Read below an excerpt from a World Bank and IBRD March 2009 Report on "How Developing Countries are coping with the Global Crisis". Fiji has a double issue to contend with : both the impact of the global crisis and its own domestic crisis.
"The sharp global contraction is affecting both advanced and developing countries. Global industrial production declined by 20 percent in the fourth quarter of 2008, as high income and developing country activity plunged by 23 and 15 percent, respectively. Particularly hard hit have been countries in Eastern Europe and Central Asia and producers of capital goods. Global GDP will decline this year for the first time since World War II, with growth at least 5 percentage points below potential. World trade is on track to register its largest decline in 80 years, with the sharpest losses in East Asia, reflecting a combination of falling volumes, price declines, and currency depreciation.
Financial conditions facing developing countries have deteriorated sharply. The World Bank estimates that developing countries face a financing gap of $270-$700 billion depending on the severity of the economic and financial crisis and the strength and timing of policy responses. Even at the lower end of this range, existing resources of international financial institutions would appear inadequate to meet financing needs this year. Should a more pessimistic outcome occur, unmet financing needs will be enormous.
The financial crisis will have long-term implications for developing countries. Sovereign debt issuance by high-income countries is set to increase dramatically, crowding out many developing country issuers (private and public). Many institutions that have provided financial intermediation for developing country clients have virtually disappeared. Developing countries are likely to face higher spreads, and lower capital flows than over the past 7-8 years, leading to weaker investment and slower growth in the future.
The challenge facing developing countries is how, with fewer resources, to pursue
policies that can protect or expand critical expenditures, including on social safety nets, human development and critical infrastructure. This will be especially difficult for LICs: the slowdown in growth will likely deepen the degree of deprivation of the existing poor, since large numbers of people are clustered just above the poverty line and particularly vulnerable to economic volatility and temporary slowdowns. Many of the most affected LICs are heavily dependent on official concessional flows, which will be under pressure in donor countries facing their own fiscal challenges.
There is a therefore a strong need to expand assistance to LICs to protect critical
expenditures and prevent an erosion of progress in reducing poverty. Attention must be directed to protecting the poor through targeted social spending, including expanded safety nets, and to maintaining and expanding the infrastructure assets that will be critical to restoring growth following the crisis. A concerted effort is also needed to support the private sector, especially SMEs, which are essential to a resumption of growth and job creation in developing countries. Creation of a global Vulnerability Fund, financed with a modest portion of advanced country stimulus packages, could go a long way to providing the resources necessary for these efforts."
You can get more of this report on this link.
Showing posts with label Fiji Economic Outlook. Show all posts
Showing posts with label Fiji Economic Outlook. Show all posts
Monday, March 14, 2011
Sunday, March 13, 2011
World Bank Group Significantly Boosts Support to East Asia and Pacific
The World Bank has announced last week that it has adjusted its regional strategy and massively increased its financial and technical support for the region, to address the impacts of the global financial crisis.
Whether Fiji qualifies for this assistance, we are not sure but Government officials could look into it. There will certainly be conditions to be met by the Fiji Government should they wish to access any assistance.
At this stage as well, no detailed study has been done as to the extent that the global crisis has affected the Fiji economy, aside from the effect of the domestic political crisis on the country itself. This would really be an interesting study to do.
Read the World Bank Press release below.
------------------
"The World Bank Group responded quickly to the impacts of the global financial crisis on the countries of the East Asia and Pacific region in fiscal year 2009 with over US$9 billion in financing for development. This represents a significant increase on the amount of financing of the previous year. The World Bank Group also ramped up its technical assistance to help governments in the region address the social and economic impacts of the crisis.
“Although growth in East Asia and Pacific still compares favorably with that of other regions, the poor and the vulnerable have been deeply affected by the global economic crisis,” said World Bank Group Vice President for the East Asia and Pacific Region, James W. Adams “In this region alone, more than 10 million people who would otherwise have moved out of poverty are expected to remain below the poverty line. We have adjusted our regional strategy and increased resources for the region to help countries weather the economic crisis and ensure priority programs remain on track. This includes investments in infrastructure, education, health, agriculture, and social safety nets.”
Many countries in the region were just beginning to recover from the food and fuel crisis of 2008 when the global financial crisis hit. The World Bank Group responded by increasing its support --in loans, grants, equity investments and guarantees-- to help countries and private-sector firms deal with the devastating effects of the global financial meltdown.
Commitments from the International Bank for Reconstruction and Development (IBRD)—which provides financing, risk management products, and other financial services to middle-income countries— increased in FY09 to $6.9 billion, up from $2.7 billion the previous year. The International Development Association (IDA), which provides interest-free credits and grants to the lowest-income countries, provided $1.2 billion in support in FY09.
As the largest provider of multilateral financing for the private sector in the developing world, the Bank Group’s private sector arm –the International Finance Corporation (IFC)— also increased its support to help boost private sector-led recovery. In FY2009, preliminary results indicate that IFC generated $1.1 billion of new business in 45 projects, seven of these are located in conflict-affected countries and regions, while one in every five projects has a climate change component.
Karin Finkelston, IFC’s Director for East Asia and Pacific, said “To help the region navigate the financial crisis, we focused our efforts on the poorest and most vulnerable countries. We are pleased that we were able to increase our financial commitments to IDA countries to nearly $400 million from around $200 million in 2008.”
The Multilateral Investment Guarantee Agency (MIGA) supported infrastructure development in south-west China, where fast urbanization and industrial growth have led to severe wastewater issues. The agency issued guarantees of $75.3 million to support two water projects, which will promote improved water quality as well as better environmental practices.
“As the leading international institution promoting foreign direct investment (FDI) in emerging and transition economies, MIGA can help investors mitigate risks in these uncertain times and play an important role in helping countries attract FDI,” says MIGA’s Executive Vice President Izumi Kobayashi. “MIGA can act as a stabilizing influence in the market.”
The Bank Group’s support in FY2009 in the East Asia and Pacific region by sector is as follows :
Whether Fiji qualifies for this assistance, we are not sure but Government officials could look into it. There will certainly be conditions to be met by the Fiji Government should they wish to access any assistance.
At this stage as well, no detailed study has been done as to the extent that the global crisis has affected the Fiji economy, aside from the effect of the domestic political crisis on the country itself. This would really be an interesting study to do.
Read the World Bank Press release below.
------------------
"The World Bank Group responded quickly to the impacts of the global financial crisis on the countries of the East Asia and Pacific region in fiscal year 2009 with over US$9 billion in financing for development. This represents a significant increase on the amount of financing of the previous year. The World Bank Group also ramped up its technical assistance to help governments in the region address the social and economic impacts of the crisis.
“Although growth in East Asia and Pacific still compares favorably with that of other regions, the poor and the vulnerable have been deeply affected by the global economic crisis,” said World Bank Group Vice President for the East Asia and Pacific Region, James W. Adams “In this region alone, more than 10 million people who would otherwise have moved out of poverty are expected to remain below the poverty line. We have adjusted our regional strategy and increased resources for the region to help countries weather the economic crisis and ensure priority programs remain on track. This includes investments in infrastructure, education, health, agriculture, and social safety nets.”
Many countries in the region were just beginning to recover from the food and fuel crisis of 2008 when the global financial crisis hit. The World Bank Group responded by increasing its support --in loans, grants, equity investments and guarantees-- to help countries and private-sector firms deal with the devastating effects of the global financial meltdown.
Commitments from the International Bank for Reconstruction and Development (IBRD)—which provides financing, risk management products, and other financial services to middle-income countries— increased in FY09 to $6.9 billion, up from $2.7 billion the previous year. The International Development Association (IDA), which provides interest-free credits and grants to the lowest-income countries, provided $1.2 billion in support in FY09.
As the largest provider of multilateral financing for the private sector in the developing world, the Bank Group’s private sector arm –the International Finance Corporation (IFC)— also increased its support to help boost private sector-led recovery. In FY2009, preliminary results indicate that IFC generated $1.1 billion of new business in 45 projects, seven of these are located in conflict-affected countries and regions, while one in every five projects has a climate change component.
Karin Finkelston, IFC’s Director for East Asia and Pacific, said “To help the region navigate the financial crisis, we focused our efforts on the poorest and most vulnerable countries. We are pleased that we were able to increase our financial commitments to IDA countries to nearly $400 million from around $200 million in 2008.”
The Multilateral Investment Guarantee Agency (MIGA) supported infrastructure development in south-west China, where fast urbanization and industrial growth have led to severe wastewater issues. The agency issued guarantees of $75.3 million to support two water projects, which will promote improved water quality as well as better environmental practices.
“As the leading international institution promoting foreign direct investment (FDI) in emerging and transition economies, MIGA can help investors mitigate risks in these uncertain times and play an important role in helping countries attract FDI,” says MIGA’s Executive Vice President Izumi Kobayashi. “MIGA can act as a stabilizing influence in the market.”
The Bank Group’s support in FY2009 in the East Asia and Pacific region by sector is as follows :
- Agriculture and Rural Development, USD520 million;
- Education, USD797 million;
- Energy and Mining, USD526 million;
- Economic Policy, USD2,792 million;
- Financial and Private Sector Development, USD160 million;
- Public Sector Governance, USD460 million;
- Social Development, USD322 million;
- Social Protection, USD215 million;
- Transport, USD855 million.
Sunday, February 13, 2011
Moving on from a global crisis: business as usual or an inflection point?
Read below comments by the Director-General of the World Bank's Independent Evaluation Group, Dr Vinod Thomas on what the global crisis would mean for countries.
Dr Thomas does note that countries that are open were more vulnerable to the effect of the crisis. He also added that for the financial sector, deregulation (which had been the trend before the crisis) coupled with sensible regulatory policies that are targeted at containing excessive risk taking at the "expense of other people's money" would be advisable for countries.
The article follows.
"Speaking at the Institute of Policy Studies in Singapore on June 19, 2009, Dr. Vinod Thomas, Director-General and Senior Vice-President of the World Bank’s Independent Evaluation Group (IEG), described the current global economic turmoil as a triple crisis comprising the global economic downturn; rising poverty; and climate change. Thomas said that this crisis provides a moment to reflect on the past and actions for the future.
“One can think of this crisis as one that can be solved and we can then move on. We can also think of this as an inflection point where some deep uncertainties about how the ways in which countries have developed and been growing over the last 10-15 years are just not going to happen anymore and that it’s not sustainable.”
The end of globalization?
With those countries most connected to the global economy having been worst hit by the crisis, questions have arisen about whether high levels of globalization will spell doom moving forward. “This crisis adds a certain degree of empirical evidence to an observation that the more you are connected, the more a crisis such as this affects you.”
Thomas also notes that trade has been a mechanism for transmitting the recession to so many countries—Singapore included—demonstrating that there really has been no decoupling. “Asia cannot, as people had imagined, go a separate way from the rest of the world economy, even if the crisis was initiated by the OECD countries.”
Trade and openness remain the policy prescriptions, however; as past experience shows that it is these same globalised economies which have stronger recovery of GDP growth. “In a crisis such as this, those with greater trade shares are hit harder. That does not mean that being connected to the rest of the world is a bad idea, because as the recovery takes place and opportunities show up, those that are more connected to the global economy, with greater shares of trade and investment in their GDP, benefit much more.”
Warning against the trend of rising protectionism, Thomas said that “coming out of the crisis, if the recovery means greater restrictions on trade, then the future growth trajectory will definitely look different from the past. The past growth rates—the honeymoon really—lasted as long as it did because of the increasing openness of the global economy.”
Crisis response
In addition to trade, policy responses have also focused on financial reform, fiscal spending, poverty alleviation, and the environment.
Discussing reforms needed in the financial sector, Thomas noted that “if regulation had a bad name in the past, today it is clear that deregulation- much needed in many economies- needs to be coupled with sensible regulatory policies.”
Thomas also warned against abandoning new or highly innovative financial instruments because of the benefits that they provide: “You need to keep in mind that the intermediation, the leveraging, and the access to credit for large numbers of people can be augmented by many of these instruments… The lesson though is that those need to be matched by a regulatory framework that avoids extraordinary risk-taking at the expense of other people’s money.”
As countries worldwide put in place unprecedented fiscal expansion packages, Thomas noted that we should put a premium on quality over quantity. “You will see huge variations two years from now, with the same dollar producing widely different impacts in terms of the growth recovery, and that will differentiate those who come out of this recovery well, compared to those who don’t.”
The crisis of rising poverty- 150 million more people in poverty in 2008, and 50 million more set to fall below the poverty line in 2009- with its risk of social instability and loss of welfare, is closely linked to employment. The recovery in employment is expected to be slower than economic recovery as employers wait to see if the recovery is real; and as efficiency gains may result in a shift in employment patterns.
While the environment may have been an issue placed on the backburner in previous crises, Thomas said that that is no longer an option, and that climate change means that “the kind of growth that we have gotten used to isn’t feasible going forward. The numbers that are coming out on climate change are just absolutely frightening and if even a part of that is true, then investing in a different way would seem to be a high priority…In 20-30 years, with business as usual, we may be living in an ice-free world. If you think about it, that should be enough to spur action, but that does not spur action anywhere close to what you would like.”
This does not mean, however, that countries should be expected to reduce carbon emissions while they are still developing. “No country has developed rapidly without increasing their carbon footprint. So we have to be realistic. That is the only way development has taken place.”
There is, however, huge room for improvement in the carbon efficiency of development, said Thomas. “A sevenfold variation exists in how carbon intensive you need to be for any given income…so, yes, growth goes with a greater carbon footprint, but, no, it’s not automatic or preordained. There’s huge room for adjusting this as you go forward.”
Uncertainty is at an all time high, and Thomas said that there is a sense that the past is not going to be the best predictor of the future this time around; that the incremental changes that we are comfortable with may miss out on the big picture, especially in terms of risks and opportunities. In this context, Thomas emphasized the importance of flexibility in crisis responses.
“Action waits until there is a crisis”
This crisis does provide for an opportunity to make necessary changes. “We could be at an inflection point as opposed to returning to business as normal. This crisis could be turned into an opportunity to take action on three fronts: economic, social, and climate.”
Citing the examples of fiscal reform in Korea, Thailand, China and Brazil, Thomas said that all of these could be linked to a crisis; and that there are many fronts—human capital, greater competitiveness, social inclusion, infrastructure, public sector governance, new forms of green investment—on which this crisis can spur action."
To read more, click on this link.
Dr Thomas does note that countries that are open were more vulnerable to the effect of the crisis. He also added that for the financial sector, deregulation (which had been the trend before the crisis) coupled with sensible regulatory policies that are targeted at containing excessive risk taking at the "expense of other people's money" would be advisable for countries.
The article follows.
"Speaking at the Institute of Policy Studies in Singapore on June 19, 2009, Dr. Vinod Thomas, Director-General and Senior Vice-President of the World Bank’s Independent Evaluation Group (IEG), described the current global economic turmoil as a triple crisis comprising the global economic downturn; rising poverty; and climate change. Thomas said that this crisis provides a moment to reflect on the past and actions for the future.
“One can think of this crisis as one that can be solved and we can then move on. We can also think of this as an inflection point where some deep uncertainties about how the ways in which countries have developed and been growing over the last 10-15 years are just not going to happen anymore and that it’s not sustainable.”
The end of globalization?
With those countries most connected to the global economy having been worst hit by the crisis, questions have arisen about whether high levels of globalization will spell doom moving forward. “This crisis adds a certain degree of empirical evidence to an observation that the more you are connected, the more a crisis such as this affects you.”
Thomas also notes that trade has been a mechanism for transmitting the recession to so many countries—Singapore included—demonstrating that there really has been no decoupling. “Asia cannot, as people had imagined, go a separate way from the rest of the world economy, even if the crisis was initiated by the OECD countries.”
Trade and openness remain the policy prescriptions, however; as past experience shows that it is these same globalised economies which have stronger recovery of GDP growth. “In a crisis such as this, those with greater trade shares are hit harder. That does not mean that being connected to the rest of the world is a bad idea, because as the recovery takes place and opportunities show up, those that are more connected to the global economy, with greater shares of trade and investment in their GDP, benefit much more.”
Warning against the trend of rising protectionism, Thomas said that “coming out of the crisis, if the recovery means greater restrictions on trade, then the future growth trajectory will definitely look different from the past. The past growth rates—the honeymoon really—lasted as long as it did because of the increasing openness of the global economy.”
Crisis response
In addition to trade, policy responses have also focused on financial reform, fiscal spending, poverty alleviation, and the environment.
Discussing reforms needed in the financial sector, Thomas noted that “if regulation had a bad name in the past, today it is clear that deregulation- much needed in many economies- needs to be coupled with sensible regulatory policies.”
Thomas also warned against abandoning new or highly innovative financial instruments because of the benefits that they provide: “You need to keep in mind that the intermediation, the leveraging, and the access to credit for large numbers of people can be augmented by many of these instruments… The lesson though is that those need to be matched by a regulatory framework that avoids extraordinary risk-taking at the expense of other people’s money.”
As countries worldwide put in place unprecedented fiscal expansion packages, Thomas noted that we should put a premium on quality over quantity. “You will see huge variations two years from now, with the same dollar producing widely different impacts in terms of the growth recovery, and that will differentiate those who come out of this recovery well, compared to those who don’t.”
The crisis of rising poverty- 150 million more people in poverty in 2008, and 50 million more set to fall below the poverty line in 2009- with its risk of social instability and loss of welfare, is closely linked to employment. The recovery in employment is expected to be slower than economic recovery as employers wait to see if the recovery is real; and as efficiency gains may result in a shift in employment patterns.
While the environment may have been an issue placed on the backburner in previous crises, Thomas said that that is no longer an option, and that climate change means that “the kind of growth that we have gotten used to isn’t feasible going forward. The numbers that are coming out on climate change are just absolutely frightening and if even a part of that is true, then investing in a different way would seem to be a high priority…In 20-30 years, with business as usual, we may be living in an ice-free world. If you think about it, that should be enough to spur action, but that does not spur action anywhere close to what you would like.”
This does not mean, however, that countries should be expected to reduce carbon emissions while they are still developing. “No country has developed rapidly without increasing their carbon footprint. So we have to be realistic. That is the only way development has taken place.”
There is, however, huge room for improvement in the carbon efficiency of development, said Thomas. “A sevenfold variation exists in how carbon intensive you need to be for any given income…so, yes, growth goes with a greater carbon footprint, but, no, it’s not automatic or preordained. There’s huge room for adjusting this as you go forward.”
Uncertainty is at an all time high, and Thomas said that there is a sense that the past is not going to be the best predictor of the future this time around; that the incremental changes that we are comfortable with may miss out on the big picture, especially in terms of risks and opportunities. In this context, Thomas emphasized the importance of flexibility in crisis responses.
“Action waits until there is a crisis”
This crisis does provide for an opportunity to make necessary changes. “We could be at an inflection point as opposed to returning to business as normal. This crisis could be turned into an opportunity to take action on three fronts: economic, social, and climate.”
Citing the examples of fiscal reform in Korea, Thailand, China and Brazil, Thomas said that all of these could be linked to a crisis; and that there are many fronts—human capital, greater competitiveness, social inclusion, infrastructure, public sector governance, new forms of green investment—on which this crisis can spur action."
To read more, click on this link.
Thursday, November 26, 2009
Banks to celebrate as Reserve Bank of Fiji removes interest rate controls
The Reserve Bank of Fiji has announced that, with effect from 1 January 2010, it will be removing the interest rates controls that it imposed on banks in Fiji in April 2009.
The announcement is expected to cause celebrations amongst banks in Fiji who had been under pressure to reduce their interest spreads and margins since the controls were put into effect.
The change in policy stance rose after the IMF made comments regarding the policy mix used by the central bank to conduct monetary policy and urged the authorities to "utilize more market-based instruments". (Quote is taken from IMF Statement after the conclusion of its Article IV consultations in Fiji, which has been posted earlier on this blog).
In recent years, the Reserve Bank of Fiji had been reinstating direct controls to contain credit (e.g. increases/reductions in Statutory Reserve Deposits and controls on interest spreads/margins), after earlier making a move to use more market based instruments.
An excerpt from today's press release from the Reserve Bank of Fiji is provided below.
"The lending rate and interest rate spread polices will be removed. In April 2009, the Bank announced that the weighted average lending rates of banks and other lending institutions should be brought down to 31 December 2008 levels. All commercial banks have now complied with the lending rate policy of the RBF. In addition, banks are on target to meet the 4 percent interest rate margin policy by December 2009.
In removing the lending rate and interest rate spread policies, Mr. Reddy stated that “all commercial banks are advised to maintain the trend in lending rate and any increase in spread above 4 percent in the future will have to be fully justified and explained to the RBF."
The announcement is expected to cause celebrations amongst banks in Fiji who had been under pressure to reduce their interest spreads and margins since the controls were put into effect.
The change in policy stance rose after the IMF made comments regarding the policy mix used by the central bank to conduct monetary policy and urged the authorities to "utilize more market-based instruments". (Quote is taken from IMF Statement after the conclusion of its Article IV consultations in Fiji, which has been posted earlier on this blog).
In recent years, the Reserve Bank of Fiji had been reinstating direct controls to contain credit (e.g. increases/reductions in Statutory Reserve Deposits and controls on interest spreads/margins), after earlier making a move to use more market based instruments.
An excerpt from today's press release from the Reserve Bank of Fiji is provided below.
"The lending rate and interest rate spread polices will be removed. In April 2009, the Bank announced that the weighted average lending rates of banks and other lending institutions should be brought down to 31 December 2008 levels. All commercial banks have now complied with the lending rate policy of the RBF. In addition, banks are on target to meet the 4 percent interest rate margin policy by December 2009.
In removing the lending rate and interest rate spread policies, Mr. Reddy stated that “all commercial banks are advised to maintain the trend in lending rate and any increase in spread above 4 percent in the future will have to be fully justified and explained to the RBF."
IMF Concludes Article IV consultations in Fiji
Taken from the International Monetary Fund website on this link.
The statement raises concerns regarding :
"Statement of an IMF Staff Mission at the Conclusion of the Article IV Discussions with Fiji, Press Release No. 09/427November 23, 2009
The following statement was issued today in Suva after the conclusion of an International Monetary Fund (IMF) staff mission to Fiji:
“A team led by Mr. Ray Brooks, Division Chief in the Asia and Pacific Department of the IMF, visited Suva November 10 – 24 to hold Article IV discussions with the government and other stakeholders.1 The team met with Prime Minister Bainimarama, Reserve Bank of Fiji (RBF) Governor Reddy, Acting Finance Minister Sayed-Khaiyum, Finance Secretary Prasad, other senior government officials, and members of the private sector and civil society. Representatives from the Asian Development Bank and the World Bank also participated in the meetings. The team expresses its appreciation to the authorities for the constructive discussions.
“Economic growth in Fiji has been sluggish in recent years due to political developments, delays in structural reforms, and worsening terms of trade. Job growth has been slow and unemployment rose to 8½ percent in 2008.
“The economy is expected to contract by 2½ percent in 2009 as the impact of the global crisis has been exacerbated by floods that damaged crops and tourist infrastructure early in the year. GDP growth of 2 percent is likely in 2010, driven by the rebound in tourism, the devaluation, the global recovery, and rebuilding after the floods. Growth over the medium-term should rise to 2½ percent with fiscal consolidation and progress on structural reforms.
“Fiji, however, faces considerable downside risks given its external vulnerabilities. Increased liquidity in the banking system poses risks of inflation, macroeconomic instability, and a loss of competitiveness. The growth outlook remains highly uncertain due to political developments, the fragile nature of the global recovery, volatility of commodity prices, the risk of natural disasters, and the complex structural reform agenda.
“We commend the authorities for their efforts to limit the overall deficit in 2009 to the budgeted level of 3¼ percent of GDP. This is being achieved by containing expenditure in the face of an unexpected 10 percent fall in revenue. However, central government debt, at over 50 percent of GDP, is high by regional standards. In addition, government has contingent liabilities of around 15 percent of GDP.
“Fiscal consolidation is needed to reduce central government debt to the government’s target of 45 percent of GDP over the medium term. Limiting the 2010 budget deficit to around 2 percent of GDP—excluding costs associated with civil service reforms—would begin to reduce the debt-to-GDP ratio. In the medium term, expenditure can be contained through a well-designed civil service reform and revenue can be strengthened by rationalizing tax incentives. Transparency in fiscal reporting should be improved by widening the coverage of the budget and publishing quarterly reports on the fiscal outcome.
“Monetary policy should be tightened to contain inflation, protect the reserve position, and lock in the competitive gain from the devaluation. Inflation is projected to rise to 7 – 8 percent year-on-year by early 2010 and any further upward pressure on prices could lead to higher wage demands and macroeconomic instability. Given these risks, the recent increase in the statutory reserve deposit ratio is a welcome step. But further measures are needed to absorb excess liquidity and utilize more market-based instruments. We endorse the authorities’ review of the RBF Act to provide the RBF with more independence.
“The Fiji National Provident Fund (FNPF) should be reformed to make it actuarially sound. The generous rate of conversion of benefits to annuities should be reduced and management should be made independent of government and responsible to beneficiaries. The government should reduce its reliance on the FNPF for financing and the FNPF should not be used to finance public enterprises since these actions undermine the fund’s soundness. We support the government’s intention to conduct a comprehensive study to guide its reforms of FNPF.
“The authorities are planning sweeping structural reform that is required to spur growth, create jobs and reduce poverty. Priorities are civil service, public enterprise and land reform, and price liberalization. The social impact of redundancies arising from civil service and public enterprise reform, and the impact of price liberalization, should be mitigated through well-targeted subsidies to vulnerable groups. The government’s decision to corporatize water, procurement and printing services is a very positive step.
“The IMF Executive Board is expected to conclude the Article IV consultation discussions in January 2010.”
The statement raises concerns regarding :
- constraints on future growth in Fiji and how the "outlook remains highly uncertain due to political developments, the fragile nature of the global recovery, volatility of commodity prices, the risk of natural disasters, and the complex structural reform agenda";
- downside risks including how "increased liquidity in the banking system poses risks of inflation, macroeconomic instability, and a loss of competitiveness";
- relevance and adequacy of monetary policy instruments used;
- the level of government debt and its sourcing mostly from FNPF funds;
- sustainability of FNPF to pay pensions at current rates and its use to fund government debt.
"Statement of an IMF Staff Mission at the Conclusion of the Article IV Discussions with Fiji, Press Release No. 09/427November 23, 2009
The following statement was issued today in Suva after the conclusion of an International Monetary Fund (IMF) staff mission to Fiji:
“A team led by Mr. Ray Brooks, Division Chief in the Asia and Pacific Department of the IMF, visited Suva November 10 – 24 to hold Article IV discussions with the government and other stakeholders.1 The team met with Prime Minister Bainimarama, Reserve Bank of Fiji (RBF) Governor Reddy, Acting Finance Minister Sayed-Khaiyum, Finance Secretary Prasad, other senior government officials, and members of the private sector and civil society. Representatives from the Asian Development Bank and the World Bank also participated in the meetings. The team expresses its appreciation to the authorities for the constructive discussions.
“Economic growth in Fiji has been sluggish in recent years due to political developments, delays in structural reforms, and worsening terms of trade. Job growth has been slow and unemployment rose to 8½ percent in 2008.
“The economy is expected to contract by 2½ percent in 2009 as the impact of the global crisis has been exacerbated by floods that damaged crops and tourist infrastructure early in the year. GDP growth of 2 percent is likely in 2010, driven by the rebound in tourism, the devaluation, the global recovery, and rebuilding after the floods. Growth over the medium-term should rise to 2½ percent with fiscal consolidation and progress on structural reforms.
“Fiji, however, faces considerable downside risks given its external vulnerabilities. Increased liquidity in the banking system poses risks of inflation, macroeconomic instability, and a loss of competitiveness. The growth outlook remains highly uncertain due to political developments, the fragile nature of the global recovery, volatility of commodity prices, the risk of natural disasters, and the complex structural reform agenda.
“We commend the authorities for their efforts to limit the overall deficit in 2009 to the budgeted level of 3¼ percent of GDP. This is being achieved by containing expenditure in the face of an unexpected 10 percent fall in revenue. However, central government debt, at over 50 percent of GDP, is high by regional standards. In addition, government has contingent liabilities of around 15 percent of GDP.
“Fiscal consolidation is needed to reduce central government debt to the government’s target of 45 percent of GDP over the medium term. Limiting the 2010 budget deficit to around 2 percent of GDP—excluding costs associated with civil service reforms—would begin to reduce the debt-to-GDP ratio. In the medium term, expenditure can be contained through a well-designed civil service reform and revenue can be strengthened by rationalizing tax incentives. Transparency in fiscal reporting should be improved by widening the coverage of the budget and publishing quarterly reports on the fiscal outcome.
“Monetary policy should be tightened to contain inflation, protect the reserve position, and lock in the competitive gain from the devaluation. Inflation is projected to rise to 7 – 8 percent year-on-year by early 2010 and any further upward pressure on prices could lead to higher wage demands and macroeconomic instability. Given these risks, the recent increase in the statutory reserve deposit ratio is a welcome step. But further measures are needed to absorb excess liquidity and utilize more market-based instruments. We endorse the authorities’ review of the RBF Act to provide the RBF with more independence.
“The Fiji National Provident Fund (FNPF) should be reformed to make it actuarially sound. The generous rate of conversion of benefits to annuities should be reduced and management should be made independent of government and responsible to beneficiaries. The government should reduce its reliance on the FNPF for financing and the FNPF should not be used to finance public enterprises since these actions undermine the fund’s soundness. We support the government’s intention to conduct a comprehensive study to guide its reforms of FNPF.
“The authorities are planning sweeping structural reform that is required to spur growth, create jobs and reduce poverty. Priorities are civil service, public enterprise and land reform, and price liberalization. The social impact of redundancies arising from civil service and public enterprise reform, and the impact of price liberalization, should be mitigated through well-targeted subsidies to vulnerable groups. The government’s decision to corporatize water, procurement and printing services is a very positive step.
“The IMF Executive Board is expected to conclude the Article IV consultation discussions in January 2010.”
Sunday, November 8, 2009
Reserve Bank increases Statutory Reserve Deposit Requirement
The Reserve Bank of Fiji has announced that it will increase banks Statutory Reserve Deposits to 7%, from the current 5%.
The increase will reduce the amount of funds that banks available for lending and other purposes.
The move comes as inflation rates rose to 6.3% in September 2009 from 5.1% a month earlier. Year end inflation has been forecasted by the Reserve Bank of Fiji at 9.5%.
Taken together with the Reserve Bank's earlier directive that banks reduce their interest spreads to 4% over 2009, banks will face committed pressure to attempt to maintain their profit margins as they work to meet the Reserve Bank's directive.
Over the last ten years, the Reserve Bank of Fiji has used interest rates as a primary tool to influence interest rates movements. Apparently, this might not have worked as planned so over the last two years, the Reserve Bank has gone back to using more direct means of controlling bank credit through the use of statutory reserve deposit requirements, credit ceilings and specific interest rates directives.
Note : For bank and financial sector compliance advice, pls call our office on (679) 3342719 or email info@gilbert.com.fj. We have assisted a number of financial institutions (in the banking and insurance sectors and the capital markets industries) to put in place policies and procedures to meet any relevant requirements imposed by their financial sector regulators. Our Principal has also sat as a Board Director of a licensed credit institution in Fiji. During his time there (a little over 2 years), he assisted with putting in place appropriate policies and processes and improve the risk and compliance culture within the company. These contributed to the institution making record profits over 2 years consecutive years. Refer to the financial institution's relevant summary financial statements for the 2 years here and here.
The increase will reduce the amount of funds that banks available for lending and other purposes.
The move comes as inflation rates rose to 6.3% in September 2009 from 5.1% a month earlier. Year end inflation has been forecasted by the Reserve Bank of Fiji at 9.5%.
Taken together with the Reserve Bank's earlier directive that banks reduce their interest spreads to 4% over 2009, banks will face committed pressure to attempt to maintain their profit margins as they work to meet the Reserve Bank's directive.
Over the last ten years, the Reserve Bank of Fiji has used interest rates as a primary tool to influence interest rates movements. Apparently, this might not have worked as planned so over the last two years, the Reserve Bank has gone back to using more direct means of controlling bank credit through the use of statutory reserve deposit requirements, credit ceilings and specific interest rates directives.
Note : For bank and financial sector compliance advice, pls call our office on (679) 3342719 or email info@gilbert.com.fj. We have assisted a number of financial institutions (in the banking and insurance sectors and the capital markets industries) to put in place policies and procedures to meet any relevant requirements imposed by their financial sector regulators. Our Principal has also sat as a Board Director of a licensed credit institution in Fiji. During his time there (a little over 2 years), he assisted with putting in place appropriate policies and processes and improve the risk and compliance culture within the company. These contributed to the institution making record profits over 2 years consecutive years. Refer to the financial institution's relevant summary financial statements for the 2 years here and here.
Wednesday, October 21, 2009
Our Strategic Planning Consultancy
As part of our suit of products, we offer consultancy in the area of strategic planning.
Using a strategic planning model that we have developed, after reviewing other models that are in use, we have developed the current strategic plans for Fiji National Provident Fund, Amalgamated Telecom Holdings, among others.
We have also assisted with developing annual corporate plans for some government agencies/departments. As part of this, we ensure that there is a link between the company's/organisation's strategic plan and its annual strategies and that those responsible for implementing strategies are clearly identified with time frames put in place.
During the current constrained business and economic environment, it might do well for companies to have another review of where they wish to position themselves over the next two to three years and then review/identify new strategies to take them there.
Organisational objectives that might have been relevant in the past two years might need to be reviewed as companies/organisations relook at themselves given the current global/domestic conditions.
If you are a company or organisation that needs assistance in this regard, and need more information on how we can help you, you can call our office on (679) 3342719 or email us on info@gilbert.com.fj.
Using a strategic planning model that we have developed, after reviewing other models that are in use, we have developed the current strategic plans for Fiji National Provident Fund, Amalgamated Telecom Holdings, among others.
We have also assisted with developing annual corporate plans for some government agencies/departments. As part of this, we ensure that there is a link between the company's/organisation's strategic plan and its annual strategies and that those responsible for implementing strategies are clearly identified with time frames put in place.
During the current constrained business and economic environment, it might do well for companies to have another review of where they wish to position themselves over the next two to three years and then review/identify new strategies to take them there.
Organisational objectives that might have been relevant in the past two years might need to be reviewed as companies/organisations relook at themselves given the current global/domestic conditions.
If you are a company or organisation that needs assistance in this regard, and need more information on how we can help you, you can call our office on (679) 3342719 or email us on info@gilbert.com.fj.
Wednesday, May 20, 2009
Impact of recent policy decisions in Fiji
Recent policy decisions taken in Fiji have had implications which have taken place in a very short time.
A decision to retire civil servants at 55 years of age has resulted in a severe shortage of school teachers in Fiji schools as Term 2 of the school year began on Tuesday, 19 May 2009. Read here a story by Elenoa Baselala.
Earlier this week, it was reported that of the government personnel sent home upon reaching 55 years of age, about 200 are to be recruited again into the civil service as reported in the Fiji Times on Tuesday, 19 May 2009. This re-engagement of retired civil servants will add onto government costs as they will have to be insured at higher premiums, might have to be paid at a higher salary than what they were receiving when they were retired, and all this after they would have taken their funds from Fiji National Provident Fund. Most workers who continue working after 55 years of age, often choose to leave their funds there until such time they are effectively retired from employment.
After doctors and nurses have been sent home early on reaching 55 years, Government is now looking at recruiting doctors from India. The move will contribute to increased costs to Government as it pays high salaries and benefits package, in addition to relocation costs as it attempts to attract those doctors.
Last week, I had analysed that the Reserve Bank of Fiji's recent policy decisions will presumably see banks and financial institutions working to raise their non-interest income streams which would ultimately mean that banks will be paying more and higher bank charges. This is because the recent policy announcement by the Reserve Bank has only concentrated on containing interest rates and spreads. Banks and financial institutions might therefore not lose out at all as they make their money/profits from non-interest income streams. Read my posts on this blog last week.
The recent devaluation has not had a desired effect on the tourism industry in Fiji. Tourism Fiji, the former Fiji Visitors Bureau has reportedly said that they have not seen an increase in numbers of tourists as had been expected after Fiji devalued its dollar by 20% a month ago. There are, therefore, other factors that come into play. Are they linked to the political environment or are they more linked to the effect of the global crisis on people's purses as they suffer the fallout from global recession and higher costs of living?
Over recent weeks, most merchants in Fiji have some way or another benefited from the devaluation. Some have used the opportunity to raise their prices of goods at ridiculous levels. For instance, a Gillett Mach 3 Turbo 4-blade pack, which I would buy at around F$17.00, had risen to almost $25.00 with the reason given by the cashier, and with a smile, as "it's the devaluation". The Consumer Council of Fiji would really need to do a survey of some of these shops soon.
As Fiji works on attracting more foreign investment, one of the things that will need to be worked on is to ensure at all times that investors interests are adequately protected as they participate in commerce. If there are some issues with laws on a broader scale, research has shown that at an entity level, companies should at least attempt and put in place adequate safeguards to protect their interests of shareholders and owners. This serves as an attraction before an investor would decide to invest in business in a particular country.
Almost all our efforts in recent years and months have been focused on promoting more sports without much emphasis on other areas where our children could be exposed to help build their future. Read an earlier post I did on this on my other blog here.
In the meantime, Government has reduced the age where people are allowed to drink liquor from 21 to 18. In this environment, when things are looked at in totality, what are we promoting? Is it alcoholism at an early age? Read here.
When one analyses some of these policy decisions, it is difficult to see any coherent flow of policy ideology in some of these decisions. Policy makers will stand back and review some of these policies again or those that are still in the works before they introduce them to ensure coherence.
A decision to retire civil servants at 55 years of age has resulted in a severe shortage of school teachers in Fiji schools as Term 2 of the school year began on Tuesday, 19 May 2009. Read here a story by Elenoa Baselala.
Earlier this week, it was reported that of the government personnel sent home upon reaching 55 years of age, about 200 are to be recruited again into the civil service as reported in the Fiji Times on Tuesday, 19 May 2009. This re-engagement of retired civil servants will add onto government costs as they will have to be insured at higher premiums, might have to be paid at a higher salary than what they were receiving when they were retired, and all this after they would have taken their funds from Fiji National Provident Fund. Most workers who continue working after 55 years of age, often choose to leave their funds there until such time they are effectively retired from employment.
After doctors and nurses have been sent home early on reaching 55 years, Government is now looking at recruiting doctors from India. The move will contribute to increased costs to Government as it pays high salaries and benefits package, in addition to relocation costs as it attempts to attract those doctors.
Last week, I had analysed that the Reserve Bank of Fiji's recent policy decisions will presumably see banks and financial institutions working to raise their non-interest income streams which would ultimately mean that banks will be paying more and higher bank charges. This is because the recent policy announcement by the Reserve Bank has only concentrated on containing interest rates and spreads. Banks and financial institutions might therefore not lose out at all as they make their money/profits from non-interest income streams. Read my posts on this blog last week.
The recent devaluation has not had a desired effect on the tourism industry in Fiji. Tourism Fiji, the former Fiji Visitors Bureau has reportedly said that they have not seen an increase in numbers of tourists as had been expected after Fiji devalued its dollar by 20% a month ago. There are, therefore, other factors that come into play. Are they linked to the political environment or are they more linked to the effect of the global crisis on people's purses as they suffer the fallout from global recession and higher costs of living?
Over recent weeks, most merchants in Fiji have some way or another benefited from the devaluation. Some have used the opportunity to raise their prices of goods at ridiculous levels. For instance, a Gillett Mach 3 Turbo 4-blade pack, which I would buy at around F$17.00, had risen to almost $25.00 with the reason given by the cashier, and with a smile, as "it's the devaluation". The Consumer Council of Fiji would really need to do a survey of some of these shops soon.
As Fiji works on attracting more foreign investment, one of the things that will need to be worked on is to ensure at all times that investors interests are adequately protected as they participate in commerce. If there are some issues with laws on a broader scale, research has shown that at an entity level, companies should at least attempt and put in place adequate safeguards to protect their interests of shareholders and owners. This serves as an attraction before an investor would decide to invest in business in a particular country.
Almost all our efforts in recent years and months have been focused on promoting more sports without much emphasis on other areas where our children could be exposed to help build their future. Read an earlier post I did on this on my other blog here.
In the meantime, Government has reduced the age where people are allowed to drink liquor from 21 to 18. In this environment, when things are looked at in totality, what are we promoting? Is it alcoholism at an early age? Read here.
When one analyses some of these policy decisions, it is difficult to see any coherent flow of policy ideology in some of these decisions. Policy makers will stand back and review some of these policies again or those that are still in the works before they introduce them to ensure coherence.
Sunday, May 17, 2009
Fuel prices rise and increased costs of doing business in Fiji
Fuel prices rise again from today, Monday, 18 May 2009.
The increases are a result of increases in the international product price of fuel and also the recent devaluation of the Fiji dollar.
Prices outside Viti Levu will vary depending on cartage and freight charges to individual islands.
The increase in product prices brought about by the recent devaluation of the Fiji dollar will contribute to increased costs of doing business in Fiji which may also see an increased in business failures as costs spiral out of control for businesses.
So far Government has not announced any special concessions or benefits that can be tapped by small or micro business enterprises during these hard times.
It is expected that reduction in interest rates as intended by the Reserve Bank of Fiji's recent monetary policy announcements will benefit this sector.
Last weekend, ANZ has announced a reduction in its variable lending rates by 0.5% effective from 1 June 2009. The regulator hopes that all other banks will follow suit and announce reductions in their lending rates.
Note : For investment advice and portfolio management assistance, pls call our office on telephone (679) 3342719 or email info@gilbert.com.fj.
We also provide consulting services covering strategic and corporate planning, business continuity planning, capacity assessments and on any issue relating to the financial sector.
The increases are a result of increases in the international product price of fuel and also the recent devaluation of the Fiji dollar.
Prices outside Viti Levu will vary depending on cartage and freight charges to individual islands.
The increase in product prices brought about by the recent devaluation of the Fiji dollar will contribute to increased costs of doing business in Fiji which may also see an increased in business failures as costs spiral out of control for businesses.
So far Government has not announced any special concessions or benefits that can be tapped by small or micro business enterprises during these hard times.
It is expected that reduction in interest rates as intended by the Reserve Bank of Fiji's recent monetary policy announcements will benefit this sector.
Last weekend, ANZ has announced a reduction in its variable lending rates by 0.5% effective from 1 June 2009. The regulator hopes that all other banks will follow suit and announce reductions in their lending rates.
Note : For investment advice and portfolio management assistance, pls call our office on telephone (679) 3342719 or email info@gilbert.com.fj.
We also provide consulting services covering strategic and corporate planning, business continuity planning, capacity assessments and on any issue relating to the financial sector.
Friday, May 15, 2009
ANZ reduces variable lending rates
ANZ Banking Group Limited is the first bank to announce a reduction of 0.5% in all its variable rate loans as from 1 June 2009.
The announcement was made by the bank's Fiji General Manager, Robert Bell.
The bank said the reduction was a result of an increase in banking system liquidity due to improvement in export proceeds collections and the reduction in the statutory reserve deposit requirements of commercial banks.
ANZ has also said that its wholesale term deposit rates are to fall as well.
The bank has urged customers facing financial difficulties to contact their ANZ branch or relationship manager to discuss their positions, as soon as possible.
One should be expecting other banks to follow suit in reducing their interest rates after the announcement by ANZ.
The announcement was made by the bank's Fiji General Manager, Robert Bell.
The bank said the reduction was a result of an increase in banking system liquidity due to improvement in export proceeds collections and the reduction in the statutory reserve deposit requirements of commercial banks.
ANZ has also said that its wholesale term deposit rates are to fall as well.
The bank has urged customers facing financial difficulties to contact their ANZ branch or relationship manager to discuss their positions, as soon as possible.
One should be expecting other banks to follow suit in reducing their interest rates after the announcement by ANZ.
Wednesday, May 13, 2009
Will customers pay higher bank fees under new RBF policy?
The Reserve Bank of Fiji had announced around mid April 2009 that it was capping banks and financial institutions weighted average lending rates to the level at which those rates were for each financial institution at end December 2008.
It also announced that it was placing a ceiling on the interest spreads of the same institutions to a limit of 4%. Read our earlier post on the Reserve Bank of Fiji's new policy here.
What does that mean?
While banks and financial institutions struggle with the new requirements, from which customers should greatly benefit from, particularly when interest spreads with some banks might be around 8% or so, this would mean that banks will desperately look at either increasing revenue from other non-traditional sources, such as fees and commissions, or cutting down their overheads, including closing branches and sending some of their staff home.
Banks and financial institutions might now all be looking at ways to increase their non-interest income, through raising of fees, charging of new fees, etc. It is interesting to note that the Reserve Bank's policy announcement in April 2009, did not mention anything on controlling non-interest income, particularly fees income and commissions, of banks and financial institutions.
So, customers? Expect some increase in your bank charges over the next few months.
As for overheads, banks and financial institutions would be all out to reduce their overheads as a direct result of the new banking and financial institutions requirements. This would see the cutting down of some services in some areas, closing of certain non-profitable branches and agencies, and termination of staff.
Again, you would be able to see these over the next few months.
Note : For investment advice and portfolio management services, pls call our office on telephone (679) 3342719 or (679) 3544897.
It also announced that it was placing a ceiling on the interest spreads of the same institutions to a limit of 4%. Read our earlier post on the Reserve Bank of Fiji's new policy here.
What does that mean?
While banks and financial institutions struggle with the new requirements, from which customers should greatly benefit from, particularly when interest spreads with some banks might be around 8% or so, this would mean that banks will desperately look at either increasing revenue from other non-traditional sources, such as fees and commissions, or cutting down their overheads, including closing branches and sending some of their staff home.
Banks and financial institutions might now all be looking at ways to increase their non-interest income, through raising of fees, charging of new fees, etc. It is interesting to note that the Reserve Bank's policy announcement in April 2009, did not mention anything on controlling non-interest income, particularly fees income and commissions, of banks and financial institutions.
So, customers? Expect some increase in your bank charges over the next few months.
As for overheads, banks and financial institutions would be all out to reduce their overheads as a direct result of the new banking and financial institutions requirements. This would see the cutting down of some services in some areas, closing of certain non-profitable branches and agencies, and termination of staff.
Again, you would be able to see these over the next few months.
Note : For investment advice and portfolio management services, pls call our office on telephone (679) 3342719 or (679) 3544897.
Thursday, May 7, 2009
Interest Rates starting to trend downwards?
Treasury Bills (TBs) interest rates have started to trend downwards in figures disseminated by the Reserve Bank of Fiji today.
28 day TB rates fell from 5.79% issued on 8 April 2009 to 5.70% on its issuance on 6 May 2009. 91 day TB rates, similarly fell from 7.35% to 7.30% on those dates.
Banking system liquidity (measured by bank demand deposits held at the Reserve Bank of Fiji) rose to F$119.6 million at end 7 May 2009, from F$105.2 million a week earlier.
Given that TB rates have started to decline and given the rise in banking system liquidity which one hopes will be sustained, one can assume that commercial bank deposit rates should start to fall,. That ultimately should contribute to a fall in commercial bank lending rates.
As lending rates fall, the other challenge is to find projects/avenues where the available funds can be directed to be utilised for purposes that can generate production, exports and employment.
Check my other post here for suggestions on what can be done further.
28 day TB rates fell from 5.79% issued on 8 April 2009 to 5.70% on its issuance on 6 May 2009. 91 day TB rates, similarly fell from 7.35% to 7.30% on those dates.
Banking system liquidity (measured by bank demand deposits held at the Reserve Bank of Fiji) rose to F$119.6 million at end 7 May 2009, from F$105.2 million a week earlier.
Given that TB rates have started to decline and given the rise in banking system liquidity which one hopes will be sustained, one can assume that commercial bank deposit rates should start to fall,. That ultimately should contribute to a fall in commercial bank lending rates.
As lending rates fall, the other challenge is to find projects/avenues where the available funds can be directed to be utilised for purposes that can generate production, exports and employment.
Check my other post here for suggestions on what can be done further.
Banking System Liquidity Improved Slightly - What can be done further?
Banking system liquidity in Fiji has improved slightly to around F$105 million at end April 2009.
This came after the Reserve Bank of Fiji's actions to reduce the deposit requirement that banks are to hold with the Reserve Bank to 5% from 6%. The Bank had also devalued the Fiji dollar exchange rate by 20% three weeks ago.
What can be done further to stimulate the economy?
The Reserve Bank of Fiji's actions have in the past been generally appropriate for Fiji.
Around 2006, to dampen growth in the property loans market and with intentions to promote lending for investment purposes, the Reserve Bank had put in a requirement that lending for housing mortgages be limited, particularly for those customers that already own a home/property.
They also reviewed all bank lending applications to ensure that lending was indeed directed towards investment related purposes.
What can be done now to encourage money to move around the economy and stimulate growth, is for lending by banks and credit providers to be encouraged again. However, as in the past, lending has to be for purposes that generate economic growth e.g. those that will generate production, more exports, and increased employment. Lending for residential property development and buying second home can still be restricted. (This particular market got very inflated a few years ago in Fiji, particularly in the Suva and Nadi areas.)
Should banks now work on developing mortgage securitisation products (having learnt lessons from the US banks' sub prime mortgage lending debacle) and be able to transfer out some of the loans that exist in their books, to free up their capital and liquidity for further lending? I am quite sure there will be interest locally and around the Pacific Islands region for buying mortgaged backed securities from Fiji. The regulator and potential investors, though, have to be up-to-date with the actual risks and how these securities are to be valued - these were both weaknesses in US regulators, banks and investors prior to the financial crisis of 2007/2008.
With more and more people are being displaced from their employment as a result of the global/local crisis, there would also be a need for an alternative livelihoods project (like that which had been done in the agricultural/sugar cane sector in the past) where such people are provided training on new skills to be able to generate income e.g. setting up and running small businesses.
The Small and Micro enterprise sector has been found to be one of those that can contribute well to the development of an economy, anywhere around the world.
In Fiji, people who wish to run businesses have a primary need to understand the basic principles of running a business, how not to mix business with their personal affairs, the rudiments of an accounting and recording system, how to raise capital and prepare the background papers for it, how to prepare budgets and monitor compliance with them, how to prepare business/corporate/strategic plans and to stick with them (including regularly review them to ensure that they are adequate for the changing environment in which they operate), etc.
More and more people are entering the job market with qualifications but there are not many jobs available. Yet, curricula in schools and tertiary institutions do not provide anything on entrepreneurial training like they do in Singapore, for instance.
Can we export some of our qualified personal but provide incentives for them not to entirely migrate to overseas countries where they will provide their services, but to still find it a benefit to remain a Fiji citizen/resident?
The development of a national human resource development plan should be able to identify these things.
These are some of my thoughts that can be developed further.
Note : For investment advice and investment portfolio management services, call our office on (679) 3342719, (679) 3544897 or email info@gilbert.com.fj. We also do consultancies in areas relating to the financial sector in Fiji and can conduct or assist with similar consultancies in the Pacific Islands region. Our other products include :
This came after the Reserve Bank of Fiji's actions to reduce the deposit requirement that banks are to hold with the Reserve Bank to 5% from 6%. The Bank had also devalued the Fiji dollar exchange rate by 20% three weeks ago.
What can be done further to stimulate the economy?
The Reserve Bank of Fiji's actions have in the past been generally appropriate for Fiji.
Around 2006, to dampen growth in the property loans market and with intentions to promote lending for investment purposes, the Reserve Bank had put in a requirement that lending for housing mortgages be limited, particularly for those customers that already own a home/property.
They also reviewed all bank lending applications to ensure that lending was indeed directed towards investment related purposes.
What can be done now to encourage money to move around the economy and stimulate growth, is for lending by banks and credit providers to be encouraged again. However, as in the past, lending has to be for purposes that generate economic growth e.g. those that will generate production, more exports, and increased employment. Lending for residential property development and buying second home can still be restricted. (This particular market got very inflated a few years ago in Fiji, particularly in the Suva and Nadi areas.)
Should banks now work on developing mortgage securitisation products (having learnt lessons from the US banks' sub prime mortgage lending debacle) and be able to transfer out some of the loans that exist in their books, to free up their capital and liquidity for further lending? I am quite sure there will be interest locally and around the Pacific Islands region for buying mortgaged backed securities from Fiji. The regulator and potential investors, though, have to be up-to-date with the actual risks and how these securities are to be valued - these were both weaknesses in US regulators, banks and investors prior to the financial crisis of 2007/2008.
With more and more people are being displaced from their employment as a result of the global/local crisis, there would also be a need for an alternative livelihoods project (like that which had been done in the agricultural/sugar cane sector in the past) where such people are provided training on new skills to be able to generate income e.g. setting up and running small businesses.
The Small and Micro enterprise sector has been found to be one of those that can contribute well to the development of an economy, anywhere around the world.
In Fiji, people who wish to run businesses have a primary need to understand the basic principles of running a business, how not to mix business with their personal affairs, the rudiments of an accounting and recording system, how to raise capital and prepare the background papers for it, how to prepare budgets and monitor compliance with them, how to prepare business/corporate/strategic plans and to stick with them (including regularly review them to ensure that they are adequate for the changing environment in which they operate), etc.
More and more people are entering the job market with qualifications but there are not many jobs available. Yet, curricula in schools and tertiary institutions do not provide anything on entrepreneurial training like they do in Singapore, for instance.
Can we export some of our qualified personal but provide incentives for them not to entirely migrate to overseas countries where they will provide their services, but to still find it a benefit to remain a Fiji citizen/resident?
The development of a national human resource development plan should be able to identify these things.
These are some of my thoughts that can be developed further.
Note : For investment advice and investment portfolio management services, call our office on (679) 3342719, (679) 3544897 or email info@gilbert.com.fj. We also do consultancies in areas relating to the financial sector in Fiji and can conduct or assist with similar consultancies in the Pacific Islands region. Our other products include :
- strategic/corporate planning;
- business continuity planning; and
- capacity assessments.
Wednesday, April 15, 2009
Fiji Ratings Downgraded by Standard and Poors
Fiji's ratings by Standard & Poors have been downgraded with effect from 15 April 2009. The revised ratings are as follows :
- Credit Rating (Foreign Currency), Rating B-/Negative/C;
- Rating of the US$150 million foreign debt 6.875% maturing on 13 September 2011, B-.
The foreign credit rating was reduced from 'B/B' rated in February 2009. The Standard & Poors definitions of ratings are provided at the end of this post.
The downgrade would mean that accessing debt financing from abroad would be more expensive for the Fiji Government and Fiji based businesses. Given that banking system liquidity has been quite tight in recent months, there was an option for businesses to access debt from abroad.
Also, aside from having to pay higher interest for the higher perceived risk, Fiji based businesses would also have to contend with paying more in Fiji dollar terms after the 20% devaluation by the Reserve Bank of Fiji yesterday, 15 April 2009.
Import prices might also be expected to rise as foreign based merchants and businesses price in the higher risk of default after consideration of the latest S&P ratings and those by similar agencies.
The higher prices of imports will again be passed onto ordinary consumers and households in the form of higher prices of products and services.
For advice, pls contact our office on 3342719 or email info@gilbert.com.fj.
Standard & Poors definitions :
- ISSUE CREDIT RATING DEFINITIONS - A Standard & Poor's issue credit rating is a current opinion of the creditworthiness of an obligor with respect to a specific financial obligation, a specific class of financial obligations, or a specific financial program (including ratings on medium-term note programs and commercial paper programs). It takes into consideration the creditworthiness of guarantors, insurers, or other forms of credit enhancement on the obligation and takes into account the currency in which the obligation is denominated. The opinion evaluates the obligor's capacity and willingness to meet its financial commitments as they come due, and may assess terms, such as collateral security and subordination, which could affect ultimate payment in the event of default. The issue credit rating is not a recommendation to purchase, sell, or hold a financial obligation, inasmuch as it does not comment as to market price or suitability for a particular investor.
Rating of B - An obligation rated 'B' is more vulnerable to nonpayment than obligations rated 'BB', but the obligor currently has the capacity to meet its financial commitment on the obligation. Adverse business, financial, or economic conditions will likely impair the obligor's capacity or willingness to meet its financial commitment on the obligation.
- ISSUER CREDIT RATING DEFINITIONS - A Standard & Poor's issuer credit rating is a current opinion of an obligor's overall financial capacity (its creditworthiness) to pay its financial obligations. This opinion focuses on the obligor's capacity and willingness to meet its financial commitments as they come due. It does not apply to any specific financial obligation, as it does not take into account the nature of and provisions of the obligation, its standing in bankruptcy or liquidation, statutory preferences, or the legality and enforceability of the obligation. In addition, it does not take into account the creditworthiness of the guarantors, insurers, or other forms of credit enhancement on the obligation. The issuer credit rating is not a recommendation to purchase, sell, or hold a financial obligation issued by an obligor, as it does not comment on market price or suitability for a particular investor.
Rating of B - An obligor rated 'B' is more vulnerable than the obligors rated 'BB', but the obligor currently has the capacity to meet its financial commitments. Adverse business, financial, or economic conditions will likely impair the obligor's capacity or willingness to meet its financial commitments.
- RATING OUTLOOK DEFINITIONS - A Standard & Poor's rating outlook assesses the potential direction of a long-term credit rating over the intermediate term (typically six months to two years). In determining a rating outlook, consideration is given to any changes in the economic and/or fundamental business conditions. An outlook is not necessarily a precursor of a rating change or future CreditWatch action.
Positive means that a rating may be raised.
Negative means that a rating may be lowered.
Stable means that a rating is not likely to change.
Developing means a rating may be raised or lowered."
Reserve Bank of Fiji places ceiling on interest rates and interest spreads
The Reserve Bank of Fiji today imposed a ceiling on lending rates of banks and other lending institutions (including the Fiji National Provident Fund). The ceiling imposed on each institution is the weighted average lending rate of that particular institution as at 31 December 2008.
Additionally, the Reserve Bank of Fiji has also taken the major action of putting a ceiling on interest spreads, which (depending on the definition used) I would understand to be the difference between an institution's weighted average lending rate and it's weighted average cost of funds (i.e. the average rate it pays for customers' deposits placed with it).
The high interest spreads of banks and lending institutions in Fiji has been the subject of much contention by consumers of banking services over the years, with the two large foreign owned banks each making over F$30 million per year in recent years. It is understood that the interest spreads/margins of banks in Fiji are much higher than what they are in most developed economies.
The move to contain lending rates and spreads has not usually been undertaken in recent years by other countries, particularly those with central banks that use open market operations to influence interest rates like Fiji. However, it would seem appropriate for Fiji at this time, given our present circumstances.
Another good move taken by the Reserve Bank of Fiji would see an emphasis on building micro finance lending by banks and financial institutions in Fiji. As a result of the global/local crisis, more and more people would be displaced from jobs. Upskilling and training them to run their own small businesses would help them fend for themselves.
PS : The Reserve Bank of Fiji today announced that it has a new Governor, Mr Sada Reddy, who was Deputy Governor up to last week. Read about it in other media.
For advice, pls call our office on (679) 3342719 or email info@gilbert.com.fj.
Additionally, the Reserve Bank of Fiji has also taken the major action of putting a ceiling on interest spreads, which (depending on the definition used) I would understand to be the difference between an institution's weighted average lending rate and it's weighted average cost of funds (i.e. the average rate it pays for customers' deposits placed with it).
The high interest spreads of banks and lending institutions in Fiji has been the subject of much contention by consumers of banking services over the years, with the two large foreign owned banks each making over F$30 million per year in recent years. It is understood that the interest spreads/margins of banks in Fiji are much higher than what they are in most developed economies.
The move to contain lending rates and spreads has not usually been undertaken in recent years by other countries, particularly those with central banks that use open market operations to influence interest rates like Fiji. However, it would seem appropriate for Fiji at this time, given our present circumstances.
Another good move taken by the Reserve Bank of Fiji would see an emphasis on building micro finance lending by banks and financial institutions in Fiji. As a result of the global/local crisis, more and more people would be displaced from jobs. Upskilling and training them to run their own small businesses would help them fend for themselves.
PS : The Reserve Bank of Fiji today announced that it has a new Governor, Mr Sada Reddy, who was Deputy Governor up to last week. Read about it in other media.
For advice, pls call our office on (679) 3342719 or email info@gilbert.com.fj.
Tuesday, April 14, 2009
Fiji Dollar Devalued
The Reserve Bank of Fiji has devalued the Fiji Dollar by 20%. The devaluation takes immediate effect today, 15 April 2009.
The devaluation has been done to contain Fiji's falling foreign reserves as well as the impact of recent developments on the economy. Additionally, further restrictions on exchange controls have been put in place.
In simple terms, the devaluation would mean that more Fiji dollars are needed to purchase imports and exporters get more Fiji dollars when they export goods and services. This makes imports more expensive while exporters earn more local currency.
Devaluations are meant to discourage imports and to encourage exports, a reason for which is to assist maintain or boost our country's foreign reserves.
Given that things in or from Fiji will be cheaper to overseas buyers, it should help encourage more purchases of our goods and services from foreign buyers, including tourism.
However, for locals, cost of living would be expected to rise in the short/medium term as a direct result of the devaluation as prices of goods, particularly imported ones, rise. One outcome of this may see people putting pressure on employers to raise their salaries. However, raising salaries and wages would be a real challenge for employers given the current state of the economy, its performance, and the high costs of doing business.
PS : Note our post on the impact of the new ceiling on lending rates which were announced today by the Reserve Bank of Fiji.
For investment and business advice, please call our office on (679) 3342719 or email info@gilbert.com.fj.
The devaluation has been done to contain Fiji's falling foreign reserves as well as the impact of recent developments on the economy. Additionally, further restrictions on exchange controls have been put in place.
In simple terms, the devaluation would mean that more Fiji dollars are needed to purchase imports and exporters get more Fiji dollars when they export goods and services. This makes imports more expensive while exporters earn more local currency.
Devaluations are meant to discourage imports and to encourage exports, a reason for which is to assist maintain or boost our country's foreign reserves.
Given that things in or from Fiji will be cheaper to overseas buyers, it should help encourage more purchases of our goods and services from foreign buyers, including tourism.
However, for locals, cost of living would be expected to rise in the short/medium term as a direct result of the devaluation as prices of goods, particularly imported ones, rise. One outcome of this may see people putting pressure on employers to raise their salaries. However, raising salaries and wages would be a real challenge for employers given the current state of the economy, its performance, and the high costs of doing business.
PS : Note our post on the impact of the new ceiling on lending rates which were announced today by the Reserve Bank of Fiji.
For investment and business advice, please call our office on (679) 3342719 or email info@gilbert.com.fj.
Tuesday, April 7, 2009
Our Portfolio Management Services
The impact of the global financial crisis for Fiji can be seen in the figures released by the Reserve Bank of Fiji with a reduction in inward remittances by 26.7% during 2008. The tourism industry has also indicated how tough their marketing has been to attract tourists to Fiji at this time.
How can the crisis affect companies and individuals in Fiji?
Primarily, the impact of the crisis will be on those companies and individuals who have some assets or liabilities denominated in foreign currency or have products and services that they market to non-Fiji residents.
Companies and individuals who have their assets or liabilities denominated in foreign currency may find that their assets may increase or reduce in value depending on movements of the foreign currencies in which those assets have been denominated, against the Fiji dollar. For liabilities, they may find that they owe more or less than what they had previously owed, due again to movements in exchange rates.
Similarly, if an individual or company offers its products and services to a target market that are non-residents of Fiji and sell those overseas, then what they expect to get for those sales may change due to changes in exchange rates. More importantly, the global crisis may bring about a reduction in consumption demand in most of the economies/markets overseas which may include the economy/market where the individual or company offers its products and services.
Investment Advice and Portfolio Management Services
If you have investments or are considering some, it might be the best time to consult a professional that can assist you.
To protect your investments, we can assist you with portfolio management services at a competitive fee. As part of this service, we can review your current investments and make suggestions on how they can be improved to better weather the crisis. We can also review and recommend for you new investments that will meet your investment objectives. We will also provide you with regular (at least quarterly) updates on how your investments are performing during the time we manage your portfolio for you.
Investments will be held in your own name rather than by us giving you all the rights and control over investments made.
Our principal, Gilbert Veisamasama Jr, is a licensed investment advisor and with his licence he can provide investment advice and portfolio management services to clients.
If you are interested to discuss this further, please contact us on telephones (679) 3342719 or (679) 3544897 or email info@gilbert.com.fj.
How can the crisis affect companies and individuals in Fiji?
Primarily, the impact of the crisis will be on those companies and individuals who have some assets or liabilities denominated in foreign currency or have products and services that they market to non-Fiji residents.
Companies and individuals who have their assets or liabilities denominated in foreign currency may find that their assets may increase or reduce in value depending on movements of the foreign currencies in which those assets have been denominated, against the Fiji dollar. For liabilities, they may find that they owe more or less than what they had previously owed, due again to movements in exchange rates.
Similarly, if an individual or company offers its products and services to a target market that are non-residents of Fiji and sell those overseas, then what they expect to get for those sales may change due to changes in exchange rates. More importantly, the global crisis may bring about a reduction in consumption demand in most of the economies/markets overseas which may include the economy/market where the individual or company offers its products and services.
Investment Advice and Portfolio Management Services
If you have investments or are considering some, it might be the best time to consult a professional that can assist you.
To protect your investments, we can assist you with portfolio management services at a competitive fee. As part of this service, we can review your current investments and make suggestions on how they can be improved to better weather the crisis. We can also review and recommend for you new investments that will meet your investment objectives. We will also provide you with regular (at least quarterly) updates on how your investments are performing during the time we manage your portfolio for you.
Investments will be held in your own name rather than by us giving you all the rights and control over investments made.
Our principal, Gilbert Veisamasama Jr, is a licensed investment advisor and with his licence he can provide investment advice and portfolio management services to clients.
If you are interested to discuss this further, please contact us on telephones (679) 3342719 or (679) 3544897 or email info@gilbert.com.fj.
Saturday, March 14, 2009
Our blog makes it onto Alexa's top sites from Fiji
Our blog, http://investinfiji.blogspot.com/, made it to Number 11 on Alexa's top Business and Economy sites from Fiji and the Oceania region. The category we came under was Regional > Oceania > Fiji > Business and Economy.
Our site ranked higher than other sites such as Vinod Patel Company Limited, Howards Law, Naisoso Island, Mark One Apparel, Denarau Real Estate, Webmasters, Pacific Financial Technical Assistance Centre, Europa - Development EU Relations in Fiji, UN Sustainable Development - Fiji, IMF - Fiji and the IMF, Capital Markets Development Authority, Colonial Fiji, Datec (Fiji) Limited, Fijian Holdings Limited, Housing Authority, and many others.
Other sites that ranked higher than ours were as follows, according to their ranking :
Our site ranked higher than other sites such as Vinod Patel Company Limited, Howards Law, Naisoso Island, Mark One Apparel, Denarau Real Estate, Webmasters, Pacific Financial Technical Assistance Centre, Europa - Development EU Relations in Fiji, UN Sustainable Development - Fiji, IMF - Fiji and the IMF, Capital Markets Development Authority, Colonial Fiji, Datec (Fiji) Limited, Fijian Holdings Limited, Housing Authority, and many others.
Other sites that ranked higher than ours were as follows, according to their ranking :
- Fiji Web Design;
- Vodafone Fiji;
- Standss (South Pacific) Limited;
- Connect Internet Services;
- Business Software Solutions;
- Reserve Bank of Fiji;
- Internet Fiji;
- Taunovo Bay;
- GMR Mohammed & Sons (Pty) Limited; and
- Harbour Propriety Services Limited.
Get more information on this link.
In the sub-category Regional > Oceania > Fiji > Business and Economy > Financial Services, our site was ranked No. 2 behind the Reserve Bank of Fiji. The top 10 rankings for this subcategory were as follows :
- Reserve Bank of Fiji;
- Invest in Fiji (our site);
- Pacific Financial Technical Assistance Centre;
- Capital Markets Development Authority;
- Colonial Fiji;
- Fijian Holdings Limited;
- Housing Authority;
- South Pacific Stock Exchange;
- Sun Insurance Company Limited; and
- Tower Insurance Fiji Limited.
Check out more information on this subcategory on this link.
Alexa has lists of Top Sites available by country, language or in a category.
If you wish to take advantage of our high rankings, send an email to info@gilbert.com.fj or call us on (679) 3342719.
Currently, we offer consultancy services in the following areas :
- Strategic and Corporate Planning;
- Business Continuity Planning;
- Capacity Assessments and Institutional Strengthening;
- Issues relating to the financial sector; and
- Investment Advice.
Our principal also offers portfolio management services for clients. To contact us on any of the above services, pls email info@gilbert.com.fj or call telephone (679) 3342719.
Monday, March 2, 2009
Reserve Bank of Fiji Economic Review Vol. 26, No. 2, month ended February 2009
In an RBF Economic Review Vol.26, No.2 dated February 2009, the bank says that as a result of the global financial crisis, the International Monetary Fund has been forced to revise its global growth estimate of 2.2% down to 0.5%. Many of Fijis’s trading partner economies are expected to contract this year. Only Australia has been forecasted to record a growth, albeit one of the lowest in recent years.
On the domestic front, growth in the Fiji economy for 2008 was estimated by RBF to be about 1.2%. Listed below are some of the prominent highlights:
- Annual decline of 6.9% in money supply (broad money) on account of low demand deposits which had declined by 25.6%.
- Domestic credit growth slowed, led by less government borrowing (4.8% in Dec from 6.9% in Nov).
- Worsening of trade imbalance (i.e. more imports over exports) by $1.9b in November. In fact, imports increased by 24.2 %.
- Annual decline of remittances by 26.7%.
- Low cane & sugar output.
- Tightening of liquidity with both lending and time deposit rates increasing.
On a positive note however:
- Although exports levels were lower than imports, exports nonetheless had increased by 16.7%, mainly through re-exports of mineral fuels, and higher earnings from sugar, gold and fish.
- Raising the tax threshold to $15,000 in June of 2008.
- Improved performance of tourism, copra, electricity, gold and construction & building activities.
- Decline in inflation from 7.4% in Jan to 6.6% in Dec.
- Increase in capital spending and investment lending.
Growth in 2009 is estimated to be around 2.4% by RBF. However, this is all contingent upon both global influences and how well the country handles itself coming out from the recent flood crisis, and during the current tight liquidity situation.
The RBF revealed that inflation stood at 6.1% in January but forecasted a drop to 4.5% by the end of the year. This inflation estimate may be largely due to a drop in global oil price which has seen the benefits flow to the local transport, heating and lighting industries. However, because of Fiji’s high dependence on oil and wheat, the price stability of these commodities will have a huge bearing on this year end estimate.
The RBF has also revealed that the Fiji dollar has declined in value (i.e. the Nominal effective exchange rate of Fiji Dollar had an annual drop of 0.3% in January 2009) but hopefully through RBF’s current monetary policy mix, Fiji’s financial situation will continue to be stable. In addition, the RBF says that official foreign reserves are at a provisional level of $672.2m, sufficient to cover 2.7 months of imports.
Saturday, February 28, 2009
RBF’s Tight Monetary Policy Will Remain Unchanged
Mr. Savenaca Narube, the Governor and Chairman of RBF announced in a RBF press release dated 27/02/09 that RBF’s tight monetary policy would remain unchanged.
In making this decision RBF took into account the deepening global financial crisis which has negatively affected Fiji’s trading partner economies. The International Monetary Fund has in fact downgraded global growth to 0.5%.
Leading from this, Fiji’s growth prospects for 2009 do not look too good, with tourism, exports and remittances likely to be the worst hit. This will not help the state of our foreign reserves which currently stands at over $700m.
In addition, the RBF board also recognized that the recent flooding has necessitated Government expenditure in humanitarian and rehabilitation support at a time when there is less money available to finance loans, and interest rates already trending upwards. With these considered, RBF had to maintain its current stance.
However all is not doom and gloom. Mr. Narube advises that Government has the capacity to loan from abroad to finance its expenditure and in the process prop up our foreign reserves. The RBF revealed that Government’s external debt is only 7% of GDP and our external debt servicing is as low as 3% of our export earnings.
In addition, the governor said the bank will continue to maintain the right policy mix to ensure monetary and financial stability. The following are facilities that the bank has put in place to ease the burden on the economy.
In making this decision RBF took into account the deepening global financial crisis which has negatively affected Fiji’s trading partner economies. The International Monetary Fund has in fact downgraded global growth to 0.5%.
Leading from this, Fiji’s growth prospects for 2009 do not look too good, with tourism, exports and remittances likely to be the worst hit. This will not help the state of our foreign reserves which currently stands at over $700m.
In addition, the RBF board also recognized that the recent flooding has necessitated Government expenditure in humanitarian and rehabilitation support at a time when there is less money available to finance loans, and interest rates already trending upwards. With these considered, RBF had to maintain its current stance.
However all is not doom and gloom. Mr. Narube advises that Government has the capacity to loan from abroad to finance its expenditure and in the process prop up our foreign reserves. The RBF revealed that Government’s external debt is only 7% of GDP and our external debt servicing is as low as 3% of our export earnings.
In addition, the governor said the bank will continue to maintain the right policy mix to ensure monetary and financial stability. The following are facilities that the bank has put in place to ease the burden on the economy.
- Halved its minimum lending rate (MLR) from 6% to 3% (i.e. interest charged on loans taken by banks from the Reserve Bank of Fiji)
- Introduced an Export Finance Facility (EFF) whereby banks can borrow cheaply from RBF (max. 2%) and must lend cheaply to exporters.
- Introduced a Flood Rehabilitation Facility (FRF) which is similar to EFF.
Furthermore, Mr. Narube said RBF could also use the Statutory Reserve Deposits (SRD) policy tool to stabilize liquidity. All banks in Fiji are required by law to keep (deposit) a specified percentage of their funds with the RBF. RBF sets this SRD percentage and by manipulating it can withdraw funds (tighten liquidity) or inject funds (improve liquidity) into the economy.
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