Fiji’s Second International

Bond Issue

Presentation by
T. K. Jayaraman
SOE/FBE
Factors for successful issue:
US$ 250 million
• S & P’s Grading: “Positive” : for International
Reserves Level
• International Reserves: March: F$1.3 billion
• Equivalent to 4 months of imports of goods
& services
Favourable Factors (contd)

• Good performance by non-sugar export

sectors

• Good performance by Tourism: record

arrivals

• Steady Inward Remittances

• Confirmation of creditworthiness of Fiji

Favourable Aspects

• Bond issue: addition to reserves by US$ 250

million
• Addition to real resources of the country
• Reserves stand now at F$ 1.8 billion
• Enables repayment of first bond: US$150
million plus interest
• Low level of external debt (14% of GDP)
• Low Debt-service obligations (1.2% of XGS)
Not so favourable factors: for
rise in Reserves
• Reduction in imports: indicating fall in
investment demand
• Fall in traditional exports: sugar
• Are inward Remittances always reliable?
• Tourism arrivals : more due to heavy
discounting
• Reserves upvalued by 20% from 2009 level
External Debt (Table A)

External Debt: 2006-2009

2006 2007 2008 2009 2010

External Debt (US$ Mill) 354 347 379 431 NA
Ext Debt (% of GDP) 11.9 10.6 10.7 14.2 NA
Ext Debt (% of XGS) 22.8 20.9 19.6 NA NA
Debt Service (US$ Mill) 13.8 26.5 23.8 25.7 NA
Debt Service (%of XGS) 0.9 1.6 1.2 NA NA
Intl Reserves (US$ Mill) 310 519 317 565 660
Equ.Months of Imports 2.0 2.5 2.1 4.0 4

Source: World Bank (2011) and RBF (2011)

Unfavourable aspects
• Interest rate: 9% : more than 7% of first bond
issue
• Fiji: ineligible for concessional loans being
low middle income country
• However Alternate Sources at lower int.rate
IMF: Stand By Arrangement (SBA)
ADB: Countercyclical Support Facility
(CSF)
Unfavourable Aspects (contd)
• ADB’s 2009 : Countercyclical Support
Facility for fighting recession unutilized
• Fixed Interest rate for ADB loan under CSF
for 5 year maturity period (similar to Second
Bond of 5 years maturity) is 4.59% on March
8th.
• IMF SBA Interest rate is close to the same.
• Bond rate is 9% fixed
Why harsh conditionalities?

• IMF & ADB: No doubt Cheaper

• But with harsh conditionalities: why?
• Weak economic performance: Due to poor
policy environment
• Reluctance to carry out reforms?
• New hurdles: price controls
• Interference with market forces?
• Discouraging private sector initiatives?
• Exchange Restrictions?
 TABLE B

Budget , Trade and Current Account Balances

2006 2007 2008 2009 2010
Growth Rate (%) 1.9 -0.5 -0.1 -2.5 0.1
Budget Bal (% of GDP) -3.4 -1.1 -0.1 -3.9 -3.6
Exports (Millon $) 729 787 944 625 690
Imports (million $) 1626 1629 2052 1296 1416
Trade Bal (mill) -897 -842 -1108 -671 -726
Trade Bal (% of GDP) -28.9 -24.7 -31.1 -23.1 -23.2
CA Bal (%) -18.7 -13.6 -17.9 -7.9 -7.1

Source : IMF (2011)

 TABLE C
Fiji: Debt and Expenditure

2006 2007 2008 2009 2010

Public Debt (% of GDP) 53.5 49.7 50.4 55.4 59.9

Cont Debt (% of GDP) 11 12 12 13 16
Total Debt (% of GDP) 64.5 61.7 62.2 68.4 75.9
Total Rev ( % of GDP) 25.6 25.3 25.6 24.8 25
Govt Exp (% of GDP) 29 27.4 25.5 29.4 28.5
Capital exp (% of GDP) 4 3.5 4.1 6.4 5.9

Recurrent Exp: Capital Exp 86 to 14 91 to 11 84 to 16 78 to 22 79 to 21

( Source : IMF 2011)

IMF Conditionalities : Focus on
reforms
• Fiscal Tightening
• Closure of Non-viable Public Enterprises
• Balancing Budget
• Reducing Debt level
• Reducing recurring expenditure
• Second Bond Issue has avoided them all
• No Timeline for reforms
• IMF and Govt both spared
IMF Conditionalities : Focus on
reforms (Contd)
• Mercy is twice blest (Merchant of Venice)
• The quality of mercy is not strain'd,
It droppeth as the gentle rain from heaven
Upon the place beneath. It is twice blest:
It blesseth him that gives and him that takes.
• Loan with conditionalities is twice “cursed”
• IMF: “cursed” in Ireland & PIGS(Eurozone)
• Irish Govt: “Cursed” & Voted out of Power
• Portugal: Also the “cursed” PM resigned
IMF “cursed” in Ireland
Irish government “cursed”
Bond is not a Magic Wand!

• Need for reforms have not vanished

• They are still very much there
• Fiji escaped “invasive procedures”
• Fiji needs self regulation & self control
• “Dieting” & reducing fat & cholesterol
 Reforms
• March 24, 2011 Public Information Notice of
IMF on Art IV Mission to Fiji in 2010
• Revenue measures be complemented by civil
service & public enterprise reform
• Fiscal sustainability needs public enterprise
& FNPF reform
• Fiscal risk of supporting public enterprises:
highlighted by FSC experience
 Reforms (Contd)

• Finalize the FSC restructuring plan

• FSC be divested within the next three years
• FNPF reforms should be completed in 2011
• Exchange rate band of ±2–3 percent around
the current rate
• Need for well-designed land reform
• Removal of price controls
• Remove hurdles to private sector
Reforms (Contd)

• Diversify economic activity

• Restrain contingent liabilities : public
enterprise reforms
• Impact of redundancies and higher tariffs:
address through retraining programs and
additional targeted social assistance.
Second Bond issue: A fait
accompli
• So move ahead
• Draw timeline: Implement reforms facing the
nation
• Evaluate the success of First Bond Issue
• In ADB/IMF loans: Project Completion
Reports & Independent Evaluation
• In Fiji’s case, there is no compulsion
• So independent assessment of first bond
impact is needed
Moving Ahead

• What are the lessons learned from First

Bond?
• Incorporate them in using proceeds of
Second Bond Issue
• Have a periodical and transparent review by
a Committee of Experts
• Strengthen External Debt Recording Mgmt
System: record all debt obligations
• Info on some countries loan assistance is
not reflected
Moving Ahead (contd)

• Repayment of Second Bond Obligations

should be from Fiji’s own foreign exchange
reserves
• Not by another bond issue or IMF SBA
• Second Bond should put an end to all Bonds
• Second Bond should be the Mother of all
Bonds
THANK

THANK YOU