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As Fiji moves forward with its massive reform agenda, several challenges stand in its way. The World Bank has identified some of these challenges in its latest East Asia and Pacific half yearly update, released globally this week.
“Firstly, there are substantial risks should the global recovery sputter and prices for imported oil continue to increase. Secondly, the devaluation of the currency will likely increase the cost of servicing external debt and add further strains to the budget.
Thirdly, Fiji relations with key external partners remain strained and restoration of full bilateral relations remains dependent on Fiji’s return to democracy,” authors Ivailo Izvorski and Vikram Nehru wrote in their country report on Fiji.
While noting the current state of Fiji’s economy - where foreign reserves still remain at risk and domestic economy had been severely affected by the flood in January - the World Bank economists said challenges still remain especially in the country’s external position.
“The 20 percent devaluation of the currency is likely to help narrow Fiji’s current account deficit to 21 percent of GDP in 2009 from 26 percent in 2008 despite a 15 percent drop in tourist arrivals and reduced exports of garments and mineral water.
“Further improvements in the deficit may be constrained, however, should global demand for Fiji’s exports remain weak, and domestic factors limit the supply of sugar and garments for export.”
Fiji is still servicing a five year US denominated bond it issued in 2006, where it raised US$150 million. It is paying an annual fixed interest of seven percent, denominated in US dollars, and this amount, translated into Fiji dollar figures, was expected to have increased following the devaluation of the Fiji dollar in April this year.
In its update, the World Bank said the performance of the East Asia and Pacific region has been driven by the rebound from China, but it also estimates that 14 million people who would have emerged from $2-a-day poverty, if the region’s economies had kept growing at pre-crisis levels, will remain in poverty in 2010.
