On June 19th, the Standard and Poor’s Global Ratings has revised its outlook on Fiji to negative from stable.
The downward revision is based on the belief that Fiji is among the world’s most heavily exposed to a shock to tourism.
An abrupt freeze in international travel in response to the COVID-19 pandemic has hit Fiji’s tourism-dependent economy hard as a result the expectation is that tax revenues will collapse, resulting in larger fiscal deficits and a growing government debt burden.
The Standard and Poor’s Global Rating revised outlook for Fiji states that economic activity had already been slowing in 2019.
And with an abrupt freeze in international travel in response to the COVID-19 pandemic that has hit Fiji’s tourism-dependent economy hard, tax revenues are expected to collapse, resulting in larger fiscal deficits and a growing government debt burden.
Contingent liabilities related to sovereign guarantees of state-owned enterprises such as Fiji Airways have also grown.
The revised outlook also states that a prolonged period of weak or negative GDP growth could reduce economic support for the current ratings.
External financing needs are rising too, though Standard and Poor’s consider that the Fijian government has a sound strategy to manage the redemption of its sole US $200 million global bond in October 2020.
Fiji’s GDP is expected to contract by about 8 percent this year ending a 10-year run of expansion during which real GDP growth averaged more than 3 percent per year.
Standard and Poor’s estimates that GDP per capita this year will dip to about US$5,800 before recovering in future years.
Fiji’s economic base is somewhat narrow because the tourism sector is a key source of employment, foreign exchange, and tax
Beyond tourism, the revised outlook states that Fiji has a large subsistence agricultural sector, and its other industries include garment manufacturing, gold mining, fishing, and timber production.
Fiji’s fiscal deficit is forecast to widen to around nine percent of GDP in this fiscal year and this is expected to remain elevated in 2021.
On a positive note, the S and P base-case forecast assumes an economic recovery in 2021 as global lock-downs begin to ease.
The Standards and Poor’s rating is a credit score that describes the general creditworthiness of a company, city, or country that issues debt.