Fiscal and monetary policies should focus on addressing macroeconomic imbalances.
This is the view of the International Monetary Fund’s (IMF) executive board in its endorsement of its staff team’s appraisal on the conclusion of the Article IV consultation with Fiji last week.
The IMF staff team in its assessment stated monetary and financial conditions in Fiji remained accommodative, while the fiscal stance had tightened.
It said the Reserve Bank of Fiji (RBF) had maintained the policy rate at 0.25 per cent since early 2020; and the fiscal stance tightened in the 2024 financial year, with the overall deficit declining from 7.2 per cent of GDP in the 2023 financial year to 3.5 per cent of GDP in the 2024 financial year, compared to a budgeted deficit of 4.8 per cent of GDP.
“Fiscal policy should focus on lowering public debt while continuing with growth-friendly fiscal consolidation, oriented toward capital spending,” the IMF executive board said in a statement released last Friday.
“Significant progress has been achieved in recent years, but additional adjustment measures are needed to put public debt on a clear downward path.
“Targeted and temporary social protection measures should be used to protect the vulnerable.
“Fiscal tightening would also contribute to reducing excess liquidity.”
The executive directors said over the medium term, given potential pressures on the exchange rate peg, monetary conditions should be gradually tightened, raising the policy rate and reducing excess liquidity.
Financial policy, they concluded should be attentive to emerging credit risks and to safeguard against money laundering risks.
“The authorities should avoid using exchange rate restrictions and CFMs (capital flow management measures) in place of macroeconomic adjustment and focus on a gradual, sequenced capital account liberalisation to support high long-run growth objectives.”
