MONETARY AND FISCAL POLICY CO-ORDINATION IN FIJI

Faizul Ariff Ali T.K. Jayaraman

Working Paper 2001/01

May 2001 Economics Department Reserve Bank of Fiji Suva Fiji

The authors wish to acknowledge the helpful comments provided by Mr Savenaca Narube, Governor, Reserve Bank of Fiji and Mr Barry Whiteside, Chief Manager (Currency and Corporate Services). The views expressed are those of the authors and do not necessarily reflect those of the Reserve Bank of Fiji or University of the South Pacific where they are employed.

Abstract
This paper seeks to review the fiscal and monetary policy coordination processes in Fiji and to evaluate how it has assisted in the overall implementation of macroeconomic policies in the country. Monetary policy is formulated and conducted by the Reserve Bank of Fiji (RBF). The RBF Board agrees to policy on recommendation of the Governor who is advised through the Monetary Policy committee and other advisors. The RBF then conducts policy implementation through open market operations using Reserve Bank of Fiji Notes to influence short tem interest rates to maintain price stability and an adequate level of foreign reserves. The Ministry of Finance and National Planning is largely responsible for formulating and implementing fiscal policy for the nation. However, at many stages of the policy formulation, input is sought from the Reserve Bank. This harmonisation of policies is enacted in the RBF Act and is effected through a number of institutional measures, which ensure that policies are not in conflict. Throughout the 1990’s, the Government has been running budget deficits. During this period, the close co-ordination of policies as mandated by the RBF Act has resulted in deliberate decisions to finance the deficit domestically at cheaper interest rates, while ensuring private sector demand is not crowded out. Success of these measures is reflected in the lowest average inflation rates in the past decade since independence and