Professional Documents
Culture Documents
16 March 2011
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PRIVATE AND CONFIDENTIAL
Deputy Secretary, Finance & Administration, Manager Debt & Cashflow Management Unit,
Ministry of Finance Ministry of Finance
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PRIVATE AND CONFIDENTIAL
Agenda
Country Overview
Economic Review
Conclusion
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PRIVATE AND CONFIDENTIAL
Key
Key Economic
Economic Indicators
Indicators
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Converted to USD using an exchange rate of USD1.00 to FJD1.66, FJD1.55, FJD1.76, FJD1.98 and FJD1.55 for 2006 to 2010 respectively
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As at June 2010
3
Source: National Planning Office
4
4
Source: Fiji Bureau Statistics & Macroeconomic Committee
5
Source: Reserve Bank of Fiji
6
Source: National Budget, Fiji Economic & Fiscal Update: Supplement to the Budget Address
PRIVATE AND CONFIDENTIAL
4.0
1.9
2.0 1.3 1.2
0.8
0.2 0.1
0.0
(1.3) (0.9)
(2.0)
Revised / Provisional
(3.0) Forecast
(4.0)
2005 2006 2007 2008 2009 2010F 2011F 2012F 2013F
Key Highlights
Removing inefficiency from recurring government expenditure and re-weighting spending toward key capital projects that will have a lasting social
and economic impact on the country
Broadening the tax base while removing industry subsidies and concessions that have created economic distortion
An open policy toward foreign investment combined with a pragmatic approach to providing incentives to attracting investment into key strategic
industries
A significant review of land usage with a view to creating an available stock of land for commercial use within key industry sectors as well as creating
substantial scale efficiencies within the agriculture and forestry sectors
An independent Reserve Bank that has met its objectives of rebuilding and maintaining foreign currency reserves as well as reducing domestic
inflationary pressure and maintaining financial stability throughout the financial crisis (as noted in a recent IMF report)
Improving trend in the balance of payments coming from increased foreign exchange income from tourism and export industries as well as increased
foreign investment
Strong rebound in tourism supported by a significant expansion in Fiji’s geographic tourist catchments, particularly from Asia, diversifying from a
traditional reliance on Australia and New Zealand
Significant increase in exploration activity by major international mining companies with substantial projects currently at a post-feasibility or final
approval stage in gold, copper and bauxite with untapped opportunities in natural gas, oil and mineral sands2
20 to 30 year revenue generating opportunities that have been untapped within the forestry sector3
1
Source: Fiji Bureau of Statistics, Macroeconomic Committee
2
Source: Mineral Resources Department, National Planning Office 5
3
Source: Department of Forestry, National Planning Office
PRIVATE AND CONFIDENTIAL
Composition
Composition of
of GDP
GDP 2010
2010 (f)
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(f)2 Estimated
Estimated Growth
Growth by
by GDP
GDP Sector
Sector (2010f-2013f)
3
(2010f-2013f)3
Sector 2010-2013 p.a.
Hotel & Restaurants
Financial, Real Agri, Forestry, Fishing & Mining 6.3%
5%
Wholesale & Retail Estate & Business
12% 18% Services Hotels & Accommodation 2.8%
Manufacturing 2.6%
Revised / Provisional
0.5
Forecast
-2.1
-3.4 -2.9 -3.5 -3 -2.5
-3.5
-6.6
Widening of the Fijian tax base with increases to VAT and the introduction of a capital gains tax, while industry subsidies and
concessions have been removed to reduce economic distortions in the economy
Significant enhancements in the efficiency of government spending via an active reduction in the size of the civil service with a
lowering of the retirement age to 55 from 60 as well as an increasing focus on the privatisation of state assets that will benefit from
the introduction of private sector expertise
The government is committed to achieving a balanced budget by 20151
A major refocusing of government expenditure toward the development of key social and economic infrastructure which will have a
lasting impact on future generations (representing 28% of total spending in the 2011 Budget), many of these projects will receive
bilateral support from foreign government and multilateral agencies including ADB and China EXIM
Nadarivatu Dam USD 120mn Aug 2011 Will provide 80% of Viti Levu’s energy requirements
Queens Road Highway USD 40mn Dec 2012 Key transportation route for tourists and export goods
Rural Roads USD 95mn Dec 2015 Key transportation route for tourists and export goods
Fiji Sugar Restructure USD 55mn Dec 2012 Key export sector which will impact 100,000 households
E-Government USD 20mn Dec 2011 Enhanced revenue collection and reduced government expenditure
Low Cost Housing USD 35mn Dec 2015 Up to 15,000 new homes positioned in strategic urban growth areas
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Source: Ministry of Finance
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PRIVATE AND CONFIDENTIAL
Agenda
Country Overview
Economic Review
Debt Management
Monetary in Fiji
Policy Overview
Conclusion
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Government Fiscal Debt Policy
o Government’s medium term debt policy is based on five (5) key objectives:
1. reduce net deficit.
2. increase operating savings.
3. ensure that the net deficit is wholly devoted to capital expenditures.
4. control contingencies and the rate of defaults.
5. implement appropriate debt and risk management strategies.
o Macroeconomic policy indicator
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Major Sources of Government Borrowing
DOMESTIC
1. Bulk of Borrowing is sourced Domestically – this is through issuance of Bonds and Treasury Bills
2. Active Primary Market – commercial banks, NBFIs and Superannuation Industry actively
participate in Government Auction program (Fortnightly basis)
3. Secondary Market Trading is also encouraged but most bondholders hold stock till maturity
4. Primary Market is currently dominated by our sole Superannuation Industry
EXTERNAL
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PRIVATE AND CONFIDENTIAL
Fiji has an unblemished debt repayment history since its Domestic External Forecast
creation as an independent Sovereign nation in October 1970 3,448 3,594
3,132
2,863 2,735 2,887 845
The government’s estimated outstanding debt for 2010 is FJD 2,423 613
476 528
417 397
164
3,448mn, equivalent to 58.9% of GDP
2,446 2,338 2,411 2,605 2,835 2,749
Relatively low proportion of external debt with in excess of 80% 2,258
1
Source: Ministry of Finance, Reserve Bank of Fiji, Macroeconomic Committee, 2011 National Budget Estimates
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Composition of Debt Portfolio
Domestic: Bonds $2.75 billion, T-Bills - $95 million. The Bond maturities range
from 3 years to 30 years.
External: sourced from Multilateral & Bilateral Agencies and through the
International Financial markets. ADB held bulk of External Loans.
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Special Issuance - Fiji Global Bond
13 September 2006 – For the first time, in September 2006 the Fiji Government
successfully raise US$150m in the International Market. Tenor 5 years, Coupon 6.875%
15 March 2011 – In ensuring successful rollover of the1st Global Bond, the Fiji
Government successfully raise US$250m in the global markets a week ago. Tenor 5
years, coupon was 9.00%. The 2nd Global bond issuance will support the funding of the
budget deficit, capital projects and assist in the repayment of the global bond maturing
in September 2011.
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TOTAL DEBT STOCK
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MAJOR CHALLENGES
On-Lending & Contingent Liabilities
Policy
Government can only on-lend and provide guarantees to Entities in which it has major
shareholders(51% shares )
On-Lending:
Total on-lending by Government amounts to US$45 million as at December 2010. Bulk of on-
lending relates to Government borrowing offshore and on-lend to State Owned Entities;
Contingent Liabilities
Total contingent liabilities outstanding Dec 2010 is $1.9b (US$940m), 33% of GDP. While the
rate of default has been minimal, Government is concerned that most of these entities are
operating at a loss for the last few years.
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MAJOR CHALLENGES
Risk Factors
Interest Rate Risk – borrowing costs is at high end of the yield curve. For 2010, average borrowing
costs was 9.10%
Rollover Risk – heavy reliance on a dominant player, the risks of rollover of maturing securities is
likely to occur if main player is absent from market for so long
Liquidity Risks – apart from Government, other corporate entities also raise funds in the domestic
market. The Reserve Bank normally ensures all stakeholders interest are accomodated in the local
capital market.
Operational Risks – inadequate internal process, systems & external factors.
Exchange rate risks – movement in exchange rates, especially in US Dollar, Japanese Yen and Euro.
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PRIVATE AND CONFIDENTIAL
Heavy Reliance on
Reform of Public Enterprises to Superannuation Industry
bring about efficiency to reduce
burden on Budget
Availability of Economic &
Financial Data for comprehensive
Rising contingent liabilities and analysis
defaults
Coordination between
Fiscal & Monetary Policy
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PRIVATE AND CONFIDENTIAL
Thank you
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