Last week’s elections in Fiji are ‘credit positive’, according to the Moody’s rating agency, after the leader of the 2006 coup, Frank Bainimarama, was sworn in this week as a democratically-elected prime minister.

New Fiji PM, Frank Bainimarama. Credit: Fijivillage.com

Final election results show that Bainimarama’s Fiji First Party won just under 60% of the vote, well ahead of the second-placed Social Democratic Liberal Party (28.2%). There as a 83.9% turnout from Fijian voters.

The return to electoral democracy is ‘credit positive’ for Fiji because it will help normalise diplomatic relations, ease access to concessional funding and potentially strengthening trade ties, Moody’s Singapore-based Vice President and senior analyst, Christian de Guzman told Business Advantage PNG.

A ‘major challenge’ for the new prime minister will be to separate government from the military and to build bridges with other political parties, says Satish Chand, Finance Professor at the University of New South Wales.

It’s a view shared by Standard and Poor’s rating agency.

In S&P’s latest report on the Fiji economy, Senior Analyst Craig Michaels said Fiji’s future economic growth ‘will hinge significantly on how this anticipated political transition transpires’.

A smooth transition to a stable democratic government should see relations with donors and multilateral lenders normalise and may also attract substantial private-sector foreign investment.

‘However, a smooth transition is not assured and there are a number of other possible scenarios that could dampen Fiji’s economic growth prospects,’ says Michaels.

‘These include political instability in a new government that leads to sharply declining domestic confidence, or renewed military intervention in the democratic process.’

Rejoining the region

Should Bainimarama be able to end the ‘coup culture’ in Fiji, normalising diplomatic relations will enhance trade and regional economic integration.

Moody’s Christian de Guzman

‘Fiji has no funding from the World Bank,’ says Moody’s Guzman, ‘and the only new loan from the Asian Development Bank over the past eight years was for emergency humanitarian assistance.

In 2013, only 15.8% of Fiji’s government debt was concessional (the World Bank defines concessional debt as ‘loans with an original grant element of 25 percent or more’), putting it well below its rated peers in the region. (By contrast, Papua New Guinea sourced 22.8% of its debt from concessional sources.)

High debt servicing

Accessing more concessional funds from international agencies will help the Budget, says Guzman.

‘Fiji is currently reliant on more expensive domestic market funding, resulting in a relatively high debt servicing requirement’, he said.

In 2013, the government’s interest payments amounted to 3.5% of GDP, compared to less than 2.0% for each of its regional peers.

Pacific Islands Forum

Since 2008, Fiji has been suspended from the Pacific Islands Forum (PIF), and prevented from taking part talks about a regional free trade agreement.

But, says Guzman, the PIF Ministerial Contact Group with Fiji has recommended that Fiji be invited to rejoin, pending a successful election.

Guzman also says if the Bainimarama administration addresses workers’ rights, Fiji’s may be able to retain its preferential access to the United States, ‘which was jeopardised in 2012 by the military government’s deteriorating relations with trade unions’.

He points out that multilateral funding is usually accompanied by technical assistance, which would help improve governance in Fiji, rated among the lowest six per cent of countries for effectiveness by the World Bank in 2012.