsequently has been falling, with leading indicators already dropping to levels last seen during 2001-2002. Indeed, the U.S. economy has slowed sharply and recession risks are looming, while activity in the euro area and Japan had weakened earlier.
b. Increasingly, emerging and developing economies are feeling the impact of the global financial crisis, and their growth is decelerating rapidly. The confluence of a decline in external demand, receding commodities prices, and a sharp moderation in capital flows is likely to dampen activity notably in the coming quarters.
In sum, there is ample justification for pessimism: Global prospects remain highly uncertain and risks of a global recession loom large.
Nonetheless, my IMF colleagues and I are optimistic that a decisive, comprehensive and coherent policy response will be able to truncate the downside risks to the global economy. The key is to focus on dealing with the underlying sources of the weakness, while ameliorating the damage that these underlying factors are creating.
As is widely recognized, the underlying loci of global economic weakness stems from asset price deflation - especially in housing and other real estate markets. Not surprisingly, asset price deflation has been hard on financial markets, creating concentric circles of crisis that have propagated globally at a pace that by and large has taken market participants and policymakers by surprise. How well macroeconomic and financial policies jointly respond to containing the disruption will be telling in determining the global economy's near-term outlook.
There are two key risks to the outlook; One is that asset values - especially housing - will substantially undershoot reasonable long-term levels. The second is that financial market dysfunction will produce reinforcing rounds of real economic distress, especially in emerging economies.
In many countries' housing markets, the apparent boom-time overshooting in valuations already has damaged financial markets and the real economy, but an equally-scaled undershooting would compound the damage.
· Housing-related conditions are weak -- and weakening -- in the United States and several other advanced economies. In the United States, housing activity and prices continue to decline, though the inventory overhang is beginning to moderate. At the same time, however, foreclosures continue to rise, amid a weakening labor market. Rather than finding a floor, as we expect will occur in the coming year, there is a risk of deeper and more prolonged housing correction in the United States. In Europe, the housing correction began later and may have some ways to go. Of course, asset values in many emerging market economies increased in recent years at a faster pace even than in advanced economies, creating obvious risks.
· Avoiding damaging undershooting is justification for a strong policy response. Short-circuiting an adverse feedback loop between housing downturns, widespread financial deleveraging, and weakening confidence would help avoid a deeper downturn. This may require policy actions that impact the underlying markets directly.
The systemic reach of the global crisis underscores the need for global action on a comprehensive and coherent basis.
In financial markets, notwithstanding bold policy actions announced thus far, conditions remain exceptionally volatile and uncertain. Modest declines in interbank spreads, along with sharp falls in bank CDS spreads, suggest some tentative improvement in market sentiment. Solvency concerns have eased in light of the commitment to use public funds to recapitalize financial institutions, but money market funds continue to face large redemptions.
· And while liquidity strains have eased somewhat, they remain acute. Spreads remain at elevated levels, while exceptional volatility and uncertainty is keeping liquidity preference and risk aversion at elevated levels.
Moreover, the financial crisis has spread rapidly to emerging economies; in effect, we have moved swiftly from talk about "decoupling" to a situation where these economies are at substantial risk.
· As discussed in our latest Global Financial Stability Report, published earlier this month, emerging markets-as an asset class-are coming under increasing strains [shown in orange and red in the chart].
· In particular, intensified financial deleveraging is having a global reach, including to emerging economies. More intense capital account pressures, in turn, could seriously harm growth in these economies.
Emerging equity markets already have absorbed greater losses than mature markets, reflecting investors' flight to safety in the face of high uncertainty and risk aversion. Anticipating a significant growth slowdown, emerging equity markets have declined around 50 percent year-to-date.
· Moreover, financial flows are moderating. Pressure on banks in advanced economies-including even those receiving public capital injections and therefore subject to taxpayer oversight-could curtail lending in foreign markets; banks and firms in emerging economies that rely on global wholesale funding markets appear to be facing significant distress and rollover risks; hedge funds and other institutional investors under pressure to unwind positions as a result of tighter financing constraints and redemptions are undermining market liquidity and asset prices more broadly.
Under current strained global financial conditions, the risk of sudden interruptions (or reversals) in capital flows has risen appreciably.
· Countries with large external financing needs and highly levered financial systems face more intense strains in both credit and equity markets. This underscores their more limited room for maneuver in dealing with spillovers from financial and economic stress in advanced economies. Especially vulnerable in this regard are countries where households have contracted large foreign currency denominated loans.
· For the IMF, the current epidemic of spreading financial market strains reflects a challenge that we have faced many times before in many different guises. What is novel are the scale, scope and complexity of the current difficulties.
Our earlier experience warns that sudden stops in capital flows potentially can transform a liquidity shock into a solvency crisis. The needed remedial action - including helping to minimize the risk of a sudden stop, and/or standing ready to compensate for one - is a key IMF responsibility.
We all know more or less how we got to this point - even if the recognition was clear mainly in hindsight. Simply put, the globalizing financial system built up too much risk and too much leverage.
· At the IMF, we have drawn two broad lessons from this experience: First, it seems evident that what we have labeled the "perimeter of regulatory oversight and risk management" was drawn too narrowly. Thus, risks remained out of sight that should have been front and center. The second broad lesson is that regulation should incorporate macro-prudential considerations. In other words, regulation and supervision have focused on instruments and institutions, while remaining more or less oblivious to cyclical and other macroeconomic considerations
Incorporating both these considerations -- the perimeter of regulation, and macro-prudential aspects - will not be either quick or easy. Nonetheless, they will be steps in the right direction.
The immediate imperative for policies is to restore confidence in the financial system. IMF experience indicates that successful efforts typically incorporate three basic aspects: Preserving short-term liquidity, removing damaged assets from bank balance sheets, and recapitalizing banks.
· In advanced economies, bold financial measures announced earlier this month will need to be implemented effectively and quickly.
o Bank recapitalization should proceed swiftly; central bank liquidity support should continue to be provided generously; and comprehensive approaches should be pursued to deal with distressed assets in the financial sector.
· More broadly, policies need to decisively contain both financial disruptions and the possible growth implications, which will include reliance on traditional macroeconomic tools. With the global slowdown undermining commodity prices, the scope for monetary policy to support economic activity has increased, particularly in advanced economies that until recently have been dealing with containing inflation risks.
o Fiscal measures are being used more comprehensively to address solvency issues in systemically important financial institutions, to purchase distressed assets, and to recapitalize the system. At the same time, further support to aggregate demand may be needed, given the loss of private sector confidence.
Policy requirements may also require greater multilateral efforts-inclusive of emerging economies.
· The policy measures adopted by advanced economies may impart unintended effects-notably, since financial institutions in emerging economies in general are not covered under the umbrella of the liquidity operations in advanced economies. Also, domestic banks in emerging economies do not necessarily have the same level of protection through deposit guarantees and such measures as public capital injections. Thus, they may feel pressured to put in place their own programs, even where the resources needed to create credible policies of this nature may not be available.
· In emerging economies, policy actions to deal with sudden interruptions (or reversals) of capital flows will be needed. Of course, in many cases the improvement in monetary, fiscal and structural policies in recent years represents a important protection, as has the build-up in international reserves. Nonetheless, these may not offer complete protection.
o Liquidity support needs to include the corporate sector in countries where funding markets are shrinking. Countries with large reserve buffers could provide foreign currency liquidity as needed, if acute dollar shortages of is affecting firms' ability to operate.
o Emerging economies may also need to consider traditional macroeconomic policies to deal with a shortfall in financing and growth.
The Fund, for its part, is moving quickly and playing an active role to help emerging economies battered by the financial crisis and by the sharp slowdown in advanced economies
· The Fund stands ready to disburse more than $200 billion of loanable funds and can draw on additional resources through standing borrowing arrangements with groups of IMF member countries. As you know, we are currently in program negotiations with several members.
· Since halting economic and financial crises requires timely measures, the Fund is actively considering the launch of a new short-term liquidity lending facility to address problems of fundamentally sound countries temporarily exposed to funding pressures.
Looking past the immediate challenges, a concerted effort will be needed to build a more resilient and efficient financial system. In addition to the two broad areas I mentioned already, there is a need to strengthen global early warning systems, in order to mitigate future risks.
In conclusion, these are very uncertain times and the risks to the global economy are large. But taking a comprehensive and collaborative approach globally-across the full range of policy instruments that we have at our disposal, I am confident that the worst can (and will) be avoided and that a more resilient and sounder financial system will eventually emerge. But the hard work lies just before us, and all will need to do our part."
"I would like to thank Tim Ryan and his SIFMA colleagues for inviting me here today. It is a pleasure and an honor to have the opportunity to address this distinguished audience, and to share the podium with Under Secretary Ryan.
In discussing global prospects and policies this morning, I will focus on two key themes:
First, to state the obvious, these are very turbulent and uncertain times for the global economy. The world economy is entering a major slowdown, driven by the worst financial crisis in 75 years. As we all know, the current challenges are unprecedented in many important ways. As a result, visibility is unusually imperfect with respect to global economic prospects. Many plausible voices today are predicting dramatic - and, in some cases, dire - outcomes. Regardless, developments continue to evolve rapidly, especially with respect to conditions facing emerging economies. For our part, my IMF colleagues and I are paying close attention to the latest results, and doing our best to anticipate future challenges.
Second, these very difficult financial and economic circumstances call for timely, decisive and cooperative action. Given the global and systemic nature of the current crisis, policy responses need to be scaled commensurately. Our double mantra is straightforward: Global problems call for global solutions; systemic challenges require a systemic response. Increasingly, policymakers around the world share these basic tenets. Already, many unprecedented measures have been announced, and they need to be implemented quickly. Nonetheless, there is scope for further action-particularly with respect to guarding emerging economies from adverse external developments.
I will begin with a very brief overview of the global outlook.
The global economy is in a major slowdown, and there is a risk that it could turn into an outright downturn. Global growth is slowing sharply. Already in this year's first half, growth had slowed to 3½ percent (annualized), down from the 5 percent annual pace sustained over the four previous years.
a. Advanced economies are contracting at end-2008. Advanced economy growth slowed to a standstill during this year's first half. Momentum subsequently has been falling, with leading indicators already dropping to levels last seen during 2001-2002. Indeed, the U.S. economy has slowed sharply and recession risks are looming, while activity in the euro area and Japan had weakened earlier.
b. Increasingly, emerging and developing economies are feeling the impact of the global financial crisis, and their growth is decelerating rapidly. The confluence of a decline in external demand, receding commodities prices, and a sharp moderation in capital flows is likely to dampen activity notably in the coming quarters.
In sum, there is ample justification for pessimism: Global prospects remain highly uncertain and risks of a global recession loom large.
Nonetheless, my IMF colleagues and I are optimistic that a decisive, comprehensive and coherent policy response will be able to truncate the downside risks to the global economy. The key is to focus on dealing with the underlying sources of the weakness, while ameliorating the damage that these underlying factors are creating.
As is widely recognized, the underlying loci of global economic weakness stems from asset price deflation - especially in housing and other real estate markets. Not surprisingly, asset price deflation has been hard on financial markets, creating concentric circles of crisis that have propagated globally at a pace that by and large has taken market participants and policymakers by surprise. How well macroeconomic and financial policies jointly respond to containing the disruption will be telling in determining the global economy's near-term outlook.
There are two key risks to the outlook; One is that asset values - especially housing - will substantially undershoot reasonable long-term levels. The second is that financial market dysfunction will produce reinforcing rounds of real economic distress, especially in emerging economies.
In many countries' housing markets, the apparent boom-time overshooting in valuations already has damaged financial markets and the real economy, but an equally-scaled undershooting would compound the damage.
· Housing-related conditions are weak -- and weakening -- in the United States and several other advanced economies. In the United States, housing activity and prices continue to decline, though the inventory overhang is beginning to moderate. At the same time, however, foreclosures continue to rise, amid a weakening labor market. Rather than finding a floor, as we expect will occur in the coming year, there is a risk of deeper and more prolonged housing correction in the United States. In Europe, the housing correction began later and may have some ways to go. Of course, asset values in many emerging market economies increased in recent years at a faster pace even than in advanced economies, creating obvious risks.
· Avoiding damaging undershooting is justification for a strong policy response. Short-circuiting an adverse feedback loop between housing downturns, widespread financial deleveraging, and weakening confidence would help avoid a deeper downturn. This may require policy actions that impact the underlying markets directly.
The systemic reach of the global crisis underscores the need for global action on a comprehensive and coherent basis.
In financial markets, notwithstanding bold policy actions announced thus far, conditions remain exceptionally volatile and uncertain. Modest declines in interbank spreads, along with sharp falls in bank CDS spreads, suggest some tentative improvement in market sentiment. Solvency concerns have eased in light of the commitment to use public funds to recapitalize financial institutions, but money market funds continue to face large redemptions.
· And while liquidity strains have eased somewhat, they remain acute. Spreads remain at elevated levels, while exceptional volatility and uncertainty is keeping liquidity preference and risk aversion at elevated levels.
Moreover, the financial crisis has spread rapidly to emerging economies; in effect, we have moved swiftly from talk about "decoupling" to a situation where these economies are at substantial risk.
· As discussed in our latest Global Financial Stability Report, published earlier this month, emerging markets-as an asset class-are coming under increasing strains [shown in orange and red in the chart].
· In particular, intensified financial deleveraging is having a global reach, including to emerging economies. More intense capital account pressures, in turn, could seriously harm growth in these economies.
Emerging equity markets already have absorbed greater losses than mature markets, reflecting investors' flight to safety in the face of high uncertainty and risk aversion. Anticipating a significant growth slowdown, emerging equity markets have declined around 50 percent year-to-date.
· Moreover, financial flows are moderating. Pressure on banks in advanced economies-including even those receiving public capital injections and therefore subject to taxpayer oversight-could curtail lending in foreign markets; banks and firms in emerging economies that rely on global wholesale funding markets appear to be facing significant distress and rollover risks; hedge funds and other institutional investors under pressure to unwind positions as a result of tighter financing constraints and redemptions are undermining market liquidity and asset prices more broadly.
Under current strained global financial conditions, the risk of sudden interruptions (or reversals) in capital flows has risen appreciably.
· Countries with large external financing needs and highly levered financial systems face more intense strains in both credit and equity markets. This underscores their more limited room for maneuver in dealing with spillovers from financial and economic stress in advanced economies. Especially vulnerable in this regard are countries where households have contracted large foreign currency denominated loans.
· For the IMF, the current epidemic of spreading financial market strains reflects a challenge that we have faced many times before in many different guises. What is novel are the scale, scope and complexity of the current difficulties.
Our earlier experience warns that sudden stops in capital flows potentially can transform a liquidity shock into a solvency crisis. The needed remedial action - including helping to minimize the risk of a sudden stop, and/or standing ready to compensate for one - is a key IMF responsibility.
We all know more or less how we got to this point - even if the recognition was clear mainly in hindsight. Simply put, the globalizing financial system built up too much risk and too much leverage.
· At the IMF, we have drawn two broad lessons from this experience: First, it seems evident that what we have labeled the "perimeter of regulatory oversight and risk management" was drawn too narrowly. Thus, risks remained out of sight that should have been front and center. The second broad lesson is that regulation should incorporate macro-prudential considerations. In other words, regulation and supervision have focused on instruments and institutions, while remaining more or less oblivious to cyclical and other macroeconomic considerations
Incorporating both these considerations -- the perimeter of regulation, and macro-prudential aspects - will not be either quick or easy. Nonetheless, they will be steps in the right direction.
The immediate imperative for policies is to restore confidence in the financial system. IMF experience indicates that successful efforts typically incorporate three basic aspects: Preserving short-term liquidity, removing damaged assets from bank balance sheets, and recapitalizing banks.
· In advanced economies, bold financial measures announced earlier this month will need to be implemented effectively and quickly.
o Bank recapitalization should proceed swiftly; central bank liquidity support should continue to be provided generously; and comprehensive approaches should be pursued to deal with distressed assets in the financial sector.
· More broadly, policies need to decisively contain both financial disruptions and the possible growth implications, which will include reliance on traditional macroeconomic tools. With the global slowdown undermining commodity prices, the scope for monetary policy to support economic activity has increased, particularly in advanced economies that until recently have been dealing with containing inflation risks.
o Fiscal measures are being used more comprehensively to address solvency issues in systemically important financial institutions, to purchase distressed assets, and to recapitalize the system. At the same time, further support to aggregate demand may be needed, given the loss of private sector confidence.
Policy requirements may also require greater multilateral efforts-inclusive of emerging economies.
· The policy measures adopted by advanced economies may impart unintended effects-notably, since financial institutions in emerging economies in general are not covered under the umbrella of the liquidity operations in advanced economies. Also, domestic banks in emerging economies do not necessarily have the same level of protection through deposit guarantees and such measures as public capital injections. Thus, they may feel pressured to put in place their own programs, even where the resources needed to create credible policies of this nature may not be available.
· In emerging economies, policy actions to deal with sudden interruptions (or reversals) of capital flows will be needed. Of course, in many cases the improvement in monetary, fiscal and structural policies in recent years represents a important protection, as has the build-up in international reserves. Nonetheless, these may not offer complete protection.
o Liquidity support needs to include the corporate sector in countries where funding markets are shrinking. Countries with large reserve buffers could provide foreign currency liquidity as needed, if acute dollar shortages of is affecting firms' ability to operate.
o Emerging economies may also need to consider traditional macroeconomic policies to deal with a shortfall in financing and growth.
The Fund, for its part, is moving quickly and playing an active role to help emerging economies battered by the financial crisis and by the sharp slowdown in advanced economies
· The Fund stands ready to disburse more than $200 billion of loanable funds and can draw on additional resources through standing borrowing arrangements with groups of IMF member countries. As you know, we are currently in program negotiations with several members.
· Since halting economic and financial crises requires timely measures, the Fund is actively considering the launch of a new short-term liquidity lending facility to address problems of fundamentally sound countries temporarily exposed to funding pressures.
Looking past the immediate challenges, a concerted effort will be needed to build a more resilient and efficient financial system. In addition to the two broad areas I mentioned already, there is a need to strengthen global early warning systems, in order to mitigate future risks.
In conclusion, these are very uncertain times and the risks to the global economy are large. But taking a comprehensive and collaborative approach globally-across the full range of policy instruments that we have at our disposal, I am confident that the worst can (and will) be avoided and that a more resilient and sounder financial system will eventually emerge. But the hard work lies just before us, and all will need to do our part."
The IMF has funds available for financial crisis
The International Monetary Fund (IMF) has announced that it has about US$200 billion available for immediate lending and can draw on an additional $50 billion in additional resources if needed to assist countries that have suffered the effects of the global financial crisis.
The IMF is ready to process requests for assistance under fast-track emergency financing procedures.
Any loans will have conditions attached to it, but those conditions are focused on resolving core macroeconomic problems only.
Provided below is an excerpt from the IMF website :
"What is a crisis?
Crises take different forms. They can be characterized by a large decline in consumer demand and investment by firms, higher unemployment, and a lower standard of living. They are often accompanied by heightened uncertainty in financial markets and declines in the prices of stocks, bonds and, quite frequently, the value of the domestic currency. Crises can originate in or affect the financial sector, and can lead to difficulties in banks and the payments system, causing damage to economic activity as well. A very severe crisis (economic and/or financial) could lead to recession, debt defaults, and what is known as a sudden stop: a deep recession and a reversal in the flow of international capital.
Crises in emerging markets can be caused by several factors. External causes comprise a collapse of export prices, a drastic increase in import prices, the drying up of foreign investment and capital flows, a large depreciation or devaluation of the currency of a close trading partner, a retrenchment of local activities of international banks, or a sharp increase in interest rates in world markets.
Domestic causes include excessive monetary creation, unsustainable fiscal deficits, an overvalued domestic currency, political instability, and natural disasters. External shocks can have a multiplying effect on vulnerable countries, which tend to have relatively high levels of private or public debt, weak financial systems, and a history of instability and inappropriate policies.
The factors mentioned above often coincide, magnifying the depth and breath of a crisis. Different sectors in the economy tend to fare differently depending on the sources of the crisis and underlying vulnerabilities. All crises are, however, marked by a sudden and largely unexpected worsening of perceptions about a country's prospects, very often including the ability of the government, banks, or corporations to honor their obligations. The ensuing loss of confidence precipitates deleveraging of financial contracts and a collapse of asset prices.
Role of the IMF
Arresting economic and financial crises normally requires a timely package of decisive measures adapted to the country's circumstances. The implementation of this package is aimed at restoring confidence by improving expectations about the country's prospects. It also requires isolating the most significant problems and dealing with them without crowding the program with non-essential measures. In a crisis case, it is critical to focus only on those measures that are essential to restore stability-the conditions for recovery should be circumscribed to the source of the problem but powerful enough to ensure a country's return to economic and financial stability.
The IMF provides policy advice and financial support upon request by its members. An IMF staff team travels to the country to assess the sectors affected (for instance, the government, financial institutions, the corporate sector) and discuss with the country authorities the appropriate policy response. The discussions include estimating the future size of the country's financing needs (that cannot be met by the private sector or other sources of official assistance). Once understandings has been reached on a package, a recommendation is made to the IMF's Executive Board to endorse the program and disburse the loan. This process can be expedited under the IMF's "emergency financing procedures"."
Wednesday, October 29, 2008
Business Continuity Planning Consultancy : Our New Product
- Does your business need to plan for emergencies?
- Do you need assistance?
Launch of our new Business Continuity Planning product
The product caters for unexpected incidents that may prevent businesses from continuing normal business operations. It covers natural disasters, disruptions in major processes, systems and technology and minimises impact of disasters to ensure that a business is up and running in a minimum amount of time.
We also provide consultancy services in the following other areas :
- Strategic/Corporate Planning Consultancy
- Capacity Assessments Consultancy
- Advice on banking, capital markets and investment
Clients include : FNPF, ATH, Unit Trust of Fiji (before becoming Trustees for the Trust), Colonial First State Investments Limited, UNAIDS, UNICEF, among others.
For more information, pls contact Gilbert Veisamasama Jr on gilbert@gilbert.com.fj, gilbert@connect.com.fj, or Siteri Tabua on siteri@gilbert.com.fj. Our telephone numbers are : (679) 3342719 or (679) 3544897.
Thursday, October 23, 2008
Comments by Alan Greenspan on the Global Financial Crisis
Provided below is an article reporting on Alan Greenspan's comments on the global financial crisis that is hitting most of the large economies today. Greenspan was Chairman of the Federal Reserve Bank in the USA for more than a decade and retired recently.
"Financial crisis is 'once in a century credit tsunami', Greenspan says as he talks of his shock at state of economy", by David Gardner, and taken from www.dailymail.co.uk
'Once in a century credit tsunami': Alan Greenspan describing the financial crisis to Congress in Washington today
Former U.S. Federal Reserve chairman Alan Greenspan has admitted that he was blindsided by the 'once-in-a-century credit tsunami' that has wreaked havoc on the world's economies.
The man once hailed as one of the most accomplished central bankers in America's history confessed he was in 'a state of shocked disbelief'.
Mr Greenspan, who headed the Federal Reserve for more than 18 years, said the financial crisis 'turned out to be much broader than anything I could have imagined'.
And he warned the economic meltdown will drive millions of people out of work.
'Given the financial damage to date, I cannot see how we can avoid a significant rise in layoffs and unemployment,' Mr Greenspan told congressional lawmakers.
'Fearful American households are attempting to adjust, as best they can, to a rapid contraction in credit availability, threats to retirement funds and increased job insecurity.'
The humbled former Fed chief, who has written best-selling books on the economy, has been blasted by critics who claim he left interest rates too low for too long, spurring an unsustainable housing boom, and failed to crackdown on sub prime mortgages being doled out to home-buyers who didn't satisfy conventional borrowing requirements.
It was the collapse of these mortgages and rising defaults a year ago that triggered the current crisis.
Fighting to restore his battered reputation, Mr Greenspan blamed the sub prime collapse on over-eager investors who did not take into account the threats that would be posed once home prices stopped surging upward.
'It was the failure to properly price such risky assets that precipitated the crisis,' he added.
Mr Greenspan was hauled in front of the House of Representatives Oversight Committee along with former U.S. Treasury Secretary John Snow and Securities and Exchange Commission chairman Christopher Cox as Congress sought to discover how much regulatory failings contributed to the crisis.
'The list of mistakes is long and the cost to taxpayers is staggering,' said committee chairman Henry Waxman.
'Our regulators became enablers rather than enforcers. Their trust in the wisdom of the markets was infinite. The mantra became that government regulation is wrong. The market is infallible.
'For too long, the prevailing attitude in Washington has been that the market always knows best.
'The Federal Reserve had the authority to stop the irresponsible lending practices, but its long-time chairman, Alan Greenspan, rejected pleas that he intervene,' he added.
Mr Waxman, a Democrat, asked point-blank whether Mr Greenspan agreed he was wrong in failing to intervene in the markets when he was in charge of the U.S. central bank.
Mr Greenspan has long argued that regulatory intrusion slows the economy.
'My question is simple: Were you wrong?' asked Mr Waxman.
Mr Greenspan said he was 'partially wrong' in the case of credit default swaps, complex trading tools meant to act as insurance for bond buyers against default.
'I made a mistake in presuming that the self-interest of organisations, specifically banks and others, was such that they were best capable of protecting their own shareholders and the equity,' he admitted.
It was the closest he got to accepting some blame for the financial calamity that has reverberated around the world.
Mr Greenspan said stabilisation of home prices is vital to revive the paralysed economy, but he said that was not likely to occur for 'many months in the future.'
When the housing market finally recovers, then 'the market freeze should begin to measurably thaw and frightened investors will take tentative steps towards re-engagement with risk,' he added.
Until that happens, he said the government is correct to move forward aggressively with efforts to support the financial sector.
He called the £400billion package approved by Congress a fortnight ago 'adequate to serve the need' and claimed its impact was already being felt in the markets.
Wall Street in New York closed almost six per cent down last night but rallied on opening and was up more than 200 points in early trading.
There were huge losses in Asia overnight but British shares in London appeared more resilient after the pound dived and £4billion was wiped off stocks yesterday.
The FTSE-100 opened up 0.5 per cent but swung between positive and negative territory all day. Rising U.S. shares pushed it back to be one per cent up at the close.
"Financial crisis is 'once in a century credit tsunami', Greenspan says as he talks of his shock at state of economy", by David Gardner, and taken from www.dailymail.co.uk
'Once in a century credit tsunami': Alan Greenspan describing the financial crisis to Congress in Washington today
Former U.S. Federal Reserve chairman Alan Greenspan has admitted that he was blindsided by the 'once-in-a-century credit tsunami' that has wreaked havoc on the world's economies.
The man once hailed as one of the most accomplished central bankers in America's history confessed he was in 'a state of shocked disbelief'.
Mr Greenspan, who headed the Federal Reserve for more than 18 years, said the financial crisis 'turned out to be much broader than anything I could have imagined'.
And he warned the economic meltdown will drive millions of people out of work.
'Given the financial damage to date, I cannot see how we can avoid a significant rise in layoffs and unemployment,' Mr Greenspan told congressional lawmakers.
'Fearful American households are attempting to adjust, as best they can, to a rapid contraction in credit availability, threats to retirement funds and increased job insecurity.'
The humbled former Fed chief, who has written best-selling books on the economy, has been blasted by critics who claim he left interest rates too low for too long, spurring an unsustainable housing boom, and failed to crackdown on sub prime mortgages being doled out to home-buyers who didn't satisfy conventional borrowing requirements.
It was the collapse of these mortgages and rising defaults a year ago that triggered the current crisis.
Fighting to restore his battered reputation, Mr Greenspan blamed the sub prime collapse on over-eager investors who did not take into account the threats that would be posed once home prices stopped surging upward.
'It was the failure to properly price such risky assets that precipitated the crisis,' he added.
Mr Greenspan was hauled in front of the House of Representatives Oversight Committee along with former U.S. Treasury Secretary John Snow and Securities and Exchange Commission chairman Christopher Cox as Congress sought to discover how much regulatory failings contributed to the crisis.
'The list of mistakes is long and the cost to taxpayers is staggering,' said committee chairman Henry Waxman.
'Our regulators became enablers rather than enforcers. Their trust in the wisdom of the markets was infinite. The mantra became that government regulation is wrong. The market is infallible.
'For too long, the prevailing attitude in Washington has been that the market always knows best.
'The Federal Reserve had the authority to stop the irresponsible lending practices, but its long-time chairman, Alan Greenspan, rejected pleas that he intervene,' he added.
Mr Waxman, a Democrat, asked point-blank whether Mr Greenspan agreed he was wrong in failing to intervene in the markets when he was in charge of the U.S. central bank.
Mr Greenspan has long argued that regulatory intrusion slows the economy.
'My question is simple: Were you wrong?' asked Mr Waxman.
Mr Greenspan said he was 'partially wrong' in the case of credit default swaps, complex trading tools meant to act as insurance for bond buyers against default.
'I made a mistake in presuming that the self-interest of organisations, specifically banks and others, was such that they were best capable of protecting their own shareholders and the equity,' he admitted.
It was the closest he got to accepting some blame for the financial calamity that has reverberated around the world.
Mr Greenspan said stabilisation of home prices is vital to revive the paralysed economy, but he said that was not likely to occur for 'many months in the future.'
When the housing market finally recovers, then 'the market freeze should begin to measurably thaw and frightened investors will take tentative steps towards re-engagement with risk,' he added.
Until that happens, he said the government is correct to move forward aggressively with efforts to support the financial sector.
He called the £400billion package approved by Congress a fortnight ago 'adequate to serve the need' and claimed its impact was already being felt in the markets.
Wall Street in New York closed almost six per cent down last night but rallied on opening and was up more than 200 points in early trading.
There were huge losses in Asia overnight but British shares in London appeared more resilient after the pound dived and £4billion was wiped off stocks yesterday.
The FTSE-100 opened up 0.5 per cent but swung between positive and negative territory all day. Rising U.S. shares pushed it back to be one per cent up at the close.
However, the losses on the Dow Jones last night sparked huge sell-offs across the globe:
- Wall Street closed down almost six per cent amid persistent worries about the state of the U.S. economy but climbed back in early trading this afternoon
- Japan's Nikkei fell by as much as 7.59 per cent at one stage due to fears about its shrinking foreign exports before rallying to close 2.5 per cent down
- In Hong Kong, the Hang Seng closed down more than 500 points or 3.5 per cent after shares slumped to their lowest level since April 2005
- South Korea's benchmark index closed down a massive 7.4 per cent. There were also falls in India, Australia, New Zealand and Russia
- In Europe, Germany's Dax was in the red from early trading. By late afternoon, the French Cac-40 has also fallen into negative territory, down 1.7 per cent.
Finland's finance minister Jyrki Katainen became the latest leader to declare recession was around the corner, estimating it may last up to three years in Europe.
'Recession is very close in some particular countries, maybe in all the European countries,' he told Bloomberg.
'I don't know how long a recession or down-cycle we will face, but maybe it will take some two or three years. Even if we can calm the international turmoil, slower economic development will follow.'
Leaders from 43 countries across Asia and Europe will meet in China tomorrow for a two-day summit to discuss a co-ordinated response to the economic and financial problems.
EU Commission President Jose Barroso, already in Beijing for the meeting, said today: 'We are living in unprecedented times and we need unprecedented levels of global coordination. It's very simple; we swim together, or we sink together.'
Mr Brown admitted for the first time yesterday that the UK was sliding into recession, a statement that wrecks his claims to have ended 'boom and bust'.
His words during fractious House of Commons exchanges came hours after Bank of England governor Mervyn King also used the 'R' word for the first time.
A technical recession is defined as two straight quarters of economic contraction. The last time this has happened in Britain was under John Major in the early 1990s.
Mr Brown has for years claimed to have put an end to Britain's record of explosive bursts of growth followed by painful economic slumps.
He argued that reforms such as Bank of England independence and the implementation of public borrowing rules had put the country on a path to long-term stability.
But, the worst banking crisis since World War One has propelled the country into a period of extraordinary economic danger.
Government figures due out tomorrow are expected to show that between July and September the economy shrank for the first time since 1992.
And Mr Brown is being forced to tear up his fiscal rules as he attempts to spend his way out of the downturn.
The Prime Minister struggled to defend his economic record in Commons clashes with David Cameron.
The Tory leader three times challenged Mr Brown to withdraw his previous claims to have abolished 'boom and bust', but the Prime Minister refused.
Mr Brown said: 'The Governor of the Bank of England said last night that not since the First World War has the international banking system been so close to collapse, and I agree with him.'
He went on: 'Having taken action on the banking system, we must now take action on the global financial recession which is likely to cause recession in America, France, Italy, Germany, Japan and - because no country can insulate itself from it - Britain too.'
Those last words were greeted by Tory cries of 'at last'.
Mr Cameron said: 'Anyone listening to this exchange will know that he claimed the credit in the boom, so why won't he take responsibility in the bust?
'Let me ask him one more time, it's a simple yes or no, have you abolished boom and bust? Yes or no?'
Mr Brown responded by pointing out that interest rates have not hit 15 per cent, as they did under Mr Major.
Observers claimed yesterday's exchanges were the first time Mr Cameron has bested Mr Brown in debate on his favourite turf - the economy.
Many economists say the Bank of England is now likely to cut base rate by at least a half point at next month's meeting.
This would be the first back-to-back half-point reductions since the Bank gained independence from the Treasury in 1997.
Mr Brown and other world leaders will meet on November 15 in Washington to address the global financial crisis.
It is the first in a series of summits to address what economists predict could be a long and deep downturn."
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