CREDIT rating service Standards and Poor’s Credit affirmed its long-term foreign and local currency sovereign ratings on Fiji at ‘B+’.
S&P said Fiji’s outlook remained stable and Fiji’s transfer and convertibility remained at B+.
“The rating affirmation on Fiji reflects our view of the country’s weak institutional settings, limited monetary policy flexibility, income levels, and weakening fiscal metrics that constrain the Government’s credit-standing,” the credit service rating said.
It said mitigating these weaknesses were the Government’s falling interest costs and its sound external position.
“We also expect Fiji’s credit quality to remain stable as the impact of Cyclone Winston on the economy is likely to be temporary.”
Damage by Severe TC Winston, it said were more concentrated to rural areas, while tourism arrivals continued to grow, resulting in less risk to the economy than they previously thought.
“Real economic growth will still slow to about 2.5 per cent in fiscal 2016, before rebounding to 4 per cent in 2017 and 3.8 per cent in 2018.
This will drive Fiji’s gross domestic product per capita toward $US5400 ($F9339) and improve the country’s economic outlook over the medium-term.
It said the Fijian economy had grown by an average of 4.8 per cent per year since 2013 and had improved income levels, with GDP per capita of about $US5000 ($F10,377) in 2015.
“This level may not fully capture the impact of Cyclone Winston.
“The Government’s fiscal position is likely to weaken, resulting in higher borrowings in the near-term. Immediately following Cyclone Winston, the Government faces higher current expenditure requirements and potentially lower growth in tax receipts.
“This scenario will weaken the Government’s fiscal position and has led to higher borrowings. We forecast deficits to average about 4 per cent of GDP over the next three years, resulting in the annual change in general government debt rising to more than 3 per cent of GDP between 2016 and 2018.”
It said this would increase net general government debt to 46 per cent of GDP in 2016 and 2017, from 42 per cent in 2015, before returning to its downward trend as deficits narrowed and growth accelerated.
In contrast, it added interest expenditure was falling and would average less than 10 per cent of government revenues.
This article first appeared in The Fiji Times on July 5, 2016.