FIJI: MACROECONOMIC HISTORY2006-CURRENT

Reserve Bank of Fiji

PFTAC Workshop, Samoa

November 2011

Buoyant domestic demand, drain on foreign reserves, widening trade deficit

• Fairly strong demand conditions (Positive output gap, acceleration in Private Sector Credit Growth, Increase in imports)

• Foreign reserves plummeted. Monetary policy tightened further. Credit ceiling adopted.

2006

• Credit Ceiling (Dec 06 – Sep 09)• Moral Suasion• Capital Controls• Use of Policy Indicator Rate (PIR) [RBF

91-day note] • Open Market Operations [suspended

from Jun 07 – Apr 10]• Statutory Reserve Deposits

Monetary Policy Tools :

-.010

-.005

.000

.005

.010

.015

.020

I II III IV I II III IV

2005 2006

HPGAP_1600_RGDP

OUTPUT GAP

Jan-

06

Feb-

06

Mar

-06

Apr-0

6

May

-06

Jun-

06

Jul-0

6

Aug-

06

Sep-

06

Oct-0

6

Nov-0

6

Dec-0

6

Jan-

07

Feb-

07

Mar

-07

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

PRIVATE SECTOR CREDIT GROWTH

PSC annual growthPSC quarterly growthReal PSC growth_annual

%

Jan-

06

Feb-

06

Mar

-06

Apr-0

6

May

-06

Jun-

06

Jul-0

6

Aug-

06

Sep-

06

Oct-0

6

Nov-0

6

Dec-0

6

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

EXCESS LIQUIDITY

Excess Liquidity

F$M

CREDIT GROWTH & LIQUIDITY

IMPORTS & FOREIGN RESERVES

2005 2006 20072,000.0

2,100.0

2,200.0

2,300.0

2,400.0

2,500.0

2,600.0

2,700.0

IMPORTSF$M

Jan-05 May-05 Sep-05 Jan-06 May-06 Sep-06 Jan-070.0

100.0

200.0

300.0

400.0

500.0

600.0

700.0

800.0

FOREIGN RESERVESF$M

FNPF Recall in 2006 : F$300m

Jan-

06

Feb-

06

Mar

-06

Apr-0

6

May

-06

Jun-

06

Jul-0

6

Aug-0

6

Sep-

06

Oct-0

6

Nov-0

6

Dec-0

60.00

2.00

4.00

6.00

8.00

10.00

12.00

NEW LENDING RATE%

Jan-

06

Feb-

06

Mar

-06

Apr-0

6

May

-06

Jun-

06

Jul-0

6

Aug-0

6

Sep-

06

Oct-0

6

Nov-0

6

Dec-0

60.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00NEW TIME DEPOSIT RATE%

MONETARY CONDITIONS

Dec-05 Feb-06 Apr-06 Jun-06 Aug-06 Oct-06 Dec-060.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00GOVERNMENT BOND YIELDS

3-year 5-year 10-year 15-year

%

Jan-

06

Feb-

06

Mar

-06

Apr-0

6

May

-06

Jun-

06

Jul-0

6

Aug-0

6

Sep-

06

Oct-0

6

Nov-0

6

Dec-0

60.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00T-BILLS RATE

28 - Day91 - Day

%

MONETARY CONDITIONS

MONETARY CONDITIONS

2005 2006 2007

-1200.0

-1000.0

-800.0

-600.0

-400.0

-200.0

0.0

-20.0

-18.0

-16.0

-14.0

-12.0

-10.0

-8.0

-6.0

-4.0

-2.0

0.0

-9.3

-18.1

Current Account Balance As % of GDP

F$M %

MONETARY CONDITIONS

Dec-05 Jan-06 Feb-06 Mar-06 Apr-06 May-06 Jun-06 Jul-06 Aug-06 Sep-06 Oct-06 Nov-06 Dec-06

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0INFLATION

Inflation_yoy Inflation_qtrly

%

Continuation of credit ceiling• Tighter monetary conditions led to decline in private

sector credit growth• Import demand fell• Tightening of exchange control• Foreign reserves improved• Suspension of OMO and reduction of SRD ratio from

7% to 6%• Improvement in current account balance

2007

Sep-

06

Oct-0

6

Nov-0

6

Dec-0

6

Jan-

07

Feb-

07

Mar

-07

Apr-0

7

May

-07

Jun-

07

Jul-0

7

Aug-0

7

Sep-

07

Oct-0

7

Nov-0

7

Dec-0

70.0

5.0

10.0

15.0

20.0

25.0

30.0PRIVATE SECTOR CREDIT

GROWTH

PSC_annual growth PSC_qtrly

%

Sep-

06

Oct-0

6

Nov-0

6

Dec-0

6

Jan-

07

Feb-

07

Mar

-07

Apr-0

7

May

-07

Jun-

07

Jul-0

7

Aug-0

7

Sep-

07

Oct-0

7

Nov-0

7

Dec-0

70.0

50.0

100.0

150.0

200.0

250.0

300.0

350.0

400.0

EXCESS LIQUIDITY

EXCESS LIQUIDITY

F$M

CREDIT GROWTH & LIQUIDITY

2006 20072,750.0

2,800.0

2,850.0

2,900.0

2,950.0

3,000.0

3,050.0

3,100.0

3,150.0IMPORT PAYMENTSF$M

Dec-0

6

Jan-

07

Feb-

07

Mar

-07

Apr-0

7

May

-07

Jun-

07

Jul-0

7

Aug-0

7

Sep-

07

Oct-0

7

Nov-0

7

Dec-0

70.0

100.0

200.0

300.0

400.0

500.0

600.0

700.0

800.0

900.0FOREIGN RESERVESF$M

MONETARY CONDITIONS

Underpinned largely by machinery, transport & equipment,mineral fuel & manufactured goods

MONETARY CONDITIONS

2005 2006 2007

-1200.0

-1000.0

-800.0

-600.0

-400.0

-200.0

0.0

-20.0

-18.0

-16.0

-14.0

-12.0

-10.0

-8.0

-6.0

-4.0

-2.0

0.0

-9.3

-18.1

-14.2

Current Account Balance As % of GDP

F$M %

Jan-07 Feb-07 Mar-07 Apr-07 May-07 Jun-07 Jul-07 Aug-07 Sep-07 Oct-07 Nov-07 Dec-07

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0 INFLATION

Inflation_yoy Inflation_annualised qtrly

%

MONETARY CONDITIONS

Oil & Commodity price shocks• High prices• Recovery in domestic demand (easy monetary

conditions + exchange rate appreciation)• Deterioration in the current account balance and rapid

drain in foreign reserves

2008

INFLATION

-10

-5

0

5

10

15

20

Fiji: CPI inflation, 2006-11 (Annualized q-o-q change)

Food price shock

Oil price peaks at US$145 in July 2008

Oil crosses US$70 in Apr-06

Devaluation Apr-09

Oil pass US$80 in Sep-10 VAT raised

to 15% in Jan-11

EXTERNAL SUSTAINABILITY

2005 2006 2007 2008 2009 2010

-20

-16

-12

-8

-4

0

-10

-19

-14

-18

-8

-11

Current account balance, 2005-10 (in percent of GDP)

CAB deteriorated further, after some adjustment in 2007…

EXTERNAL SUSTAINABILITY

2005 2006 2007 2008 2009 20100

10

20

30

40

50

60

70

80

22

28

54

70

Fiji: Nominal exports and imports, 2005-10 (in percent of GDP)

DOMESTIC DEMAND

2006

Q1

2006

Q3

2007

Q1

2007

Q3

2008

Q1

2008

Q3

2009

Q1

2009

Q3

2010

Q1

2010

Q3400

600

800

1000

1200

Fiji: Real import of goods, 2006-10 (in mil-lions of fiji dollars)

Despite the rebound in Q2, import volume was relatively flat…

DOMESTIC DEMAND

2006

Q1

2006

Q3

2007

Q1

2007

Q3

2008

Q1

2008

Q3

2009

Q1

2009

Q3

2010

Q1

2010

Q31200

1300

1400

1500

1600

1700

1800

Fiji: Real absorption, 2006-10 (in millions of fiji dollars)

Absorption re-covered in Q2 and Q3, despite record-high food and oil prices in 2008…

DOMESTIC DEMAND

2006

M1

2006

M5

2006

M9

2007

M1

2007

M5

2007

M9

2008

M1

2008

M5

2008

M9

2009

M1

2009

M5

2009

M9

2010

M1

2010

M5

2010

M9

2011

M1

2011

M5

2011

M9-5

0

5

10

15

20

25

30

35

11.5

Fiji: Private sector credit, 2006-10 (y-o-y percent change)

Ceiling on pri-vate sector credit, Dec-06

Post devaluation: weak recovery

Monetary conditions was relatively easy in 2008…

EXTERNAL SUSTAINABILITY

Jan-

06

May

-06

Sep-

06

Jan-

07

May

-07

Sep-

07

Jan-

08

May

-08

Sep-

08

Jan-

09

May

-09

Sep-

09

Jan-

10

May

-10

Sep-

10

Jan-

11

May

-11

Sep-

11 0.4000

0.5000

0.6000

0.7000

0.8000

0.9000

1.0000

1.1000

Fiji: Exchange rate, 2006-11 (end of period)

AUD per one FJD

EXTERNAL SUSTAINABILITY

Jan-

06

May

-06

Sep-

06

Jan-

07

May

-07

Sep-

07

Jan-

08

May

-08

Sep-

08

Jan-

09

May

-09

Sep-

09

Jan-

10

May

-10

Sep-

10

Jan-

11

May

-11

Sep-

11 80.0

90.0

100.0

110.0

120.0

Fiji: Real Effective Exchange Rate, 2006-11 (end of period)

REER appreciates to a new normal, suggesting that on balance there was a competitiveness loss..

EXTERNAL SUSTAINABILITY

Jan-

06

May

-06

Sep-

06

Jan-

07

May

-07

Sep-

07

Jan-

08

May

-08

Sep-

08

Jan-

09

May

-09

Sep-

09

Jan-

10

May

-10

Sep-

10

Jan-

11

May

-11

Sep-

111.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

Foreign reserves, 2006-11 (in months of imports of goods & services)

Rapid drawdown in foreign reserves…

Global financial crisis and the devaluation

• Very weak domestic demand• Tight monetary conditions• High prices

2009

EXTERNAL SUSTAINABILITY

2005 2006 2007 2008 2009 20100

10

20

30

40

50

60

70

80

28

23

70

51

Fiji: Nominal exports and imports, 2005-10 (in percent of GDP)

EXTERNAL SUSTAINABILITY

2006

Q1

2006

Q3

2007

Q1

2007

Q3

2008

Q1

2008

Q3

2009

Q1

2009

Q3

2010

Q1

2010

Q340

50

60

70

80

90

100

Fiji: Real import of goods, 2006-10 (in percent of GDP)

Import vol-ume tanked in 2009…

EXTERNAL SUSTAINABILITY

2005 2006 2007 2008 2009 2010

-20

-16

-12

-8

-4

0

-10

-19

-14

-18

-8

-11

Current account balance, 2005-10 (in percent of GDP)

Substantial improvement in CAB

DOMESTIC DEMAND

2006

Q1

2006

Q3

2007

Q1

2007

Q3

2008

Q1

2008

Q3

2009

Q1

2009

Q3

2010

Q1

2010

Q31200

1300

1400

1500

1600

1700

1800

Fiji: Real absorption, 2006-10 (in millions of fiji dollars)

Demand collapses in the first 3 quarters but recover in the last quarter…

DOMESTIC DEMAND

2006

Q1

2006

Q3

2007

Q1

2007

Q3

2008

Q1

2008

Q3

2009

Q1

2009

Q3

2010

Q1

2010

Q3

2011

Q1

2011

Q3200

220

240

260

280

300

320

340

Tourism Earnings_SA, 2006-11 (in millions of fiji dollars)

Tourism earnings rebound in Q2 2009..

INFLATION

-10

-5

0

5

10

15

20

Fiji: CPI inflation, 2006-11 (Annualized q-o-q change)

Food price shock

Oil price peaks at US$145 in July 2008

Oil crosses US$70 in Apr-06

Devaluation Apr-09

Oil pass US$80 in Sep-10 VAT raised

to 15% in Jan-11

MONETARY CONDITIONS

2006

M1

2006

M5

2006

M9

2007

M1

2007

M5

2007

M9

2008

M1

2008

M5

2008

M9

2009

M1

2009

M5

2009

M9

2010

M1

2010

M5

2010

M9

2011

M1

2011

M5

2011

M9-5

0

5

10

15

20

25

30

35

0.2

Fiji: Private sector credit, 2006-10 (y-o-y percent change)

Ceiling on pri-vate sector credit, Nov-06

Post devaluation: weak recovery

Tight monetary conditions…

EXTERNAL SUSTAINABILITY

Jan-

06

May

-06

Sep-

06

Jan-

07

May

-07

Sep-

07

Jan-

08

May

-08

Sep-

08

Jan-

09

May

-09

Sep-

09

Jan-

10

May

-10

Sep-

10

Jan-

11

May

-11

Sep-

111.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

Foreign reserves, 2006-11 (in months of imports of goods & services)

SDR allocation in Aug&Sep of SDR60 million

Devaluation in Apr-09

Resurgence in oil & food prices + domestic structural changes (Electricity tariff and VAT)

• Stagnant potential output level• Weak demand• High prices

2010 - CURRENT

DOMESTIC PRODUCTION

6.7

6.8

6.8

6.9

6.9

7.0

7.0

7.1

Fiji: Potential Real GDP, 1994-2011

log_Potential RGDP

Potential output stagnant after 2005…

DOMESTIC DEMAND

2006

Q1

2006

Q3

2007

Q1

2007

Q3

2008

Q1

2008

Q3

2009

Q1

2009

Q3

2010

Q1

2010

Q340

50

60

70

80

90

100

Fiji: Real import of goods, 2006-10 (in percent of GDP)

Despite some re-covery in 2010, im-port de-mand re-main weak…

DOMESTIC DEMAND

2006

M1

2006

M5

2006

M9

2007

M1

2007

M5

2007

M9

2008

M1

2008

M5

2008

M9

2009

M1

2009

M5

2009

M9

2010

M1

2010

M5

2010

M9

2011

M1

2011

M5

2011

M9-5

0

5

10

15

20

25

30

35

Fiji: Private sector credit, 2006-10 (y-o-y percent change)

Post devaluation: weak recovery

INFLATION

-10

-5

0

5

10

15

20

Fiji: CPI inflation, 2006-11 (Annualized q-o-q change)

Food price shock

Oil price peaks at US$145 in July 2008

Oil crosses US$70 in Apr-06

Devaluation Apr-09

Oil pass US$80 in Sep-10 VAT raised

to 15% in Jan-11

EXTERNAL SUSTAINABILITY

2005 2006 2007 2008 2009 2010

-20

-16

-12

-8

-4

0

-10

-19

-14

-18

-8

-11

Current account balance, 2005-10 (in percent of GDP)

CA sustainability still a worry..

EXTERNAL SUSTAINABILITY

Jan-

06

May

-06

Sep-

06

Jan-

07

May

-07

Sep-

07

Jan-

08

May

-08

Sep-

08

Jan-

09

May

-09

Sep-

09

Jan-

10

May

-10

Sep-

10

Jan-

11

May

-11

Sep-

111.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

Foreign reserves, 2006-11 (in months of imports of goods & services)

Foreign reserves moves around 4months cover..

END

THANK YOU

DOMESTIC DEMAND

2006

Q1

2006

Q3

2007

Q1

2007

Q3

2008

Q1

2008

Q3

2009

Q1

2009

Q3

2010

Q1

2010

Q3400

600

800

1000

1200

Fiji: Real import of goods, 2006-10 (in mil-lions of fiji dollars)

DOMESTIC DEMAND

1 2 3 4 5 6 7 8 9 101112131415161718192021222324-5

-4

-3

-2

-1

0

1

2

3

43.3

-0.6

Fiji: Output Gap, 2006-11 (in percent of GDP)

HPGAP_N...

DEVALUATION

Jan-

06

May

-06

Sep-

06

Jan-

07

May

-07

Sep-

07

Jan-

08

May

-08

Sep-

08

Jan-

09

May

-09

Sep-

09

Jan-

10

May

-10

Sep-

10

Jan-

11

May

-11

Sep-

11 0.4000

0.5000

0.6000

0.7000

0.8000

0.9000

1.0000

1.1000 Fiji: Exchange rates, 2006-11 (end of

period)

NZD per one FJD

DEVALUATION

Jan-

06

May

-06

Sep-

06

Jan-

07

May

-07

Sep-

07

Jan-

08

May

-08

Sep-

08

Jan-

09

May

-09

Sep-

09

Jan-

10

May

-10

Sep-

10

Jan-

11

May

-11

Sep-

11 80

90

100

110

120

Fiji: Real Effective Exchange Rate, 2006-11 (end of period)

Immediate depreciation in the REER, representing a competitiveness boost..

DOMESTIC DEMAND

1 2 3 4 5 6 7 8 9 101112131415161718192021222324-5

-4

-3

-2

-1

0

1

2

3

4

Fiji: Output Gap, 2006-11 (in percent of GDP)

HPGAP...

Swift adjustment in the output gap after Q2 2009..

INFLATION

2006

Q1

2006

Q3

2007

Q1

2007

Q3

2008

Q1

2008

Q3

2009

Q1

2009

Q3

2010

Q1

2010

Q3

2011

Q1

2011

Q30.0

2.0

4.0

6.0

8.0

10.0

12.0

9.4

10.3

Fiji: CPI inflation, 2006-11 (y-o-y percent change)

Oil pass US$80 in Sep-10

VAT raised to 15% in Jan-11

Inflation peaks in Q1 before slowing until Sep, where pressures on inflation resumes…

DOMESTIC DEMAND

1 2 3 4 5 6 7 8 9 101112131415161718192021222324-5

-4

-3

-2

-1

0

1

2

3

4

Fiji: Output Gap, 2006-11 (in percent of GDP)

HPGAP_... Output gap around negative territory in 2010 and expected to have moved into positive territory from Q2 2011..