Countries of the World/COUNTRYS.BIN/dp/0130/01303.txt

Text File | 1991-06-25 | 27KB | 435 lines

$Unique_ID{COW01303}
$Pretitle{294D}
$Title{Fiji
Chapter 2.    The Economy}
$Subtitle{}
$Author{Stephan B. Wickman}
$Affiliation{HQ, Department of the Army}
$Subject{percent
government
fiji
tons
production
sugar
gdp
period
hectares
land}
$Date{1984}
$Log{Table 2.*0130301.tab
Table 3.*0130302.tab
}
Country:     Fiji
Book:        Oceania, An Area Study: Fiji
Author:      Stephan B. Wickman
Affiliation: HQ, Department of the Army
Date:        1984

Chapter 2.    The Economy

     Although the gross domestic product (GDP-see Glossary), equivalent to
about US$1,134 per person in 1982, was high by comparison with some other
developing countries, the economy still depended heavily on sugar exports and
tourism-both of which were sensitive to fluctuations in the international
economy. About one-third of the Fijian work force, moreover, was still
employed in subsistence farming or fishing. Fijians produced little for sale
in the commercial sector, where the other ethnic groups generated most of the
wealth. The narrow basis for future economic growth, persistent unemployment,
and differences in the standard of living between urban and rural households
continued to disturb the government, which nonetheless has presided over a
relatively prosperous economy since the nation's independence.

     National income statistics for Fiji have not been completely reliable,
but the available data show that during the 1960-79 period, GDP grew by
between 5 and 6 percent per year in real terms. The yearly pace of economic
growth has varied, and it slowed considerably in the 1980s. Economic activity
and income actually shrank in 1980, 1982, and 1983 because of depressed
international sugar prices, increases in the cost of imported oil, and the
onslaught of a hurricane and prolonged drought.

     The structure of economic demand has changed slightly. From the 1958-60
period to the 1978-80 period, exports decreased in value from over 51 percent
to 45 percent of GDP. Government consumption expenditure rose from 16 to 17
percent of GDP, while private consumption declined from 65 to 62 percent
of GDP. Investment changed most strikingly from 16 to 24 percent of GDP.
Some  of the increase, however, went to the purchase of imports, raising
their value from 48 to 50 percent of GDP. The gap between exports and imports
widened further in 1981 and 1982, according to preliminary statistics,
averaging about 9 percent of GDP.

     The level of employment and unemployment, which was a major concern to
the nation's economic policymakers, was difficult to determine because of the
large subsistence sector. The labor force was probably growing by 2.5 to 3
percent per year during the 1976-81 period, but formal employment expanded
at best by 2.9 percent per year. The negative economic growth rates
experienced since that time suggest that the employment situation has
deteriorated significantly.

Economic Policy and Management

     The Fiji government has favored private enterprise and initiative since
colonial times but has directed the economy through consecutive five-year
plans, the eighth of which spanned the period from 1981 to 1985. The plans
have helped guide public investment over the long run, despite temporary
changes in fiscal policy during individual years. The seventh and eighth plans
concentrated on expanding investment in the rural sector, encouraging Fiji
citizens to enter business ventures either on their own or jointly with
foreign help, and improving the basic needs of the population through
investment in public service.

     Total government expenditure during the 1976-80 period averaged more
than one-quarter of GDP, rising slightly during the period. Current
expenditures were equivalent to 19 percent of GDP and increased more rapidly
than capital expenditures. In 1981 total expenditure rose to more than 29
percent of GDP, pushed upward by capital spending, which topped 9 percent of
GDP for the first time. The increased capital expenditures were devoted to a
major water supply project in the Nadi and Lautoka areas and a large
hydroelectric project. Budget estimates for 1982 and 1983, which were made
before a major hurricane hit the islands in 1983, projected that total
expenditures would remain at around 30 percent of GDP. Although capital
spending was expected to fall off sharply, pressures for salary increases
from the civil service and the cost of financing the national debt would
boost the overall level of spending.

     Expenditures on social services and welfare have made up the largest
category of public spending, representing more than 37 percent of the
total in the 1976-80 period as spending on economic services and
infrastructure rose. Interest payments on the outstanding government
deficit also increased, from an average of about 6 percent of total
expenditures during the 1976-80 period to nearly 10 percent of the total
in the 1981-83 period.

     The reasons for the increase in the government deficit from less than
4 percent of GDP in the 1976-80 period to nearly 6 percent in the 1981-83
period were the close link between government revenue and economic growth
and the political difficulty in cutting expenditures and raising taxes.
Domestic taxes were equivalent to 12 percent of GDP in the 1976-80 period,
and taxes on international trade added another 6 percent. The total tax
burden rose to about 20 percent of GDP in 1981. In 1982 and 1983, however,
total tax revenue was estimated to have declined from 18 percent of GDP,
particularly because of decreased revenues from excise and custom duties.
Part of the shortfall was caused by reductions in export taxes for sugar and
coconut products, which faced poor international prices until 1983.

     Managing the money supply within the context of the  balance of payments
and inflation has been a major activity of the Ministry of Finance and the
Central Monetary Authority, the nation's central bank. Much of the economy's
inflation has been imported, particularly since the surge of international oil
prices began in 1973. The overall average increase in the consumer price level
was about 10 percent per year during the 1972-82 period, but the worst years
were those immediately after major adjustments to the price of imported oil.
After peaking at about 14.5 percent in 1980, however, inflation fell to around
6 to 8 percent in the 1981-83 period. The central bank has generally followed
a countercyclical monetary policy that encouraged domestic credit to expand
when export earnings were low and restricted growth when the balance of
payments was favorable. One noteworthy trend since the late 1970s has been the
tendency of the government and official agencies, such as the public
utilities, to grab a larger share of the available domestic credit; their
claims rose from 15 to 26 percent of domestic credit during the 1976-82
period. To prevent any additional crowding out of the private sector, the
government raised as many of its financing needs as possible overseas.

     The central bank strictly regulated the local banking industry by
maintaining maximum deposit and lending rates in all categories of finance in
addition to reserve and central bank discount requirements. Beginning in late
1981, however, the banking authorities raised interest rates significantly. In
1983 and 1984 the Ministry of Finance introduced new banking legislation
drafted with the advice of the International Monetary Fund (IMF-see Glossary)
to reform the system. Among the many changes that were designed to make the
financial market more efficient were the creation of merchant banks and the
elimination of interest rate controls on large deposits and loans. In 1980
Fiji had five commercial banks-four foreign and one government-owned-one
government development bank, and  numerous credit unions.

     Foreign trade has been critical to the well-being of the insular economy
(see table 2). Merchandise exports, excluding reexports, have fluctuated
between 15 and 25 percent of the value of GDP; earnings from s