A lot of interest, discussions and questions have been generated on the International Monetary Fund (IMF) Report on Article IV Consultations and the proposed Stand By Arrangement (SBA), particularly from the media.
Under the IMF Charter Article IV, the IMF undertakes consultations with all its member countries and reviews macroeconomic performance on a regular basis. As a result of the consultations and reviews, the Article IV Mission recommended a number of policy measures to be considered by the Government which has been publicized widely.
The Article IV Report is quite comprehensive in reviewing all key economic indicators. Based on this comprehensive review, the IMF policy recommendations cover five broad areas (i) fiscal policy; (ii) monetary policy; (iii) financial sector policy; (iv) exchange rate policy; and (v) structural reforms. These policy recommendations are aimed at maintaining macroeconomic stability, addressing balance of payments issues and raising economic growth over the medium term. The recommendations are currently being considered by government and thorough consultation and analysis will be undertaken before any decision is made.
The report has emphasized that economic growth in Fiji has been sluggish in recent years. Like any other country, Fiji has been affected by the global financial and economic crisis, the rise in prices of fuel and food, in addition to its vulnerability to natural disasters which cost the country more than $200m in the last 15 months.
The country, to a large extent, relies on imported fuel to drive economic development and the cost of this has been escalating continuously. Furthermore, trading preferences have been lost for the sugar and garment industries. All these, coupled with structural issues, highlighted in the Article IV Mission Report, have resulted in sluggish economic growth.
Prior to the Article IV Mission visit, government had already committed to and in some cases commenced significant structural reforms in a number of sectors including the public service, public enterprises, land, sugar industry, and the FNPF. The recommendations of the IMF team relating to structural reforms do not propose anything new. They re-emphasise the government’s reform agenda but recommend earlier timeframes for implementation.
The Article IV Mission Report recommends the need to stabilize foreign reserves at sustainable levels. Foreign Reserves are currently at comfortable levels at $1.1 billion equivalent to 3.1 month of import cover. However, there are possible downside risks such as the current rise in fuel prices and our vulnerability to natural disasters. In recognizing the need to minimize balance of payment risk, government will put in place the necessary fiscal and monetary policy mix and seek support if needed.
Taking into account the downside risks for the balance of payment, government expressed interest for possible balance of payment support from the IMF through a request made in February 2010. As a member, Fiji is entitled to seek support from the IMF which is available through an SBA. Under the SBA, IMF assists member countries by providing balance of payments support. This arrangement does not provide any support to the government budget.
The first round of negotiations on a possible SBA has been completed and no agreement was reached. The negotiations were focused on the preconditions and timeframes for structural reforms. An IMF team is due to visit the country in July to undertake further negotiations.
It is very early to confirm an SBA will be agreed to since negotiations remain to be completed. This will take some time given that a thorough assessment will be undertaken on all preconditions and timeframes. As negotiations proceed, further information will be made available.
It is too early to confirm the amount that will be required since the consultation and negotiations is ongoing.
Further details will be released once negotiation is finalized. However, I would like to confirm that the process of consultation and negotiation is progressing satisfactorily.
Pita Wise
Permanent Secretary National Planning