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Some serious juggling act is going on in Fiji to save it from economic peril. Steeped in economic woes that is fast turning grey the hair of Savenaca Narube, governor of the Reserve Bank of Fiji (RBF), the beleagured country has a red alert situation at its hands—a foreign exchange reserves that is whittling away relatively faster than the country’s ability to earn foreign dollars and pay its import bills.
In recent times, the central bank’s action plan of juggling options to try and put the brakes on that has been like hopping on hot stones.
It recalled over F$300 million of foreign investment held by the country’s only pension fund in late 2005. That’s almost all of the fund’s offshore investments. The process of repatriating that money lasted until late 2006, bringing some relief to Fiji’s foreign reserves, particularly at a time of skyrocketing fuel prices.
Then to pull the resulting liquidity off the local financial system, the bank relaxed exchange controls causing capital outflows to reduce liquidity to the current level of some F$50 million.
This short-term option however, has run out of steam. By the end of its 2007 financial year (July 2006 to June 2007), the pension fund, Fiji’s biggest financial institution and holding most foreign assets compared to other local financial institutions, only had a little more than one percent of its roughly F$2 billion investment portfolio held in foreign investment. That translated to around F$20 million, not enough to plug the worsening trade gap.
But it’s a picture bad enough to give Governor Narube and his staff many a sleepless nights.
Pressed by a group of local journalists at a recent public conference on whether he was worried, Narube responded: “Of course we are worried about the economy. We are worried about the underperforming export sector, the global financial crisis and its impact on us.”
So worried was he that hypothetical questions like what the worst case scenario could be were not entertained.
“At the moment, let’s not talk about worst case scenarios. Let’s do what we have to do, which is undertake reforms, get our tourism going, reform our sugar sector and all those things we need to accelerate.”
Managing the present day scenario, it seemed, was worrying enough. In its February economic review, RBF revealed a trade deficit that stood at F$1.9 billion for the year to November 2008. That’s 27 percent of the country’s F$6.9 billion GDP or total economic output, indeed a worrying trend, although the central bank has had to recently publicly clarify that other accounts (services, income, capital and current transfers) were in surplus. Still, it’s a macro-economic reality that has been of concern to the monetary authority because it means F$1.9 billion in import bills against an export situation in which Fiji’s main export earners—sugar, tourism and remittances—all under duress.
Worse still, within Fiji, there is little or no sign of things moving in the export sector in terms of identifying potential export products and services and developing them.
A perceived lack of consensus in the political arena to move the country forward has seen economic issues being put on the back burner as stakeholders try to wade through the high tide of political differences, with a prevalent dissatisfaction lingering over the country’s self-appointed military regime.
For its part, the regime has not buried its head in the sand. Its 2009 budget is awashed with tax concessions geared towards stimulating the export sector as well as other measures that try to attract foreign investments into Fiji.
As well, it modified the ousted Laisenia Qarase government’s National Export Strategy which identified some potential export industries for further development—and it is also encouraging an import substitution programme.
In a press conference last month, interim Prime Minister Voreqe Bainimarama said the present government is interested in developing the agricultural sector, an area in which previous governments have not been quite successful despite the many plans put in place to stimulate it. But these are still long-term measures, hoped to come online just in time when the country has exhausted its short-term options to cover its worsening external situation.
For now, another hot stone of short-term measure to jump on is the expected offshore borrowing programme that the government and its public enterprises have drawn up. Details of that have not been publicly revealed, only alluded to by Bainimarama and Narube on different occasions and slowly emerging in the form of a number of announcements by some government-owned entities.
“My government over the next few weeks and months will put more austerity measures into place in particular in government’s operating expenditure,” said Bainimarama in last month’s speech. “We shall accelerate capital investment and rehabilitation programmes in roads, water, sewerage and port development. We shall be exploring more offshore funding for these capital and rehabilitation works while partnering with the private sector.”
That statement coincided with announcements by Fiji’s Housing Authority, Public Rental Board and the Fiji Electricity Authority—three government statutory authorities (fully government owned but operating independently)—of separate loans from the Development Bank of China.
The government itself is also expected to source some of its fund for capital works offshore.
Well executed, the borrowing programme is vital not just in helping Fiji’s foreign reserves situation, it is also expected to assist the investment starved country and create jobs at a time when economies everywhere are suffering and governments drawing up their own rescue programmes.
Still, for a country like Fiji with weak economic fundamentals, this can be a “make or break move” similar to a gambler betting his last dime and taking a deep breath to throw the dice.
“Yes, it is us buying time, the time that we will need to do something,” Narube told ISLANDS BUSINESS.
“While we have this short-term solution, we will need to work on our long-term solutions. We must do what we need to do economically to boost our exports.
“We need to look at and develop our export potential, boost our tourism...we need to do all that now. Because if we don’t, then our short-term solution will just create more problems for us.”
In other words, if Fiji does not do enough now to strengthen its foreign earning abilities, paying off those offshore loans can potentially drive the country further into economic difficulties.
—By Dionisia Tabureguci
IPIC funds govt stake in PNG LNG
PNG LNG gas project got an added boost last month after Abu Dhabi-based International Petroleum Investment Corporation deposited A$1.68 billion in a quarantined bank account in Singapore to fund the Papua New Guinea Government’s 19.4% stake in the LNG project.
Funds from the account will be made available when required as the ExxonMobil-led project proceeds from the current front-end engineering and design stage to project construction.
PNG Public Enterprise Minister Arthur Somare said partners in the project had said the funding arrangement provided added certainty for the project, which already benefits from having ExxonMobil in its corner.
“Undoubtedly, this financing will generate a positive impact on Papua New Guinea’s vision to commercialise its gas resources,” Somare said.
IPIC is providing the funds to PNG’s state-owned Independent Public Business Corporation for bonds that are exchangeable for a total of 196,604,177 shares, or 17.756%, in Oil Search. The bonds bear interest at five percent per annum and will mature on the fifth anniversary of the issue, though IPBC has the option to redeem all outstanding bonds early. Somare added that Oil Search managing director Peter Botten had said IPIC’s relationship with Oil Search would benefit both parties over time.
IPBC managing director Glenn Blake said that his organisation’s relationship with IPIC would blossom in the years ahead especially in view of the sizeable hydrocarbon resources that remained to be developed.
“Some of the nation’s natural gas resources can be linked to infrastructure that will be put in place for the PNG LNG Project,” Blake said. “However, significant resources are located in ‘stranded’ fields that would be suitable for other possible uses, from power generation to production of petroleum liquids and petrochemicals.
“Such developments would involve sizeable investments and be of interest to IPIC.”
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