There has been a significant flow of misinformation on Fiji’s bank liquidity situation, and the record needs to be corrected.
The bottom line is that Fiji’s liquidity position is more than able to support the continued growth of the Fijian economy.
Honourable Lynda Tabuya recently made some flagrantly false public statements on the issue, falsely claiming that liquidity rates in Fiji are low. This may be particularly confusing, as in recent years members of her own party have taken the opposite stance; the former shadow Minister of Economy actually complained when bank liquidity was too high.
We need to cut to the truth, instead of spreading misinformation for political gain at the cost of damaging confidence in our economy. Showboating is to be expected in politics, but intentionally spooking the markets, including banks, investors, our development partners and ordinary Fijians, for your own political gain. Casually throwing around words like “crisis” when none exists –– and in fact, the opposite is true –– is hugely irresponsible, and a disservice to all Fijians.
First, let us be absolutely clear: There is no impending threat to the Fijian economy. Anyone making that suggestion has an elementary understanding of how bank liquidity works in relation to the economy.
“Bank liquidity” refers to the surplus funds that commercial banks hold at the end of each day and that is deposited with the Reserve Bank. Liquidity is basically the sum total of all the funds that it holds in its bank accounts.
As at 5 March 2019, the level of bank liquidity in Fiji was $317.2 million.
Let’s put that number into perspective: The level of bank liquidity during the entire tenure of the SVT Government, led by then-Prime Minister Sitiveni Rabuka (now the Honourable leader of the Opposition) averaged just $25.1 million. That’s less than 8% of current totals. Levels even dipped as dangerously low as $0.5 million in February 1995. That means bank liquidity in Fiji today is more than 1,100% higher than the average under the SVT Government.
Another important measure of our financial position is the interest rate, or the cost that is charged to a borrower (such as a business looking to expand) for their loan.
The recent 0.5% rise in the interest rate in Fiji is a reflection of our growing economy. Hon Tabuya’s suggestions that a small increase in interest rates is a sign of economic weakness is, again, wholly ignorant to market realities.
For example, in the United States, interest rates were gradually raised four separate times in 2018 alone as the nation’s economy grew and unemployment decreased. This is an intentional move by prudent economists to prevent inflation, thus slowing cost-of-living increases.
Interest rates must be carefully determined to strike a balance that encourages growth while dampening inflationary pressures –– a balance that has been successfully struck over the course of the past decade, thanks to responsible economic management by Government.
By contrast, interest rates under previous Fijian governments were much higher (making borrowing much more expensive).
It’s the job of RBF to manage Fiji’s liquidity –– a job they’ve done incredibly well in recent years. Given our high levels of foreign reserves and low core inflation, RBF currently adopts a monetary policy stance that supports the growth of the Fijian economy. They accomplish that through their monetary policy stance, but there are many other factors as well that can impact liquidity in the country. Thanks to steady management and a strong Fijian economy, our current levels of liquidity are adequate and ample to support economic activity in Fiji.
Liquidity levels can fluctuate for a number of reasons. In Fiji’s case, our liquidity has been affected by the strong growth of the Fijian economy, reconstruction from Cyclone Winston, and higher disposable income. These factors can increase import levels, which can decrease liquidity in the economy. Basically, Fiji’s economy is growing and the Fijian people are earning and spending more money. That is a good thing, and it does have an impact on overall liquidity.
In light of these facts, Hon Tabuya should retract her statement and issue an apology to the Fijian people for her feeble attempt at sparking economic uncertainty and trying to undermine the unprecedented nine years of growth of the Fijian economy. Nobody’s 15 seconds of television fame should come at the expense of our fellow Fijians.
SOurce: Attorney General of Fiji [Facebook Page]