Bangkok--2 Mar--Standard & Poor's
Standard & Poor's Rating Services said today that it had revised its outlook on the long-term sovereign credit rating on the Republic of the Fiji Islands to negative from stable. At the same time, Standard & Poor's affirmed its 'B/B' foreign currency credit ratings on Fiji, and its 'B' T&C Assessment.
The outlook revision reflects Fiji's declining international reserves and weak growth prospects. It also reflects a possible rise in external borrowings in 2009 at a time when the government's fiscal flexibility is diminishing.
The Reserve Bank of Fiji reports that reserves have fallen to US$431 million (7.2% of GDP) in December 2008 from US$618 million at the end of 2007; or (10.3% of GDP). They have come under pressure from recent floods that have harmed Fiji's key earners of foreign exchange: tourism and sugar. Recessionary conditions in key export markets have also weighed on merchandise exports and remittance flows. These factors may also impair short-term growth prospects. We believe that 2009 GDP growth will be well below the official 2.4% forecast. Longer-term, growth will be depressed by an uncertain business environment, which lowers investment.
The ratings are also constrained by persistent fiscal and current-account deficits, and sizeable deficiencies in available data that complicate external analysis. Foreign exchange controls imposed to buttress its external position have been loosened. Complicating analysis of Fiji's credit quality are significant data deficiencies. The current account deficit is officially estimated to be around 21% of GDP, which includes positive errors and omissions in the balance of payments accounts equivalent to around 13.5% of GDP. Standard &Poor's estimates, however, that many of these errors and omissions are current transactions, which attenuates some of the external risks.
"The negative outlook reflects the likelihood of a downgrade if Fiji's external position continues to deteriorate", said Kyran Curry, of Standard & Poor's Sovereigns Ratings group. "The rating is likely to remain at its current level if external imbalances and reserves stabilize, while the government uses earmarked external assets to meet its external debt service obligations."
Complete ratings information is available to RatingsDirect subscribers at www.ratingsdirect.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com; select your preferred country or region, then Ratings in the left navigation bar, followed by Find a Rating.
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Media Contact:
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Analyst Contacts:
Kyran Curry, Melbourne (61) 3-9631-2082
Brendan Flynn, Melbourne (61) 3-9631-2042
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