The outline of my presentation is as follows:
Global Economic Conditions
Impact of the Financial Crisis on Fiji’s Economy
Regular updates and assurances by the Reserve Bank of Fiji to this effect play a key role in maintaining confidence in Fiji’s financial system. Moreover, unlike the foreign banking system, the domestic financial system is financed from local depositors and credit is extended to domestic entities – in this respect, Fiji is immune from the global financial crisis.
The insurance industry is relatively sheltered from the effects of the financial crisis.
Crude Oil Prices: In the first 10 months of the year, oil prices have averaged US$108 per barrel. Since its peak of US$146 in July, oil prices have since declined, currently around $US58 per barrel. Strong demand from emerging economies like China, combined with supply disruptions, geo-political concerns, the weak US dollar and speculative demand amidst the US financial crisis have underpinned the movements in oil prices. Prices are anticipated to remain high in the months ahead.
Remittances may also be affected, given that the labour market conditions in the advanced economies will be affected. Nevertheless, it is important to note the remittance already started declining in before the financial crisis started in 2007. Therefore, this financial crisis could exacerbate the decline in remittances flows.
In addition, our external competitiveness could be affected by competition from Asian economies, as they normally keep an undervalued exchange rate to boost their exports and services (e.g. tourism) sectors.
Exchange Rates: Compared to the beginning of the year, the Fiji dollar strengthened against the Australian and NZ dollars by around 12 and 13 percent, respectively. However, the Fiji dollar fell against the US dollar and Euro by 13 and 2 percent, respectively.
In contrast, it is likely that pressures on foreign reserves (the underlying position of the Balance of Payments (BoP)) may increase as a result of anticipated weaker tourism earnings & remittances, lower FDI and export earnings from selected commodities.
Consequently, the Reserve Bank of Fiji will maintain tight money and credit policies.