1. PRESENTATION TO THE FIJI AUSTRALIA BUSINESS COUNCIL THE FIJI ECONOMY: FACING THE GLOBAL CRISIS Mr Savenaca Narube Governor, Reserve Bank of Fiji 2 December 2008 Reserve Bank of Fiji

2. OUTLINE GLOBAL CRISIS EXPOSURE TO TRADE IN GOODS & SERVICES GROWTH OUTLOOK KEY CHALLENGES AND POLICY RESPONSES SUMMARY Reserve Bank of Fiji

3. SNAPSHOT OF THE FIJI ECONOMY Economy declined heavily in 2007 Recovery to begin this year but low growth The trade deficit is widening and exerting pressure on foreign reserves Inflation has risen to a 20-year high but to decline to a moderate level in 2009 Investment has fallen Unemployment is rising Poverty is worsening NOW COMES THE GLOBAL FINANCIAL CRISIS ….. Reserve Bank of Fiji

4. % WORLD GDP GROWTH Source: IMF World Economic Outlook – Nov 08 Reserve Bank of Fiji

5. % TRADING PARTNERS’ OUTLOOK Source: World Economic Outlook – Oct 08 & Nov 08 0.1 1.6 3.2 3.1 2.0 2.1 0.7 0.5 1.3 0.2 Reserve Bank of Fiji

6. EXCHANGE RATES OF SELECTED CURRENCIES AGAINST FJD NZD/AUD/EUR/USD NZD 11% AUD 16% 20072008 USD -14% EURO -4% Reserve Bank of Fiji YEN -26% YEN

7. NEER 103..05 REER 106.23 Index 2006200720052004200320022001200019991998199719962008 Reserve Bank of Fiji REER/NEER (Monthly Average)

8. EXPOSURE TO TRADE IN GOODS & SERVICES Reserve Bank of Fiji

9. Source: FIBOS *Refers to 2007 FIJI’S COMMODITY EXPORT* DESTINATIONS

10. $M MAJOR EXPORTS* TO US Reserve Bank of Fiji Source: FIBOS *Represents 84% of total commodity exports to the US in 2007 Demand Will Slow Down

11. $M Reserve Bank of Fiji Source: FIBOS MAJOR EXPORTS* TO EUROPE *Represents 83% of total commodity exports to the UK, Germany, France & Italy in 2007 Sugar Exports Unaffected

12. $M MAJOR EXPORTS* TO JAPAN Reserve Bank of Fiji Source: FIBOS *Represents 88% of total commodity exports to Japan in 2007 Demand Will Slow Down

13. $M MAJOR EXPORTS* TO AUS Reserve Bank of Fiji Source: FIBOS *Represents 73% of total commodity exports to Australia in 2007 Garments May Be Affected

14. $M MAJOR EXPORTS* TO NZ Reserve Bank of Fiji Source: FIBOS *Represents 48% of total commodity exports to New Zealand in 2007 Demand Will Slow Down

15. IMPACT ON EXPORTS Slowdown in exports which are demand driven –Tourism –Water –Garments Supply driven exports – structural constraints binding Slowdown in growth of total exports Reserve Bank of Fiji

16. VISITOR ARRIVALS* BY COUNTRY Source: FIBOS *Refers to 2007

17. ‘000s VISITOR ARRIVALS 398 431 503 550545539 580 Reserve Bank of Fiji Source: FIBOS & Macroeconomic Committee 600 11% 8% 3% Growth Under Threat

18. ‘000s Reserve Bank of Fiji VISITOR ARRIVALS - USA Source: FIBOS 74 6665 585958 65 53 62 Already Declining

19. ‘000s Reserve Bank of Fiji VISITOR ARRIVALS - EUROPE Source: FIBOS 91 81 7172 65 51 71 52 69 Already Declining

20. ‘000s Reserve Bank of Fiji VISITOR ARRIVALS - JAPAN Source: FIBOS 30 24 23 26 20 23 20 38 Already Declining

21. ‘000s Reserve Bank of Fiji VISITOR ARRIVALS - NZ Source: FIBOS 96 108 104 75 68 66 100 49 72 Already Flat

22. ‘000s Reserve Bank of Fiji VISITOR ARRIVALS - AUSTRALIA Source: FIBOS 181 198 176 142 124 98 207 77 118 Key Source of Growth

23. Reserve Bank of Fiji REMITTANCES* BY CURRENCY Source: RBF *Cumulative for the period Sep-07 to Jun-08, excluding remittances received in FJD

24. $M PERSONAL REMITTANCES Reserve Bank of Fiji -10% -22% Source: RBF & Macroeconomic Committee Already Declining

25. IMPACT ON SERVICES Reduce tourist arrivals –Japan, Europe and US was already declining –NZ tourists were also flat – Australia was the growth industry – Exchange rate will further dampen demand Remittances will decline further Reserve Bank of Fiji

26. FIJI’S ORIGIN OF IMPORTS Source: FIBOS *Refers to 2007 Total Imports = $2,890m

27. $M IMPORTS* FROM UNITED STATES Reserve Bank of Fiji Source: FIBOS *Represents 47% of total commodity imports from the US in 2007

28. $M IMPORTS* FROM JAPAN Reserve Bank of Fiji Source: FIBOS *Represents 21% of total commodity imports from Japan in 2007 Cement & Car Prices Will Rise

29. $M IMPORTS* FROM AUSTRALIA Reserve Bank of Fiji Source: FIBOS *Represents 28% of total commodity imports from Australia in 2007 Food Prices Will Drop…

30. $M IMPORTS* FROM NEW ZEALAND Reserve Bank of Fiji Source: FIBOS *Represents 14% of total commodity imports from New Zealand in 2007 Food Prices Will Drop…

31. IMPACT ON IMPORTS Imports will rise –Price of cars and auto parts will rise – demand will drop –Oil price in Fiji dollar will rise – will partly offset the lower global price –Prices of food and manufactured items will drop – demand may be inelastic – Cement price will rise Reserve Bank of Fiji

32. F$M *C.I.F Accrual data excluding aircraft SourceSource: FIBOS and Macroeconomic Committee 5%1% 1% TRADE BALANCE Reserve Bank of Fiji 29% 25%

33. INVESTMENT % of GDP Private Government Statutory Bodies & Public Enterprises Source: FIBOS Reserve Bank of Fiji

34. GROWTH OUTLOOK Reserve Bank of Fiji

35. % GDP GROWTH: 2006-2011 Source: FIBOS & Macroeconomic Committee

36. MAJOR DRIVERS Tourism Agriculture –fishing, forestry Manufacturing, except garments Mining – gold Water Reserve Bank of Fiji MAJOR DRAG Community & social services – Government expenditure (2010 & 2011)

37. Reserve Bank of Fiji GROWTH IN SELECTED PACIFIC ISLAND ECONOMIES % Average Growth 2001-2007 Source: IMF World Economic Outlook (Oct & Nov 2008) & FIBOS Growth Is Too Low

38. Reserve Bank of Fiji % Average Growth 2001-2007 Source: IMF World Economic Outlook (Oct & Nov 2008) & FIBOS GROWTH IN SELECTED SMALL ISLAND DEVELOPING STATES Growth Is Too Low

39. KEY CHALLENGES AND POLICY MIX Reserve Bank of Fiji

40. KEY CHALLENGES Safeguarding Fiji’s external position Raising exports Raising investment Raising and sustaining growth Reserve Bank of Fiji

41. BUDGETARY MEASURES PRO GROWTH –3% of GDP deficit –Support for priority sectors  Tourism  Agriculture  ICT Reserve Bank of Fiji

42. BUDGETARY MEASURES BALANCE OF PAYMENTS SUPPORT – Bio Fuel – Import Substitution – Fiji Diaspora – Increase in tariffs INVESTMENT –Infrastructure development –Incentives Reserve Bank of Fiji

43. MONETARY MEASURES BALANCE OF PAYMENTS –Credit Ceiling –Exchange Controls INVESTMENT –Interest rates –Special approvals Reserve Bank of Fiji

44. GOVERNMENT UNDERLYING BALANCE Reserve Bank of Fiji $M Source: Ministry of Finance % of GDP Expansionary Stance

45. GOVERNMENT REVENUE Reserve Bank of Fiji $M Source: Ministry of Finance % of GDP

46. $M GOVERNMENT OPERATING EXPENDITURE Reserve Bank of Fiji Source: Ministry of Finance % of GDP Too High as % of GDP

47. GOVERNMENT CAPITAL EXPENDITURE $M Reserve Bank of Fiji Source: Ministry of Finance % of GDP Good Increase…

48. GOVERNMENT DEBT Reserve Bank of Fiji % of GDP 48 47 46 Deficit is Sustainable

49. COMMERCIAL BANK’S LENDING RATE 8% % Reserve Bank of Fiji 200520062007 2008 Declining …

50. % 2006 Source: International Financial Statistics 2007 Reserve Bank of Fiji LENDING RATES: FIJI & SELECTED COUNTRIES 2008 Lowest In Region

51. COMMERCIAL BANKS’ INVESTMENT & CONSUMPTION LENDING % 200520062007 11% 2008 17% Reserve Bank of Fiji Rising Credit

52. INFLATION 200820072006 % Forecast Reserve Bank of Fiji Source: FIBOS and Reserve Bank of Fiji Will Moderate

53. $M Months of Imports Reserve Bank of Fiji OFFICIAL FOREIGN RESERVES Still Under Pressure

54. SUMMARY Weak Fundamentals Financial Crisis will Reduce Potential Four Key Challenges Policy Mix Growth is too Low Agenda to Lift Growth Rests on Exports Reserve Bank of Fiji

55. THANK YOU Reserve Bank of Fiji

56. HOW DO WE COMPARE WITH THE ASIAN CRISIS? Reserve Bank of Fiji

57. INDONESIAN RUPIAH AGAINST USD: 1996-98 Reserve Bank of Fiji Rupiah weakened by 130% in 1997 RUPIAH

58. INDONESIAN RUPIAH AGAINST USD: 2008 Reserve Bank of Fiji Rupiah weakened by 20% so far in 2008 RUPIAH

59. KOREAN WON AGAINST USD: 1996-98 Reserve Bank of Fiji Won weakened by 102% in 1997 WON

60. KOREAN WON AGAINST USD: 2008 Reserve Bank of Fiji WON Won weakened by 38% so far in 2008

61. THAI BAHT AGAINST USD: 1996-98 Reserve Bank of Fiji Baht weakened by 82% in 1997 BAHT

62. THAI BAHT AGAINST USD: 2008 Reserve Bank of Fiji BAHT Baht weakened by 18% so far in 2008

63. SINGAPORE DOLLAR AGAINST USD: 1996-98 Reserve Bank of Fiji Singapore Dollar weakened by 20% in 1997 SGD

64. SINGAPORE DOLLAR AGAINST USD: 2008 Reserve Bank of Fiji SGD Singapore Dollar weakened by 3% so far in 2008

65. MAJOR POLICY RESPONSE 20% DEVALUATION Why devaluation was necessary? –Currencies of our major trading partners fell against the US dollar so Fiji goods became expensive –Competitor Asian currencies also fell drastically against the US dollar so Fiji lost competitiveness/business Needed to compete on price –Very important to make what we sold cheaper Reserve Bank of Fiji

66. IMPACT ON INFLATION % Reserve Bank of Fiji Source: FIBOS Oct-98: 9.1% Inflation Rose

67. % Reserve Bank of Fiji IMPACT ON EXPORTS Accrual data excluding aircraft Source: FIBOS Exports Growth Rebounded

68. % Source: FIBOS & Macroeconomic Committee IMPACT ON GROWTH Reserve Bank of Fiji Economy Recovered Gradually

69. COMMERCIAL BANKS’ SPECIAL LOAN APPROVALS BY PURPOSE (As At 21/11/08) TOTAL APPROVALS - $356m Reserve Bank of Fiji

70. BALANCE OF TRADE - 2007 Source: FIBOS Reserve Bank of Fiji $M Trade Surplus Trade Deficit *UK, Germany, France, Italy

71. EXPORTS DRIVEN BY SUPPLY FACTORS Reserve Bank of Fiji

72. F$M SUGAR EXPORTS Reserve Bank of Fiji 237 165 23123 4 185 215 224 209 226225 25% -29% Source: FIBOS & Macroeconomic Committee 38%

73. TIMBER EXPORTS $M Reserve Bank of Fiji 10% Source: FIBOS & Macroeconomic Committee 18% 29%

74. $M FISH EXPORTS Reserve Bank of Fiji 5% Source: FIBOS & Macroeconomic Committee 15% 29%

75. $M GOLD EXPORTS Reserve Bank of Fiji 54% Source: FIBOS & Macroeconomic Committee 926% 300%

76. EXPORTS DRIVEN BY DEMAND FACTORS Reserve Bank of Fiji

77. TOURISM EARNINGS Reserve Bank of Fiji $M Source: FIBOS & Macroeconomic Committee 10% 5%

78. $M MINERAL WATER EXPORTS Reserve Bank of Fiji 10% Source: FIBOS & Macroeconomic Committee 16% 5%

79. $M TEXTILES, CLOTHING & FOOTWEAR* EXPORTS Reserve Bank of Fiji Source: FIBOS & Macroeconomic Committee *Includes Garments, Textiles and Footwear 4% 1%

80. COMMERCIAL BANKS’ PRIVATE SECTOR LENDING $M % 2006 2007 2008