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2008 AnNual report Reserve Bank of Fiji “ New Coins For Our Future ” Era Coin circulation in Fiji 1860s to 1870s Variety of gold and silver coins such as British sovereigns, Russian rubles and Turkish gold coins. 1914 English coins. 1934 to 1969 Half penny (1/2d): copper and nickel coins with the Predecimal port-raits of Kings George V, VI and Queen Elizabeth II - First (QE II). Fiji Coins One penny (1d): copper and nickel coins with the portraits of Kings George V, VI, Edward VIII and QE II. Fiji is one of the few Commonwealth countries to mint a 1936 one penny coin featuring King Edward VIII who abdicated the throne. 1942 half pennies minted during World War II are valuable collectors’ items. Three pence (3d): introduced in 1947. A 12-sided nickel and brass coin feature portraits of King George VI and QE II on the obverse and a Fijian bure (house) on the reverse of the coins. Six pence (6d): silver coins with the portraits of Kings George V, VI and QE II on the obverse and a turtle on the reverse of the coins. One shilling (1/-): silver coins with the portraits of Kings George V, VI and QE II on the obverse and a traditional Fijian canoe on the reverse of the coins. Florin or two shillings (2/-): silver coins with the port- raits of Kings George V, VI and QE II on the obverse and Fiji Coat of Arms on the reverse of the coins. 1969 onwards 1 cent (1c): copper, tin and zinc coins featuring QE II on Decimal the obverse and a tanoa (yaqona bowl) on the reverse. A Currency special 1c coin with a rice stalk design to commemorate the Food and Agricultural Organisation’s (FAO) “Grow More Food” Campaign was issued in 1975. The metallic content changed to copper plated zinc and steel in 1990. 2 cents (2c): copper, tin and zinc coins featuring QE II on the obverse and an iri (Fijian fan) on the reverse. The metallic contents changed to copper plated zinc in 1990. 5 cents (5c): copper nickel coins featuring QE II on the obverse and a lali (Fijian drum) on the reverse. A special 5c coin with a fish design to commemorate FAO’s “Harvest from the Sea” Campaign was issued in 1995. The metallic content changed to nickel plated steel in 1990. 10 cents (10c): copper nickel coins featuring QE II on the obverse and a wau (Fijian war club) on the reverse. The metallic content changed to nickel plated steel in 1990. 20 cents (20c): copper nickel coins featuring QE II on the obverse and a tabua (whale’s tooth) on the reverse. The metallic content changed to nickel plated steel in 1990. A special 20c coin to commemorate the South Pacific Games (SPG) in Fiji was issued in 2003 with the SPG logo on the reverse. 50 cents (50c): The 50c note was coined in 1975. The 50c coin was made from copper and nickel featuring QE II on the obverse and a drua (Fijian double-hulled canoe) on the reverse. The metallic content changed to nickel plated steel in 1990. A special 50c coin with a sugarcane stalk to commemorate the FAO’s “Sugar for the World” Program and “100th Anniversary of Arrival of the Girmits in Fiji” was issued in 1979. 1 dollar ($1): The $1 note was coined in 1995 and was made from copper, aluminium and nickel featuring QE II on the obverse and a saqamoli (drinking vessel) on the reverse. 2009 A new set of Fiji coins, including 5c, 10c, 20c, 50c and $1, the first since the changeover to decimal currency in 1969, will be issued on 16 February 2009. These new coins will retain the existing designs but will be smaller, lighter and shinier than their current counterparts. The 1 and 2-cent coins ceased circulation on 13 October 2008. The underlying theme of this Annual Re- port commemorates the new Fiji coins. Contents Letter to the Minister 01 Our Functions 02 Governor’s Foreword 03 Organisation Structure 06 Board of Directors 08 Executive Management 09 Corporate Governance 10 Economic Overview 13 Conduct Monetary Policy to Foster Economic Growth 16 • Monetary Policy Formulation 16 - Chronology of Monetary Policy Actions 16 - Monetary Policy Outcomes for 2008 17 • Monetary Policy Implementation 18 - Open Market Operations 18 - Foreign Reserves Management 18 - Exchange Rates 19 - Forward Facility 20 - Foreign Currency Payments 20 - Exchange Control 20 Develop an Internationally Reputable Financial System 21 • Financial System Regulation and Supervision 21 - Supervisory Developments 21 - The Financial System 21 - Performance of the Banking Industry 22 - Credit Institutions 24 - The Insurance Industry 25 - Fiji National Provident Fund 26 - Meetings 26 • Combating Money Laundering 27 • Currency 30 • FIJICLEAR 34 Enhance our Role in the Development of the Economy 35 • Assistance to the Export Sector 35 • IMF Staff Visit 35 • Secondary Bond Market 35 • Equities Market 35 • Remittances 35 • Small and Micro Enterprises (SME) 36 • RBF in the Community 36 Provide Proactive and Sound Advice to Government 37 • Policy Coordination 37 • Registry and Banking Services 37 Disseminate Timely and Quality Information 39 • Financial Performance 39 • Publications/Press Releases 40 • Information Technology, Records Management, Library, Domestic Relations 40 • International Relations 40 Recruit, Develop and Retain a Professional Team 42 • Staffing, Staff Development 42 • Employment Relations Promulgation, Health and Safety in the Workplace 42 • Salary Administration, Service Recognition 43 • Quality Performance Management, General Services, Plant and Building 43 • Acknowledgement 43 The Year Ahead 44 Financial Statements 45 Selected Events in 2008 71 Fiji: Key Economic and Financial Indicators 72 Glossary 73 Our Vision Leading Fiji to Economic Success Our Mission Our Values • Enhance our role in the development of the economy • Professionalism in the execution of our duties • Provide proactive and sound advice to Government • Respect for our colleagues • Develop an internationally reputable financial system • Integrity in our dealings • Conduct monetary policy to foster economic growth • Dynamism in addressing our customers' needs • Disseminate timely and quality information • Excellence in everything • Recruit, develop and retain a professional team The principal purposes of the Reserve Bank shall be to regulate the issue of currency, and the supply, availability and international exchange of money; to promote monetary stability; to promote a sound financial structure; and to foster credit and exchange conditions conducive to the orderly and balanced economic development of the country. Section 4, Reserve Bank of Fiji Act (1983) LETTER TO THE MINISTER RESERVE BANK OF FIJI Governor 30 July 2009 Commodore Josaia Voreqe Bainimarama Minister for Finance and National Planning Ministry of Finance and National Planning Ro Lalabalavu House Victoria Parade SUVA Dear Minister RBF Annual Report and Accounts 2008 In terms of Section 56(1) of the Reserve Bank of Fiji Act, and on behalf of the Reserve Bank of Fiji, I submit the following: (i) A copy of the RBF Annual Accounts for the year ended 31 December 2008 certified by the Auditors. (ii) A report on the RBF’s Operations for the 2008 fiscal year. Yours sincerely Sada S Reddy Governor Postal: Private Mail Bag, Suva, Fiji Tel: (679) 331 3611 Fax: (679) 330 1688 Email: firstname.lastname@example.org Website: www.rbf.gov.fj Annual Report 2008 01 OUR FUNCTIONS The Reserve Bank of Fiji (RBF) is the country’s central bank. Governing the Bank’s functions is primarily the RBF Act (1983). Monetary Policy Under Section 4(b) of the RBF Act, the Bank is required to promote monetary stability through low and stable inflation and to maintain an adequate level of foreign reserves. The Bank performs this responsibility through the formulation and implementation of monetary policy. The Bank administers exchange control policies under the Exchange Control Act (rev 1985). Other policy tools include open market operations, statutory reserve deposits and credit ceilings. The Bank also manages the country’s foreign exchange reserves. Financial Stability The RBF Act requires the Bank to promote a sound financial structure. In undertaking this, the Bank supervises licensed institutions in the banking, insurance and superannuation industries as well as foreign exchange dealers. In addition to the legislative environment for these industries, licensed institutions are required to comply with prudential policies and guidelines issued by the Bank. These policies and guidelines complement the Bank’s supervisory function with the aim of fostering financial stability through sound licensed institutions. The licensed financial institutions including the Fiji National Provident Fund (FNPF) are required to comply with the Banking (1995) and Insurance (1998) Acts as well. Maintaining financial stability also encompasses the responsibility of combating money laundering and terrorist financing under the Financial Transactions Reporting Act (2004) and the Financial Transactions Reporting Regulations (2006). To achieve these requirements, the Bank registers and licenses financial institutions and uses a risk-based supervision system. The Reserve Bank acts as banker to the commercial banks and provides payment services through FIJICLEAR. Currency Pursuant to Section 22(1) of the RBF Act, the RBF has the sole right to issue currency in Fiji. The Bank is the sole entity responsible for the printing of banknotes and minting of coins and is also responsible for destruction and disposal of used and unserviceable currency. The Bank also determines the denominational structure, design, content, material and composition of Fiji’s currency, with the approval of the Minister for Finance. Other The Bank provides banking and registry as well as foreign exchange services to Government and is a lender of last resort. Policy advice to Government is provided through participation in various committees and upon request. Details of the Reserve Bank Board of Directors are provided on page 8 and the roles of the Board, Management of the Bank and Governance are described on pages 10 and 11. The Bank’s organisation structure is illustrated on page 6. 02 Reserve Bank of Fiji GOVERNOR’S FOREWORD The year under review turned out to be a very difficult and challenging one both domestically and globally. The sharp escalation of fuel and commodity prices in the first part of the year and the rapid slowdown of the world economy in the latter part of the year had significant and far reaching effects on the Fiji economy. T he Fiji economy is estimated to have grown by 0.2 percent in 2008 after a contraction of 6.6 percent in 2007. In line with subdued economic activity, overall labour market conditions remained soft in 2008. The trend for investment continued to be weak. The balance of payments continued to be under pressure. For the Reserve Bank of Fiji, financial stability, external stability and the role of monetary policy continued to be a key focus. The Bank continually reviewed the stance of monetary policy and formulated appropriate policies to ensure that the financial system was sound. Growth in 2008 was mainly supported by the wholesale & retail trade, hotels, & restaurants and transport & communications sectors. The positive results in these sectors were due to the buoyant tourist arrivals during the year. While the number of tourist arrivals increased to 585,031 in 2008, the yields were affected due to the shorter length of stay and the discounts given by the industry which translated to lower tourism earnings. Other sectors that contributed to the economic recovery in 2008 were mining & quarrying; agriculture, forestry, fishing & subsistence; manufacturing and building & construction. On the inflation front, developments were challenging but mixed. Driven mainly by soaring crude oil and food prices, domestic inflation hovered at around 7.0 percent in the early part of 2008. After easing somewhat to 5.8 percent in May, prices climbed sharply to a 20-year high of 9.8 percent in September. Prices, however, eased in October as concerns of a global recession brought prices of oil and food down. By the end of 2008, inflation eased to 6.6 percent, higher than the 4.3 percent registered at the end of 2007. The underlying inflation, measured by the trimmed mean method, was 2.8 percent. Investment remained subdued in 2008 and was estimated at about 15 percent of GDP, similar to 2007. While partial indicators of investment like imports for investment and lending for investment grew during 2008, overall investment was low. However, the Bank stood ready to assist investment projects by approving lending to priority sectors above the credit ceiling limit. In 2008, monetary policy continued to focus on dampening domestic demand to address the widening trade deficit. The credit ceiling that was introduced in December 2006 remained in place during 2008. However, the Bank’s open market operations remained suspended in 2008. Exchange control policies were reviewed and several policy announcements were made to increase the delegation of authority to authorised dealers to speed up processing times. The Bank stood ready to provide liquidity when required. The weighted average lending rate was 7.7 percent compared with 8.5 percent in 2007. The Bank is pleased to report that Fiji’s financial system is sound and stable. Total assets of the financial system (excluding Reserve Bank of Fiji) increased by 2.9 percent to $9.6 billion. The Reserve Bank took controllership of Asset Management Bank in April 2007 and continued working towards winding down its operations. During the year, commercial banks opened 10 new branches/agencies bringing more services to the people of Fiji. With an economy that was declining, the Bank was vigilant in its monitoring of loans extended by commercial banks. While the credit ceiling dampened demand, special approvals for loans above the ceiling were approved for investment related projects. The insurance industry’s performance was also satisfactory in 2008 as most insurance companies continued to be well capitalised and adequately met their solvency requirements. The Bank is aware that the Fiji National Provident Fund continues to be an issue in terms of its influence in the market due to its sheer size in the financial system. A study is being done to see how best to reform the FNPF for the long term growth of the financial system. The Bank will now work closely with FNPF on the possible deregulation of the superannuation industry. The Reserve Bank collaborated closely with FNPF’s board and management to ensure that corporate governance policies are in place as well as developing appropriate technical polices to safeguard the assets of the Fund. The Bank is appreciative of the continued technical assistance from the IMF to strengthen the Bank’s supervision techniques in superannuation matters. Annual Report 2008 03 1930s Half Penny coin dated 1934. FIJICLEAR, Fiji’s Real Time Gross Settlement System was IMF in September 2008 to update the Report. We are also formally launched in October 2007. Over the year, the appreciative of the technical assistance provided by the IMF number and value of payments increased. The Bank worked in the areas of supervision and monetary statistics. closely with the Association of Banks in Fiji and other stakeholders to increase awareness of the use of FIJICLEAR After Fiji’s voluntary participation in the joint IMF and World amongst the business community and the general public. As Bank Financial Sector Assessment Program in 2006, the Bank part of this effort a value based fee structure which is lower continues to monitor the progress and implementation of the than the current transactions fees will be implemented in recommendations of the Aide Memoire with stakeholders in 2009. the financial sector as well as its own performance. After nearly 3 years of review and planning, Fiji’s bank notes In 2008, the remaining provisions of the Financial Tran- and coins have been modernised. Fiji’s new currency notes, sactions Reporting Act were brought into force. Detailed including the new $100 note, were put into circulation in guidelines on FTR Regulations concerning implementation April 2007. The new coins program commenced in the of customer due diligence and other measures for financial second half of 2008. In October 2008, the Bank ceased the institutions were also introduced in 2008. The Financial issue of 1 and 2-cent coins. The new coins; 5, 10, 20, 50 Intelligence Unit worked closely with financial institutions cents and $1, were unveiled in December 2008. These coins to ensure compliance. The Unit also provided training, advice which are minted by the Royal Canadian Mint are smaller, and guidance to its stakeholders to inform them of their thinner, lighter and round and with varying edge treatments obligations under the Act. Memorandum of Agreements will provide additional security as well as assistance to the were signed with the Ministry of Justice, the Fiji Islands Trade visually impaired. The new coins were issued to the public and Investment Bureau and the Fiji Police Force. Anti-money in February 2009. The old and new coins co-circulated until laundering coordination was strengthened with the 30 April 2009, after which only the Reserve Bank can give establishment of the National AML Council of which the value for the old coins. There is now a mammoth task to Governor of the Bank and Director of the FIU are members. facilitate the collection of the old coins from around Fiji. The Bank is grateful to the commercial banks, the public and the The website of FIU was formally launched in February 2009 Police Force for their continued support, cooperation and at the first National AML Conference. Measures for detecting assistance as we collect the demonetised coins. currency smuggling at Fiji’s borders were strengthened as travelers into and out of Fiji were required under the FTR Act Another milestone in the Bank’s history was the comm- to declare if they were carrying currency or negotiable bearer issioning of the new note processing machine in May 2008. instruments of $10,000 or more to Customs officials. The This machine is capable of counting 1,500 notes per minute, Fiji FIU Information Management System Online was rolled five times faster than the machine that it replaced. This out in 2008 to receive information online and also to investment will improve the quality of notes in circulation effectively manage the database of FIU. A membership and also speed up the processing of soiled notes. application was lodged with the Egmont Group in 2008 and Fiji subsequently became a member in May 2009. During the year, the Bank also updated its IT software to ensure that processes and information including the database The Bank recognises the potential of the Medium, Small and was captured efficiently and effectively. Micro Enterprises in providing employment and improving welfare of the citizens of Fiji. The Bank currently collects The Bank participates in the General Data Dissemination data on this sector from the commercial banks, credit System and uses its website and publications to inform its institutions and the Fiji Development Bank. We continue to stakeholders about the policies of the Bank. It is pleasing to sponsor the Fiji Development Bank’s Small Business Awards note that the Bank’s 2006 Annual Report was awarded first and the Fiji Islands Trade and Investment Bureau’s Prime prize in the Statutory Authorities, Government Bodies and Minister’s Exporter of the Year Award for Agriculture. Unlisted Trusts category of the 2008 South Pacific Stock Exchange Annual Report Competition. The Bank has won We also realise the importance of education and sponsor the this award a number of times over the years. chair of Associate Professor/Senior Lecturer in Monetary Economics at the University of the South Pacific. The Bank Under Article IV of the IMF’s Articles of Agreement, the also awards a prize to the outstanding graduate in Economics IMF holds bilateral discussions with its members. In Fiji’s at USP. case, discussions are held bi-annually and a team from the IMF was in Fiji in late 2007. The IMF Executive Board has In recent years, remittances were an important foreign yet to discuss Fiji’s Report. There was a Staff Visit from the exchange earner for Fiji. A database on remittances is being 04 Reserve Bank of Fiji Governor’s FOREWoRD 1930s One Penny coin dated 1935. built with assistance from commercial banks and other million, which represents one fifth of the Revaluation Reserve. institutions to better track this very important source of The profit for 2007 was $20.4 million. The level of profit foreign currency. The Bank is also participating in a regional was a direct result of the higher interest rates abroad through project with the World Bank’s office in Australia and hosted to the third quarter of 2008. The average level of foreign a round-table discussion in Fiji. However, with the adverse reserves was also higher during most of 2008 than in 2007. developments in the global environment, a substantial decline However, by the end of 2008, foreign reserves had fallen to in remittances by 27 percent was noted over the year to $188 $558.7 million compared with $804.6 million at end 2007. million in 2008. Early indications show that 2009 will be another challenging A Strategic Plan for the Bank for the period 2009-2013 was year. Much of Fiji’s performance will depend on the duration produced in-house in 2008. This Plan will be reviewed and depth of the global recession. Most countries have revised annually as circumstances change. The Bank’s Contingency their growth rates for 2009 and Fiji is in the process of doing Plan was also strengthened as construction work on the Bank’s the same. While oil and commodity prices have declined, Business Resumption Site commenced in June, 2008. The circumstances can affect their movement rapidly. BRS is expected to be functional in the fourth quarter of 2009. This site will provide back up to the Bank’s critical In 2009, the Fiji economy is expected to contract by 0.3 operations if the headquarter’s building is inaccessible due percent. The floods in early 2009 have negatively affected to any business failures. the growth prospects that were anticipated. The economic outlook remains uncertain given the developments in the I am grateful to the International Monetary Fund, World global economy. However, we must rally together to ensure Bank, Asian Development Bank, Pacific Financial Technical that everyone does their bit to lift the economic performance. Assistance Centre, Australian Prudential Regulation The balance of payments remains fragile and we must do all Authority, AUSTRAC and other international organisations we can to preserve foreign reserves. Monetary policy will be for technical assistance provided in 2008. In turn, the Reserve kept under constant review to ensure that it meets the needs Bank is doing its part in assisting central banks in the Pacific of the economy as we move forward. Various reforms by hosting attachments from staff of regional central banks. identified by the Government need to be addressed and We were pleased to be given the honour to host the SEACEN implemented with some urgency. We need the cooperation Directors of Research and Training meeting in Fiji in October and support of Government, financial institutions, relevant 2008. With the IMF, PFTAC and ADB, the Bank also assisted stakeholders and the citizens of Fiji to work together so that in hosting the Regional Workshop on Financial Soundness we can achieve better growth for Fiji and a higher standard of Indicators. living. Capacity building of Team Reserve Bank is a priority for the I would like to thank my predecessor, Mr. Savenaca Narube, Bank. In 2008, the Bank continued to train staff locally as for his 29 years of dedicated service, commitment and well as abroad. The Bank also provided job rotation and on contribution to the Bank and Fiji. I would also like to take the job training to its staff. A training needs analysis is done this opportunity to thank the Board of Directors for their for each staff annually and the benefits of training must be support and guidance during 2008. I wish to acknowledge demonstrated in the performance of outputs. the cordial relationship that we have had with the Fiji Bank and Finance Sector Employees Union in all our industrial The Bank fully engages in activities in the community. Apart relations matters. from official donations to charitable organisations, it is very encouraging to see Team Reserve Bank participate and Finally, I extend my deep appreciation to Team Reserve Bank contribute to the community using its own time and for their hard work, commitment and cooperation in 2008. resources. The Team took part in national campaigns, business house competitions and committees as well as gave donations in cash and in kind to charitable organisations. In accordance with the Reserve Bank of Fiji Act, the Bank submitted its audited accounts and operational report for the year ended 2008 to the Minister for Finance on 31 March Sada S Reddy 2009. On 30 March 2009, the Bank transferred a total of Governor and Chairman of the Board $33.0 million to Government. This consists of its entire profit of $30.4 million for the financial year 2008 and $2.6 Annual Report 2008 05 ORGANISATION STRUCTURE Corporate compliance and assurance, Corporate coordination of annual workplan and Planning and Assurance budget, local and international lia- ison and settlements. Currency, accounting, human resou- Currency and rces, information technology, general Corporate services, records management, library, Services corporate projects, security and plants & properties. Economic analysis and research, mon- etary and macroeconomic policy, pu- Economics blications, forecasting financial and economic statistics. Provide advice to the Governors on Governor and Board Deputy Executive economic, financial and other Bank Chairman of the of Directors Governor Services policy matters and board secretariat Board services. Financial system supervision, deve- lopment and implementation of pru- Financial dential supervision policies, licensing Institutions and examination of licensed financ- ial institutions. Financial intelligence policy advice, Financial formulation, compliance, supervis- Intelligence ion, training implementation and mo- Unit nitoring, national and international liaison. Exchange rates, foreign exchange deal- ings, market monitoring, foreign exch- Financial ange reserves management, exchange Markets control, open market operations, reg- istry, liquidity forecasting and paym- ent services through FIJICLEAR. 06 Reserve Bank of Fiji “While we have changed our currency notes several times, it is almost 40 years since we changed our coins and this was from the pennies and shillings to decimal currency on 13 January 1969.” “We are changing our coins basically to reduce the cost of minting and handling. These costs continue to increase as demand for cash continues to rise.” “I believe we have an excellent set of currency notes and coins which can fully serve our needs well into the future. The new currency notes have been well received. I am confident that our new coins will also receive the same acceptance.” Excerpt from the address at the official launch of Fiji’s new coin series by Mr. Savenaca Narube, former Governor, Reserve Bank of Fiji on 11 December 2008. Annual Report 2008 07 BOARD OF DIRECTORS Sada Reddy Peceli Vocea Ioane Naiveli Kanti Tappoo OBE Governor and Permanent Secretary Chairman of the Board Ministry of Finance and Member since 1 January Appointed to the Board 14 National Planning 2000. Term expires on 31 February 2002. Term expired Governor since 15 April 2009 (ex-officio) December 2009. Chairman of on 31 December 2008. Mem- for a 3-year period. Alternate the RBF Board Audit Commit- ber of the Performance Review Governor for Fiji in the Intern- Appointed as Permanent Secre- tee and member of the Staff Committee of the Board. Exec- ational Monetary Fund and tary for Ministry of Finance Sub-Committee and Perform- utive Chairman Tappoo Gro- in the Asian Development Bank. and National Planning on 19 ance Review Committee of the up of Companies. Former Also, Chairman of Fiji School March 2007. He was the Cha- Board. Sole partner of I. Nai- Chairman of Amalgamated of Medicine Council and Dep- irman of the Performance veli & Company Chartered Telecom Holdings Limited. uty Chairman of Capital Ma- Review Committee of the RBF Accountants. Board member rkets Development Authority. Board. Board Chairman of of Fijian Holdings Limited. the Fiji National Provident Former Chairman of the Fund and subsidiaries in External Audit Committee of 2007. Board member of the the International Monetary Fiji Islands Revenue and Cust- Fund. Council member of Fiji oms Authority and Fiji Islands Institute of Accountants, Fina- Trade and Investment Bureau. ncial Advisor to the Fijian Aff- airs Board and Director Fina- nce - Fiji Rugby Union. Savenaca Narube Robin Yarrow Adish Narayan Dr. Chandra Dulare Governor since 15 May 2000 Member since 5 August 2005. Appointed to the Board on 3 Appointed to the Board for a to 10 April 2009. Served as Term expires on 6 August August 2007. Term expires on 3-year term on 11 January the Permanent Secretary for 2009. Chairman of the RBF 3 August 2010. Member of 2008. Member of the Board Finance from 1997 to 2000. Staff Sub-Committee, member the RBF Staff Sub-Committee Audit Committee and Perfor- of the Board Audit Committee and Performance Review Co- mance Review Committee of and Performance Review mmittee of the Board. Lawyer the Board. Dr. Dulare is the Committee of the Board. Reti- by profession and sole prop- Director of the Fiji Institute of red from the Fiji Government rietor of AK Lawyers. Applied Studies. His work in 1999 after 30 years of serv- experiences include lecturing ice which included senior at the University of Fiji, Unive- positions with the Ministries of rsity of Queensland and Univ- Agriculture, Tourism, Foreign ersity of the South Pacific. Affairs and National Pl- anning. Currently serves on a number of Non-Government Organisations and Boards /Councils including the Fiji 08 Reserve Bank of Fiji Red Cross Society and the National Trust. EXECUTIVE MANAGEMENT 1930s Three Pence coin dated 1935. Barry Whiteside Lorraine Seeto Esala Masitabua Acting Deputy Governor/ Chief Manager Chief Manager Chief Manager* Corporate Planning Currency and Financial Institutions and Assurance Corporate Services Razim Buksh Ariff Ali Director Chief Manager Financial Financial Markets** Intelligence Unit Jitendra Singh Uday Singh Chief Manager Secretary to the Bank/Advisor Economics*** Corporate Affairs Annie Rogers Shajehan Hussein Advisor to the Governors Chief Manager (Until October 2008) Financial Markets (Until November 2008) * Appointed as Acting Deputy Governor on 15 April 2009 ** Confirmed as Chief Manager Financial Markets on 1 April 2009 *** Confirmed as Chief Manager Economics on 15 April 2009 Annual Report 2008 09 CORPORATE GOVERNANCE The Reserve Bank of Fiji is fully owned by the Government of Fiji. The functions and duties of the Reserve Bank are specified in the Reserve Bank of Fiji Act (1983), the Banking Act (1995), the Insurance Act (1998), the Exchange Control Act (rev 1985) and the Financial Transactions Reporting Act (2004). These legislations define the boundaries of the Bank’s responsibilities and accountabilities. The Reserve Bank’s performance is documented in an Annual Report and tabled in Parliament every year. Under Section 56 of the RBF Act, the Annual Accounts and a Report of Operations of the Bank must be submit- ted to the Minister for Finance no later than 31 March of the following year. Moreover, under the Insurance Act (1998) the Bank’s Insurance Annual Report has to be submitted to the Minister for Finance by 30 June of the subsequent year and is also tabled in Parliament. In 2008, the Financial Intelligence Unit published its first Annual Report, however, this is not mandatory. The Bank has a Vision statement – “Leading Fiji to Economic Success” – and also subscribes to Mission statements and Values which are on the The Governor inside cover of this Report. T he Governor is appointed for a 5-year term by the Constitutional Offices Commission (COC), in consultation with the Minister for Finance and the Board of the Reserve Bank. The COC is appo- Vocea. Mr. Deo Saran was appointed to the Board for a 3-year term on 11 February 2009. Board Meetings inted by the President. The Governor, who is the Bank’s Chief Executive Officer, is responsible to the Board Under the RBF Act, the Board is required to meet at for the management of the Bank and the execution of least 10 times in a calendar year. During 2008, the its policy. The current Governor, Mr. Sada Reddy was Board met on 12 occasions - there were 10 ordinary appointed on 15 April 2009 for a period of three years, board meetings and two special board meetings. Four following the abrogation of Fiji’s Constitution which Directors form a quorum for a meeting of the Board. made the former Governor, Mr. Savenaca Narube’s In the absence of the Governor, the Deputy Governor post vacant. may participate in Board meetings and is entitled to exercise a vote. Board of Directors Board Committees The Board comprises the Governor, who serves as The Audit, Staff and Performance Review Sub-Commi- Chairman, the Permanent Secretary of the Ministry ttees of the Board also held meetings during the year. of Finance and National Planning, as an ex-officio The Board Committees consist of non-executive mem- member, and five other non-executive members. bers. Decisions of the Committees are submitted to Under the RBF Act, the Minister for Finance appoints the full Board for ratification. the Directors. Directors may hold office for a period not exceeding three years but are eligible for reap- The function of the Staff Sub-Committee is to review pointment. Board Directors, Mr. Kanti Tappoo’s OBE and approve strategies on terms and conditions of and Mr. Ioane Naiveli’s terms ended on 31 December employment for executive management and staff and 2008, however, Mr. Naiveli was reappointed for to review and approve strategies on the remuneration another year. Dr. Chandra Dulare was appointed as a policy for all staff. Director from 11 January 2008. The Performance Review Sub-Committee reviews the Other Board Directors holding office in 2008 were performance of the Governor and the Deputy Gov- Mr. Robin Yarrow, Mr. Adish Narayan and Mr. Peceli ernor. One meeting took place in 2008. 10 Reserve Bank of Fiji 1930s Six Pence coin dated 1934. The Board Audit Committee monitors the adequacy Delegation of Authority of the audit function in the Bank and assists the Board in fulfilling the requirements of the RBF Act in relation The Delegation of Authority sets out the framework to the Bank’s accounting and reporting practices. In for the Governor’s delegation in the operations of the carrying out these functions, the Committee: Reserve Bank together with the associated accountabil- ities. All activities and expenditure in the Bank must • reviews the audit plan of the external and internal be authorised in accordance with the respective dele- auditors; gations, policies and procedures. The Internal Rules • evaluates the Bank’s accounting control system by and Orders of the Bank and the Code of Ethics and reviewing audit reports and monitoring manage- Business Conduct policy provide guidance on compli- ment’s responses and actions to correct any noted ance on ethical standards. The Declaration of Compli- deficiencies; ance, signed annually by staff, ensures that they have • reviews the annual financial statements of the Res- complied with the Code of Ethics; Delegation of Auth- erve Bank; and ority; Internal Rules and Orders and IT policies of the • reviews accounting policies to ensure compliance Bank. with laws, regulations and accounting standards. Strategic Plan The Board Audit Committee met on six occasions in 2008. In 2008, the Bank produced a 5-year Strategic Plan for the period 2009-2013. A bottom-up approach was Bank Management adopted in the formulation of the Plan. This is the first time that such a Plan has been produced in-house. The The executive management of the Bank comprises the Plan is posted on the Bank’s Intranet and is available Governor, Deputy Governor, Chief Managers and an to all staff. The Plan will be reviewed annually. Advisor to the Governors. The Governor is advised by a number of internal committees within the Bank. Corporate Plan These are: Corporate planning is carried out annually in the Res- • the Executive Management Committee, which meets weekly to consider the management and erve Bank. The formulation of the Bank’s workplan day-to-day operations of the Bank; for the following year commences as early as May, with • the Monetary Policy Committee, which meets mo- a review of its Vision and Mission statements. Group nthly to discuss economic and monetary develop- strategies are reviewed accordingly. All Groups review ments; their progress for the first six months of the year and • the Market Operations Policy Committee, which submit a report to the Board in July. Extensive discuss- meets monthly to discuss the Bank’s foreign reser- ions are held during the interactive planning workshops ves and domestic investment management strat- and feedback is obtained from internal and external egies; stakeholders in August. The output and the resources • the Financial System Policy Committee, which are matched and the workplan and budget are present- meets monthly to review financial system develop- ed to the Board for approval in November. ment and consider policy issues on the soundness and efficiency of the system; The workplan is presented according to the Mission • the Currency and Corporate Services Policy Com- statements of the Bank. Every strategy, output and mittee, which meets monthly to discuss issues rela- process must identify with a Mission statement which ting to currency and all services provided internally; will lead to the achievement of the Vision of the Bank. • the Information Technology (IT) Steering Comm- Each Mission statement has a list of key performance ittee, which meets quarterly to discuss IT develop- indicators (KPIs). Resources are applied to the work- ment and operations; and plan. The Bank uses zero based budgeting for its finan- • the Business Continuity Plan (BCP) Committee, cial resources. Chief Managers are responsible and which meets quarterly to formulate and initiate accountable for their respective Group’s KPIs and bud- strategies to address risks faced by the Bank. gets. These indicators are monitored quarterly by the Annual Report 2008 11 CORPORATE GOVERNANCE 1930s One Shilling coin dated 1936. Governors and six monthly by the Board. In November • small organisations such as loss of staff due to emi- 2008, the Board approved the annual workplan and gration; budget for 2009. • currency such as counterfeit, adequacy and safety issues; and Annual Planning Cycle • the operations of Fiji’s payments system, FIJICLEAR, due to technical issues. Review Of Presentation Vision & Mission Of Workplan May January- The BCP that was approved by the Board in 2007 following year Review Of Group Board Approval For continued to be rolled out during 2008. There was a Strategies Workplan/Budget simulation exercise for fire evacuation. Other initiatives June November Develop & Finalise that have been developed include planning for a Approval Of New Group Strategies Next Year’s Workplan/Budget possible avian influenza pandemic and documenting procedures for reference as well as strengthening July September/ Review Of Work Interactive Workshop October procedures in case of natural disasters. Work on the Progress July July/August Bank’s Business Resumption Site (BRS) commenced with the ground breaking ceremony in late 2008. The project is expected to be completed in late September Risk Management 2009. The BRS will act as a backup for critical oper- Risk management is an integral aspect of the Bank’s ations if the Reserve Bank’s main building is, for some daily operations. The Bank faces many risks - some reason, inaccessible. Critical operations include foreign general while others are unique to central banks. Exten- reserves management, settlements and some domestic sive use of committees set up in the Bank ensures that market operations including FIJICLEAR operations. all risks are accounted for in the Bank. The Bank needs to be vigilant in its monitoring of economic develop- The Middle Office monitors the performance and ments and pre-emptive in its formulation of monetary operational procedures of the Bank with regard to its policy and ensure that the financial system is sound external and domestic investments. An outsourced and stable to minimise risks to the economy and the internal audit function provides the Bank with inform- Bank’s reputation and credibility. Other more specific ation on risk areas which need to be addressed. The risks include those associated with: Board and the Board Audit Committee also contribute • the holding of foreign reserves like credit, interest to the review and strengthening of the Bank’s risk and exchange rate risks; management process. 12 Reserve Bank of Fiji ECONOMIC OVERVIEW International Economic Developments The global economy is estimated to have slowed sharply in 2008, as the impact of the financial crisis, the largest financial shock since the 1930’s Great Depression, spilled over to the global financial system. The shock that started off as the United States of America’s (US) subprime mortgage crisis in 2007, had unfolded into a world-wide financial crisis, leaving behind a trail of economies in recession, banks and financial institution failures, dwindling global demand, falling commodity prices and plummeting stock market prices. The International Monetary Fund (IMF) estimates world growth in 2008 at 3.2 percent compared with 5.2 percent in 2007. The outlook for 2009 is expected to be even more bleak as IMF expects the world economy to contract by 1.3 percent. In emerging and developing economies, as well as in low- income countries, the IMF estimates that growth will continue to be impeded by financing constraints, lower commodity prices, weak external demand and associated spillovers to domestic demand. onetheless, global actions to support financial N markets, such as fiscal stimulus packages and monetary easing, could calm financial markets and mitigate global output losses in World GDP Growth Rates 6 5 4 Percent 2009. As a coordinated effort, central banks have cut 3 interest rates aggressively and also injected substantial 2 amounts of liquidity into their respective banking 1 systems. In addition, major Governments have 0 2002 2008(e) 2001 2003 2004 2005 2006 2007 approved billions of dollars in rescue packages in the form of loan and deposit guarantees, as well as capital to bolster the banking system. These are expected to Source: IMF World Economic Outlook (April 2009) limit the effects of the financial stress, revive confi- dence and support demand. The US economy, which is expected to have slipped into recession in the fourth quarter, is estimated to Furthermore, at the recent G-201 summit, world have grown by 1.1 percent in 2008, largely underpin- leaders have agreed on a set of actions to stabilise the ned by the slowdown in private consumption, invest- financial system, stimulate demand, strengthen the ment and industrial production. The Japanese econ- regulatory framework and help the emerging and omy was also in recession from the third quarter and developing economies endure the crisis. is estimated to have contracted by 0.6 percent in 2008, attributed to lower domestic demand and industrial All of our major trading partner economies also low- production. The Euro zone and New Zealand econom- ered their key interest rates progressively throughout ies are estimated to have slipped into recession and are the year to record lows, in response to the financial estimated to have expanded by 0.9 percent and 0.3 crisis and the resulting waning global demand. The percent, respectively in 2008. The slower growths are lower interest and mortgage rates, tax breaks and fiscal mainly attributed to the declines in investment and payments are aimed at boosting household incomes the lower growth in private consumption. In 2008, and, consequently, demand in the following year. Australia’s economy is estimated to have grown by a 1 The G-20 (more formally, the Group of Twenty Finance Ministers and Central Bank Governors) is a group of finance ministers and central bank Governors from 20 economies: 19 of the world's 25 largest national economies, plus the European Union (EU). It is a forum for cooperation and consultation on matters pertaining to the international financial system. Annual Report 2008 13 ECONOMIC OVERVIEW slower 2.1 percent, underpinned by smaller gains in below the buoyant 2006 period. A very small recovery consumption and business investment. in business and investor confidence following the events of December 2006 is one of the principal Economic Developments in Fiji reasons for the low investment rate. Fiji’s economy is estimated to have grown marginally In 2008, Government continued its path of fiscal in 2008 by 0.2 percent following a contraction of 6.6 consolidation. The Government made a consolidated percent in 2007. Growth in 2008 was mostly sup- effort to restrain spending, resulting in an underlying ported by the wholesale & retail trade, hotels & rest- fiscal deficit of $92.0 million, or 1.5 percent of GDP, aurants; and transport & communication sectors. The lower than the 2.0 percent of GDP announced in the good performances in these sectors resulted from 2008 Budget. The relatively lower fiscal stimulus also buoyant tourism arrivals during the year. affected growth in 2008. Other sectors that also contributed to the economic In line with subdued economic activity, overall labour recovery in 2008 were mining & quarrying and finance, market conditions remained relatively weak in 2008. insurance, real estate & business services sectors. While The Fiji Islands Revenue and Customs Authority (FIRCA) a relatively flat contribution was recorded from the registered around 16.0 percent fewer new taxpayers agriculture, forestry, fishing & subsistence; and in 2008 compared with 2007. The mining & quarry- building & construction sectors, negative contributions ing; electricity & water; agriculture, forestry & fishing; were noted from the community, social & personal transport, storage & communications and the comm- services, manufacturing and electricity & water sectors. unity, social & personal services were the major sectors recording lower registrations during the year. Nonethe- Fiji’s GDP Growth Rates less, in certain industries, such as mining, some growth 8.0 in employment was evident over the 2007 levels, given 6.0 the restart of mining operations at Vatukoula. 4.0 Percent 2.0 Although recruitment intentions improved during 0.0 -2.0 2008, with an annual growth of 11.0 percent in Job -4.0 Advertisements, it is likely that this was to fill existing -6.0 jobs left vacant due to workers switching jobs, natural 2001(r) 2007(p) 2002(r) 2008(e) attrition and emigration. There is a lack of evidence 2003(r) 2004(r) 2005(r) 2006(r) -8.0 to suggest that the economy experienced new job creat- Sources: Fiji Islands Bureau of Statistics and Macroeconomic Committee ion in the year. Substantiating this, Pay As You Earn collections, a partial indicator of incomes, fell by 6.0 Overall, domestic demand remained quite modest in percent in 2008, although this was influenced partially 2008. Although borrowing for consumption purposes by the increase in the income tax threshold in the showed an annual growth, net Value Added Tax (VAT) middle of the year. collections fell by 2.9 percent. The lower consumption activity was influenced by weak employment cond- The income tax threshold was increased to $15,000 itions, restrained incomes and falling remittances. in June by the Government to assist people during a time of rising inflation. Driven mainly by soaring crude Likewise, investment remained subdued in 2008 and oil and food prices, domestic inflation hovered at was estimated at around 15.0 percent of Gross around 7.0 percent in the early part of 2008. Growth Domestic Product (GDP), similar to the level in 2007. in prices eased somewhat to 5.8 percent in May, before Although partial indicators such as imports of invest- climbing sharply to a 20-year high of 9.8 percent in ment goods and lending for investment purposes grew September. However, prices eased in October as con- in 2008, overall investment remained low. This is cerns of a global recession brought prices of oil and substantiated by the developments in certain partial food down. By the end of 2008, inflation eased to 6.6 indicators, such as the value of work put in place in percent, higher than the 4.3 percent registered at the the construction sector, which remained significantly end of 2007. The underlying inflation, measured by 14 Reserve Bank of Fiji ECONOMIC OVERVIEW 1930s One Florin coin dated 1934. the trimmed mean method, was 2.8 percent. Commercial Banks’ Lending & Deposit Rates Loans Time Deposit Total Deposit Savings Deposit Government’s response to rising prices was prompt. 10 Apart from increasing the income tax threshold, 8 Government reduced duties on certain basic food Percent items and petroleum products, while VAT was elimin- 6 ated on local eggs from June 2008. In May, the Reserve 4 Bank had relaxed its Forward Foreign Exchange Cover 2 Facility to allow importers of some essential food items 0 to hedge against future price increases. However, with 2005 2006 2007 2008 the decline in oil prices from the third quarter, Govern- Source: Reserve Bank of Fiji ment reinstated the duty on petroleum products in December. Fiji’s overall trade performance deteriorated further in 2008. Although there was a respectable growth in In line with subdued economic activity, money and exports, this was overshadowed by the strong growth credit growth were weak during the review year. Broad (23.0%) in imports. The total exports value was only money fell by 6.9 percent on an annual basis in equivalent to cover around 40.0 percent of total December 2008, driven by a contraction in demand imports, a massive $3.6 billion, the highest imports deposits. However, domestic credit expanded by 4.8 level ever. The higher growth in exports of 21.6 percent after rising by 3.2 percent in 2007. The growth percent, was not sufficient to cover, let alone offset the in domestic credit was led by private sector credit higher outflow through imports. The trade deficit in which grew by 11.2 percent in 2008. Commercial 2008 was enormous, hitting the $2.0 billion mark for bank credit rose by 11.6 percent in December from the first time, an increase of around 24.0 percent from 2.1 percent a year ago, attributed to higher lending to the 2007 levels. The widening of the trade deficit con- the wholesale, retail, hotel & restaurants; transport, tinued to exert extensive pressure on the overall balance communication & storage; real estate; private ind- of payments. ividuals and the manufacturing sectors. Trade Deficit 0 Commercial bank interest rates generally fell in 2008, -400 as a result of buoyant liquidity in the banking system. In December, the commercial banks’ time deposit rate -600 $ Million fell by 145 basis points to 3.00 percent, while the sav- -800 ings deposit rate remained the same at 0.64 percent -1,200 over the year. Similarly, the commercial banks’ lending -1,600 rate fell by 74 basis points to 7.72 percent. However, -2,000 as a result of tight liquidity conditions in the final -2,400 2008(p) 2007 2001 2004 2005 2006 2002 2003 quarter of 2008, commercial banks’ time deposit rate rose by 71 basis points in December, from 2.29 percent in September. Source: Fiji Islands Bureau of Statistics Annual Report 2008 15 MISSION : CONDUCT MONETARY POLICY TO FOSTER ECONOMIC GROWTH The Reserve Bank of Fiji, as an independent central bank, is entrusted with the conduct of monetary policy in the country. The objectives of monetary policy are formally established in the RBF Act (1983). They are to maintain low inflation and an adequate level of foreign reserves. Monetary policy formulation continued to be challenging in 2008, exacerbated by the widening trade imbalance and the consequent stress on foreign reserves. MONETARY POLICY FORMULATION Chronology of Monetary Policy Actions M onetary policy formulation became more for consumption purposes continued to be discouraged challenging in 2008 for a combination of as this could affect the balance of payments adversely, reasons. While it was expected that the lending for investment purposes was actively supported trade deficit would widen and exert further pressure by the Bank. on the balance of payments, inflation also rose sharply beyond comfortable levels as a result of higher oil and With foreign reserves stabilised somewhat at the food prices. In addition, the global financial crisis beginning of 2008, the Reserve Bank relaxed exchange deteriorated further, impacting the major economies control guidelines on non-resident borrowings from and forcing a number of downgrades to global growth. local sources to further encourage private sector The concerns of a further deterioration in the balance investment. The new policy became effective from 24 of payments and rising inflation were central cons- April 2008, allowing foreign owned companies to borr- iderations in monetary policy decisions throughout ow up to a certain percentage of their total borrowings the year. based on their shareholding structure. Although inflation remained above 7.0 percent for In response to rising inflation, which was influenced most part of 2008, it continued to be driven by high by high food prices, the Reserve Bank relaxed parts of oil and food prices. Since the primary source of its Forward Foreign Exchange Cover Facility on 14 May inflation was external, it was neither prudent nor 2008. The policy allowed importers of some essential effective to utilise monetary policy to attempt food items to hedge against future price increases. restraining it. At the same time, monetary policy was tight throughout 2008. This helped contain price The policy on local borrowing by non-resident ind- pressures emerging from domestic sources. ividuals was relaxed further on 23 June 2008. Non- residents could from this date, borrow up to 60.0 per- Against this background, the central bank continued cent locally to build new residences and up to $100,000 to focus primarily on preserving the adequacy of foreign for maintenance and repairs of properties. In addition, reserves through its monetary policy. The credit ceiling, non-resident controlled companies were also allowed which was introduced in December 2006, remained to apply for exempted status which would allow non- in place over 2008. Apart from restraining credit resident individuals investing in their projects to borrow expansion in the economy, this policy also ensured up to 75.0 percent locally. that credit continued to be directed to priority sectors through the Reserve Bank’s special approvals scheme. 0n 14 August 2008, in line with the Government’s By the end of 2008, the Reserve Bank had granted policy to encourage and facilitate further participation approvals totalling $361.0 million for investment of former Fiji residents in the development of the econ- projects, exports and to small businesses. While lending omy, the Reserve Bank made the necessary amendm- 16 Reserve Bank of Fiji MISSION : CONDUCT MONETARY POLICY TO FOSTER ECONOMIC GROWTH 1980s 1 cent coin dated 1982. The circulation of 1 cent coins have ceased from 13 October 2008. ents to recognise former Fiji residents with permanent come for inflation, relative to the forecast, was mainly resident visas under the exchange control guidelines. due to price pressures easing on the back of a larger- This provides inter alia the right to these former Fiji than-expected fall in oil prices. This was assisted by a residents to acquire/transfer shares and source funds slower-than-anticipated growth in prices of domestic locally without prior approval of the Reserve Bank. market items towards the end of the year, possibly as a result of improvements in supply. Moreover, on 8 September 2008, the approval limits delegated to foreign exchange dealers for import pre- Inflation Rates (Year-on-Year) payments was raised to $1.0 million. On 29 Septem- ber, changes were made to the delegation of foreign 10 exchange transactions to Authorised Foreign Exch- Percent 8 ange Dealers. The changes included the increase in 6 delegated limits in certain categories and delegation 4 up to certain amounts for transactions that previously 2 required Reserve Bank approval. 0 2005 2006 2007 2008 Other relaxation measures in 2008 included: FNPF funds under emigration; travel allowance; credit and Source: Fiji Islands Bureau of Statistics debit cards; education and medical expenses; merch- anted imports; charges, fees and service payments; loan Aggregate movements of the Fij dollar (FJD) exchange repayments and court order payments. rate were marginal in 2008. The Nominal Effective Exchange Rate (NEER) Index, which reflects aggregate Monetary Policy Outcomes for 2008 exchange rate movements between the FJD and currencies of Fiji’s major trading partners, contracted Monetary policy continued to focus on the develop- by 0.3 percent over the year to December 2008. This ments in its twin objectives of inflation and foreign indicates a marginal depreciation of the FJD against reserves during the course of the year. While inflation- the basket of currencies. In contrast, the Real Effective ary pressures abated somewhat after reaching its peak Exchange Rate (REER) Index of the FJD, a gauge of in September, foreign reserves closed the year at a hold- Fiji’s international competitiveness, rose by 1.8 percent, ing of $558.7 million. during the same period indicating a slight deterioration in Fiji’s international competitiveness. This was largely Foreign Reserves due to higher domestic inflation relative to Fiji’s trading partner countries, which nonetheless improved as 1,000 domestic inflation eased after September. 800 REER/NEER (Monthly Average) $ Million 600 112 400 110 108 REER 200 106 104 NEER Index 0 102 2008 2007 2002 2004 2005 2006 2003 100 98 96 Source: Reserve Bank of Fiji 94 92 Inflation at the end of 2008 was 6.6 percent, lower 2005 2006 2007 2008 than the projection of 7.5 percent. The favourable out- Source: Reserve Bank of Fiji Annual Report 2008 17 MISSION : CONDUCT MONETARY POLICY TO FOSTER ECONOMIC GROWTH MONETARY POLICY IMPLEMENTATION dollars (NZD). The remaining portion consists of gold and Special Drawing Rights (SDR) at the IMF. Open Market Operations In 2008, financial markets were characterised by Monetary policy is normally implemented through heightened volatility and uncertainty as a result of the Open Market Operations (OMO). This involves global financial crisis, which saw credit and money auctioning 91-day RBF Notes twice weekly to change markets freeze and major economies move into recession. the level of liquidity in the banking system thereby Credit spreads rose to record levels while equity prices influencing short-term market rates in the economy. recorded historical declines due to rising risk aversion. With access to funding restricted and shrinking capital The Reserve Bank Board announces decisions on the bases due to market losses, major banks and international monetary policy stance after its monthly meetings. financial institutions experienced severe balance sheet This monetary policy stance is expressed in terms of distress. This led to banks’ credit ratings around the changes to the policy indicator rate. OMO is then world being downgraded whilst some banks went into conducted to align the 91-day RBF Note rate to the receivership and others required large capital injections by their respective Governments. policy indicator rate. In response to the deepening financial crisis, central Market operations remained suspended throughout banks around the world began cutting interest rates 2008. The suspension of OMO has been in place since aggressively and injected enormous amounts of liquid- June 2007 following a review of the monetary policy ity into the system to help bring back stability and nor- framework. malcy in the financial markets. At the same time, Gov- ernments around the globe started formulating and Monetary policy costs declined to $2.4 million in 2008 implementing various targeted fiscal packages worth from $9.0 million in 2007. The marked reduction in billions of dollars to help stimulate demand and sup- cost reflected no cost associated with OMO as it port the declining global economy. remained suspended. In addition, interest paid on Statutory Reserves Deposit (SRD) also fell. The SRD In addition to the deteriorating international financial is renumerated at the 91-day Treasury Bills rate plus markets, Fiji’s foreign reserves also declined during the 50 basis points. In 2008, the weighted average 91-day year as rising imports outpaced the growth in exports. Treasury Bills rate fell to 0.19 percent from 5.00 As a result, the management of reserves had to be re- percent in 2007. viewed. In particular, measures were put in place to mitigate liquidity and credit risks. This included hold- Foreign Reserves Management ing higher balances than usual in the Bank’s cash acc- ount and liquidating investments in those institutions The Reserve Bank of Fiji is vested with the powers to that had their credit ratings downgraded. manage Fiji’s foreign reserves under the RBF Act (1983). The Act states the form in which the Bank In 2008, investment of external reserves yielded a ret- shall maintain Fiji’s foreign reserves. As custodians of urn of 5.97 percent against a return of 7.42 percent national foreign reserves, the Bank is more concerned earned on the benchmark portfolio.2 The underper- about safety and liquidity before profitability is consid- formance was largely due to two factors. Firstly, the RBF ered. These parameters ensure that the value of Fiji’s portfolio being underweight in bonds compared with external reserves are preserved, easily converted to cash the benchmark portfolio, in a period when the return at any time and allow for return optimisation within on bonds was rising due to the fall in yields. approved investment guidelines. Secondly, the RBF’s portfolio was of a shorter duration The bulk of RBF’s foreign reserves holdings are invested than the benchmark. In both instances, it was difficult abroad in US dollars (USD), Euro (EUR), Japanese to replicate the benchmark in a period when foreign yen (JPY), Australian dollars (AUD) and New Zealand reserves were falling. 2 RBF benchmark portfolio uses a customised version of the JP Morgan Index. 18 Reserve Bank of Fiji MISSION : CONDUCT MONETARY POLICY TO FOSTER ECONOMIC GROWTH 1980s 2 cents coin dated 1986. The circulation of 2-cent coins have ceased from 13 October 2008. Return on Investments Under the RBF Act (1983), the Bank is required to 10 transfer one-fifth of the RRA balance to Government annually. At the end of 2008, the RRA balance was 8 RBF Benchmark $12.9 million, of which $2.6 million will be transferred to Government in 2009. In 2007, the Bank transferred 6 Percent Actual $2.8 million for this purpose. 4 Revaluation Reserve Account 2 25 0 2005 2006 2007 2008 $ Million 20 Source: Reserve Bank of Fiji Net interest income earned from offshore investments 15 in 2008 amounted to $36.5 million, compared to $32.6 million received in 2007. The increase in income was 10 due to the high interest rates booked during late 2007 J F M A M J J A S O N D through to the third quarter of 2008, before central 2008 banks around the world started slashing interest rates. Source: Reserve Bank of Fiji Return on External Reserves ($ Million) Exchange Rates 2006 2007 2008 Net interest income on Investible Reserves 20.1 32.6 36.5 In addition to foreign reserves management, the Bank Gains/Losses on Currency Trading 0.5 0.0 -0.1 also performs other responsibilities relating to foreign Gross Income 20.6 32.6 36.4 currency. Average Month-End Level of Investible Reserves 464 654 577 Annual Return on: The Bank sets the FJD/USD exchange rate daily. On RBF Benchmark (%) 4.4 4.4 7.4 RBF Portfolio (%) 5.7 5.7 6.0 each business day, the prevailing market rates of Fiji’s trading partner currencies4 against the USD are sourced Source: Reserve Bank of Fiji from Reuters. The FJD rate against the USD is derived In order to minimise fluctuations in the monthly reval- by multiplying the prevailing value of those currencies uation of foreign currency holdings, the Bank continued together with the use of the currency weights as det- to utilise its approved hedging strategy.3 In 2008, the ermined by the Reserve Bank. This rate, normally ref- Revaluation Reserve Account (RRA) recorded a gain of erred to as the mid-rate against the USD, remains un- $1.7 million compared to the $2.7 million loss incurred changed throughout the day and is sent to commercial in 2007. The gain in 2008 resulted from the significant banks by 9.00am through Reuters and Bloomberg. appreciation in the USD, JPY and EUR value against The commercial banks then use the mid-rate to set the FJD, which more-than-offset the depreciation in the their own exchange rates for the day, within regulated AUD, NZD and the SDR against the FJD over the year. spread limits. 3 Since December 2003, the hedging strategy adjusts the currency composition to take into account the holdings of the SDR portfolio. 4 Fiji’s trading partner currencies include: the USD, NZD, AUD, EUR and the JPY. Annual Report 2008 19 MISSION : CONDUCT MONETARY POLICY TO FOSTER ECONOMIC GROWTH 1980s 5 cents coin dated 1983. This will be replaced by the new coin series with existing design on 16 February 2009. Forward Facility other central banks, statutory bodies, supra-national institutions6 and the European Union. The Bank continued to monitor the Forward Foreign Exchange Facility to ensure compliance by commercial Exchange Control banks with the forward guidelines5 which were imple- mented in 2003. During the year, the guidelines were Exchange controls are administered under the Exch- relaxed to allow banks to write forward sales contracts ange Control Act (rev 1985). The formulation of exch- on certain food items. In general, the volume of new ange control policy is aimed at supporting monetary policy by safeguarding the foreign reserves position. contracts written and the number of commercial banks In 2008, selected exchange control policies were trading under the facility increased during the year co- reviewed in light of the developments in the economy mpared to 2007. as well as to facilitate investment and signal confidence. Foreign Currency Payments Compliance with exchange control policy guidelines continued to be central in the monitoring of trans- The Bank also executes foreign currency payments for actions undertaken by commercial banks and other specific organisations. These include Fiji Government, stakeholders. 5 Commercial banks are allowed to write forward sales contracts only to the extent of their forward purchases; exceptions for additional forward sales cover on investment related projects are available upon application. 6 Includes Asian Development Bank, International Bank for Reconstruction and Development and IMF. 20 Reserve Bank of Fiji MISSION : DEVELOP AN INTERNATIONALLY REPUTABLE FINANCIAL SYSTEM FINANCIAL SYSTEM REGULATION AND SUPERVISION In order to promote a sound financial structure as required under the RBF Act (1983), the Reserve Bank regulates and supervises the financial system, which comprises the banking, insurance, superannuation and foreign exchange dealer industries. This is achieved through the administration of various other legislations such as the Banking Act, the Insurance Act and the Exchange Control Act. These legislations vest the Reserve Bank with various powers, including the power to license, issue policies and directives to the financial institutions and to conduct off-site and on-site supervision. Supervisory Developments I n 2008, the Reserve Bank implemented a supervisory to provide technical assistance to Reserve Bank on risk- policy on the fitness and propriety of insurance based supervision of the FNPF. companies and insurance brokers. The Bank also began revising the existing supervisory policy overseeing The Financial System the placement of insurance business offshore. This policy is currently in consultation phase with the The financial system in Fiji comprises the banking, ins- industry and is expected to be implemented in 2009. urance, superannuation and restricted foreign exchange dealer industries, money changers, NBFIs and the South On-site examinations were conducted for nine licensed Pacific Stock Exchange (SPSE). institutions in 2008. Spot checks were also conducted for the eight foreign exchange dealers and three money In 2008, five banks and three credit institutions were changers. The Bank assessed each institution’s com- licensed under the Banking Act (1995) to operate in Fiji. pliance with the prudential policy requirements and In the insurance industry, two life insurance companies, regulatory policies. The institutions’ licences were ren- eight general insurance companies, four insurance ewed as compliance with renewal requirements was brokers and 378 agents were licensed under the Insu- met. rance Act (1998). In addition, the FNPF continued to be the sole player in the superannuation industry. The The Reserve Bank developed a supervisory framework FNPF is supervised by the Reserve Bank under the to guide the implementation of appropriate prudential Insurance (Amendment) Act 2003. Furthermore, eight policies and standards to regulate the payments system. restricted foreign exchange dealers and three money Work on the supervision and regulation of the payment changers were licensed under the Exchange Control Act system is expected to continue in 2009. (rev 1985). Licensed Financial Entities including Branches/Agencies (Number) As part of its role in monitoring the soundness of Fiji’s 2004 2005 2006 2007 2008 financial system, the Bank also assessed the impact of Commercial Banks1 6 6 6 6 5 the global financial crisis on licensed institutions. Close Branches/Agencies 107 106 108 110 120 supervision of the respective institutions will continue Credit Institutions 3 3 3 3 3 in 2009. Branches/Agencies 9 9 11 11 11 Life Insurance Companies 2 2 2 2 2 In supervising the FNPF, the Bank has continued with General Insurance the adoption of a risk-based supervisory approach with Companies2 8(r) 8(r) 8(r) 8(r) 8 both on-site and off-site surveillance as a fundamental Insurance Brokers 4 4 5 5 4 part of supervision. This approach relies on the key over- Insurance Agents3 318(r) 314(r) 336(r) 385(r) 378 sight functions of the FNPF to effectively manage risk Foreign Exchange Dealers 8 8 8 8 8 on a day-to-day basis. The Governance of the Board and Money Changers 4 4 4 3 3 Senior Management was assessed against the perform- 1 Excludes Asset Management Bank in 2008 since it is under the controll- ance of functions to which they provide oversight. The 2 ership of the Reserve Bank of Fiji. Includes FAI Insurance (Fiji) Limited, which is currently being wound up. level of capital and earnings are also considered after 3 An agent may hold more than one licence to sell various classes of insur- ance in a calendar year. assessing net risk. During the year, the IMF continued Source: Reserve Bank of Fiji Annual Report 2008 21 MISSION : DEVELOP AN INTERNATIONALLY REPUTABLE FINANCIAL SYSTEM More points of representation for commercial banks over the year more-than-offset the decline registered were established in 2008. The monitoring of the in cash and settlement balances with the central bank Insurance Trust of Fiji continued. The Bank also contin- and investments by $292.0 million and $94.2 million, ued the controllership of the Asset Management Bank respectively. (AMB) in 2008, which is expected to extend into 2009. Commercial Banks’ Assets Balances due from Banks Investments 4,000 Other Assets Total assets of the financial system grew by 2.9 percent Loans, Lease and Advances to $9.6 billion in 2008. The FNPF contributed largely 3,000 $ Million to this growth, reflecting an increase in gross assets by 7.5 percent to $3.7 billion. 2,000 1,000 The banking industry, credit institutions and insurance companies comprised 41.7, 3.6 and 8.4 percent of the 0 gross assets of the financial system respectively, while 2004 2005 2006 2007(r) 2008 the remaining balance was held by the FNPF and other Source: Reserve Bank of Fiji NBFIs. The financial institutions (including FNPF) which are regulated by the RBF accounted for 92.2 As at the end of 2008, gross loans and advances stood percent of the total assets of the financial system in at $2.9 billion. This represented an increase of 14.4 Fiji in 2008. percent over the year compared to a 1.4 percent increase in 2007. The commercial banks’ consolidated balances Gross Assets of the Financial System ($ Million) due from banks account indicated an increase of 36.9 2004 2005 2006 2007(r) 2008 percent to $246.0 million. The growth resulted from Regulated Financial Entities an increase in the overnight inter-bank activities due Commercial Banks 2,626 3,043 3,547 3,962 4,008 to tight liquidity levels recorded at the end of 2008. Credit Institutions 293 362 401 370 348 Insurance Companies 668 711 705 825 804 The structure of the loan portfolio for banks remained FNPF 2,937 3,074 3,337 3,437 3,696 relatively similar to that of 2007. Private sector business Total 6,524 7,190 7,990 8,594 8,856 entities dominated the portfolio accounting for 68.8 Non Regulated Financial Entities percent of lending assets, followed by private indivi- duals accounting for 28.0 percent. The remainder of Other NBFIs 1 555 647 736 738 748 the portfolio was held by the private enterprises and Total 555 647 736 738 748 statutory bodies. Total Financial System 2 7,079 7,837 8,726 9,332 9,604 1 Includes Fiji Development Bank, Housing Authority and Unit Trust of Fiji but excludes FNPF The banking industry’s total investments declined over and AMB. 2 Excludes Reserve Bank of Fiji. the year from $352.2 million in 2007 to $258.0 Source: Reserve Bank of Fiji million. Cash and settlement balances reduced from $428.7 million to $136.7 million in 2008. Performance of the Banking Industry In terms of the industry’s liabilities, a large decline in The banking industry is assessed to have performed deposits was recorded over the year, while balances satisfactorily in 2008. The size of the industry due to other banks in Fiji, Head Offices and branches continued to expand, albeit marginally. Capital levels abroad, money at call and other liabilities increased. remained strong, earnings and asset quality improved Total deposits declined to $3.2 billion while balances while liquidity levels declined significantly over the due to other banks increased to $126.8 million. year. The decline in deposits was attributed to demand In 2008, the banking industry grew marginally by 1.2 deposits contracting by 18.0 percent to $1.3 billion. percent over the year to $4.0 billion, largely under- This offsets the increase noted in savings and time pinned by the growth in loans & advances portfolio deposits of 8.2 percent and 7.7 percent, respectively. ($370.5m), balances due from banks ($66.3m) and At year end, time deposits totalled $1.2 billion, while other assets ($22.1m). The increase in these assets savings deposits stood at $0.7 billion. 22 Reserve Bank of Fiji MISSION : DEVELOP AN INTERNATIONALLY REPUTABLE FINANCIAL SYSTEM 1990s 5 cents coin dated 1997. A special coin to commemorate Food and Agricultural Organisation’s “Har- vest from the Sea” Campaign. Components of Deposits Asset quality has improved over the year as decreases Demand Deposits 1.800 Time Deposits were noted in total impaired accounts, classified acc- 1,600 Savings Deposits ounts and past due levels. However, these levels remain 1,400 higher when compared to years prior to 2007. 1,200 $ Million 1,000 Total classified exposures declined significantly by 800 43.5 percent to $86.8 million. Of the classified port- 600 folio, $48.3 million is impaired (a decline of $4.1m 400 from $52.5m). As a result, the total classified ratio has 200 also fallen to 3.0 percent from 6.0 percent in 2007. 0 2004 2005 2006 2007(r) 2008 Source: Reserve Bank of Fiji Total past due levels for the industry also declined by In terms of sectoral breakdown, private business entit- $17.5 million to $77.8 million. This was attributed ies accounted for majority of the total commercial to a decline of $22.9 million and $9.1 million for the bank deposits, holding approximately $1.3 billion 1-3 months and 3-6 months categories, respectively. (40.6%) in December 2008. This was followed by the However, increases were noted in the 6 months-1 year private individuals closely at 34.8 percent with the re- ($6.4m), 1-2 years ($6.7m) and over 2 years ($1.4m). maining held by non-banks. Following the improvement in the commercial banks’ Arising from the increase in profits of banks and capital classified and impaired exposures, total provisions injection by one institution, total capital and reserves declined from $68.8 million to $63.3 million. As such, rose by $104.6 million to $393.5 million in 2008. specific provisions covered 21.9 percent of total class- ified loans while general provisions covered 1.5 percent All commercial banks have been assessed to be well ca- of gross loans. pitalised and fully compliant with the minimum man- datory capital adequacy requirement of 8.0 percent. The private individual’s category accounted for The aggregate industry capital adequacy ratio was 14.5 majority of the problem loans at 39.3 percent, followed percent as at 31 December 2008, a 138 basis points by wholesale & retail entities (26.6%), real estate increase from end 2007. (16.6%), manufacturing (7.6%) and the remainder being distributed among other sectors. The rise largely emanated from a relatively higher increase in total capital of 32.3 percent which more- The industry’s profitability for the 2007-2008 finan- than-offset the 19.8 percent growth in total risk- cial year-end rose as earnings before tax and extra weighted assets of the commercial banks. ordinary items grew by 39.5 percent to $143.5 million. Asset Quality 160 Total Past Due 8 Consolidated commercial banks’ before-tax return on 140 Impaired Assets 7 average assets for the financial year was 3.8 percent, 120 Classified Exposures 6 an increase of 79 basis points over the year. Under- Classified as % of Lending 100 5 pinning the relatively higher earnings was a decline in $ Million Percent 80 4 bad debts and provisions expenses by 62.6 percent 60 3 coupled with an increase in net interest income by 40 2 22.3 percent. Operating expenses increased due to a 20 1 rise in personnel expenses and depreciation /amortisa- 0 0 tion expenditure. As a result, the banking industry’s 2004 2005 2006 2007(r) 2008 efficiency ratio improved to 46.9 percent. Source: Reserve Bank of Fiji Annual Report 2008 23 MISSION : DEVELOP AN INTERNATIONALLY REPUTABLE FINANCIAL SYSTEM 1 Summary of Commercial Banks’ Profitability ($ Million) Commercial Banks’ Interest Rate Spread 2004 2005 2006 2007(r) 2008 10 Net interest 9 income 104.2 117.0 142.3 153.3 187.4 8 Yield on Earning Assets Add: Non interest 7 income 80.8 91.6 89.2 90.8 96.5 6 Percent Spread Income from 5 overseas exch 4 -ange transact -ions 30.3 32.4 36.4 38.8 44.3 3 Cost of Funding Liabilities Commission 2 and Charges 48.6 52.1 51.4 48.4 54.2 1 Other income 1.9 7.0 1.4 3.6 (2.0) 0 2004 2005 2006 2007(r) 2008 Total operating income 185.1 208.6 231.5 244.1 283.9 Source: Reserve Bank of Fiji Less: Operating expenses 91.9 98.3 108.4 121.7 133.0 Less: Bad debts Total liquid assets as at the end of December 2008 was and Provisions 9.5 7.6 (1.4) 19.5 7.3 $640.7 million, an annual decrease of 9.9 percent. Profit before tax and extraordinary The decline in liquid assets stemmed from a con- items 83.6 102.7 124.6 102.8 143.5 traction in the commercial banks’ investments and ca- Less: Tax 25.6 29.9 36.8 30.1 41.8 sh and balances with the central bank. This caused the Net profit after tax 57.9 72.9 87.7 72.7 101.7 ratio of readily marketable assets to reduce to 20.2 per- Add/Less: Extra- cent from 29.2 percent in 2007. However, large dep- ordinary items 1.8 0.0 0.0 0.0 0.0 ositors as a percentage of total deposits indicated a Net profit after tax and extraordinary marginal decrease of 3.7 percent from 30.6 percent in items 59.7 72.9 87.7 72.7 101.5 2007. Average Assets 2,280.8 2,543.0 2,941.0 3,403.0 3,766.7 After Tax Return on Equity (ROE) (%) 34.5 38.9 39.7 28.4 32.2 Short-term deposits as at 31 December 2008, were Efficiency (%) 49.7 47.1 46.8 49.9 46.9 $929.9 million, representing 29.4 percent of total Yield on Earning deposits. With liquidity tightening by the end of 2008, Assets (%) 6.1 5.9 7.0 8.8 7.5 interest rates on term deposits are envisaged to rise in Cost of Funding 2009, as commercial banks may work towards increa- Liabilities (%) 0.9 0.8 1.7 3.8 1.9 sing their liquidity levels. 1 Financial year-end profits for all commercial banks used. Source: Reserve Bank of Fiji Deposits Coverage Short-Term Deposits 1 Readily Marketable Assets Banks’ Profitability as a Percent of Average Assets 40 15 Large Depositors 2004 2005 2006 2007(r) 2008 35 Net Interest Income 4.6 4.6 4.8 4.5 5.0 30 Charges for Bad 25 Percent & Doubtful Debts 0.4 0.3 (0.1) 0.6 0.2 20 Non Interest Income 3.5 3.6 3.0 2.7 2.6 15 10 Operating Expenses 4.0 3.9 3.7 3.6 3.5 5 0 Net Profit Before 2004 2005 2006 2007(r) 2008 Tax (ROA) 3.7 4.0 4.2 3.0 3.8 Source: Reserve Bank of Fiji Net Profit After Tax (ROA) 2.6 2.9 3.0 2.1 2.7 1 Financial year-end profits for all commercial banks used. Credit Institutions Source: Reserve Bank of Fiji Credit institutions’ performance was assessed to be The banking industry’s spread widened to 5.7 percent, satisfactory in 2008. Over the year, despite a con- following a contraction in 2007. While there was a traction of the balance sheet and a reduction in loans, general decline in both the yield on earning assets and improved profits were noted. Capital remained at cost of funding liabilities, cost of funds reduced at a strong levels while asset quality deteriorated and faster pace causing the overall widening of the spread. liquidity dropped. 24 Reserve Bank of Fiji MISSION : DEVELOP AN INTERNATIONALLY REPUTABLE FINANCIAL SYSTEM 1980s 10 cents coin dated 1986. This will be replaced by the new coin series with existing design on 16 February 2009. The consolidated credit institutions’ balance sheet Credit institutions recorded an improved before-tax registered a contraction of 5.9 percent to $348.1 mill- profit of $18.6 million from 2007. This was mainly ion. The contraction was largely due to a decline in led by a growth in net interest income and non interest balances with banks by $13.8 million and loans & adv- income while operating expenses declined. ances by $14.6 million. The contraction more-than- offset the growth noted in investments ($4.2m) and Net interest income rose by $6.3 million due to an other assets. increase in interest income (by $2.1m) and a decrease in interest expenses of $4.1 million. An increase of Total loans reduced to $289.3 million from $303.9 $1.5 million in non interest income was also noted million in 2007. Similar to the banking industry, credit due to income from fees and charges. A decrease in institutions’ loans were dominated by private sector operating expenses was attributed to a decline in business entities (62.1%) and private individuals personnel expenses. (37.8%). Fixed Assets Credit institutions also recorded an efficiency ratio of Credit Institutions' Assets 31.3 percent, due to the high level of before-tax profits. Balances due from Banks Investments Other Assets This was largely contributed by one institution 500 recording high profits. Interest spread widened over Loans, Lease and Advances 400 2008 from 6.8 percent to 8.9 percent. This was the $ Million 300 result of an increase in yield on earning assets (from 200 13.5% to 14.3%) while cost of funds declined (from 100 6.8% to 5.4%). 0 2004 2005 2006 2007(r) 2008 Liquid assets during the review period reduced by $9.6 million to $37.4 million. The decline mainly resulted Source: Reserve Bank of Fiji from a reduction in balances with banks. In terms of liabilities, the contraction was mainly underpinned by a decline in total deposits by 25.3 The Insurance Industry percent to $167.3 million while loans from holding company rose further to $75.9 million from $53.5 The insurance industry’s performance in 2008 was million in 2007. assessed to be satisfactory amidst unfavourable economic conditions. Combined assets fell by 2.6 The capital adequacy ratio for credit institutions percent over the year to $804.2 million (2007: increased by 2.8 percent to 25.2 percent from 22.4 $825.9m). This was the result of a decrease in assets percent recorded in 2007. Therefore, credit institutions for the life insurance sector which continues to hold are well capitalised against the minimum requirement the majority of the market share, accounting for 69.2 of 10.0 percent. The rise is attributed to a 6.1 percent percent of the insurance industry’s total assets. increase registered in total capital when compared to Investments continued to dominate the industry’s a decline of 5.6 percent in total risk-weighted assets of asset portfolio with Government securities and bank the credit institutions. deposits being the preferred mode of investment by insurers. The asset distribution pattern remained Contrary to banks, credit institutions’ asset quality unchanged over the year. deteriorated with increases noted in classified assets (by 37.1%), impaired exposures (by 48.3%) and past The Insurance Act (1998) requires that all licensed due accounts (by 20.6%). The increase in past due insurers, hold a minimum surplus level of assets over accounts was mainly noted for the 1-2 year category. liabilities at all times. This requirement is typically referred to as the required solvency margin. For 2008, In line with the increase in classified exposures and all insurers were assessed to have held adequate capital past due accounts, total provisions of the credit and were in compliance with the statutory solvency institutions also grew by 26.0 percent to $20.1 million. requirement. Likewise, specific provision covered 64.1 percent of classified accounts while general provisions covered Total premium income collected by insurers grew by 2.6 percent of gross loans & advances. 4.8 percent over the year to $175.4 million. Premium Annual Report 2008 25 MISSION : DEVELOP AN INTERNATIONALLY REPUTABLE FINANCIAL SYSTEM growth was recorded in both the life and general ins- Investments formed the bulk of the FNPF’s assets urance sectors. Net claims paid, however, registered a amounting to $3.5 billion compared to $3.1 billion decline of 7.5 percent over the year to $95.4 million in December 2007. Cash and fixed interest-bearing (2007: $103.2m). This was due to the large decline securities accounted for 82.4 percent and growth assets in claims paid out by the life insurance sector, whilst accounting for 17.6 percent of the FNPF’s total assets. the general insurance sector experienced only a slight decline. Members’ balances grew by 5.5 percent to $2.6 billion, noting a marginal decrease over the year (2007: 5.7%). Though the Bank is not empowered under the Ins- In 2008, a rise in general reserves resulted in the overall urance Act (1998) to arbitrate in disputes between increase of reserves by 9.5 percent to $967.4 million. insurers and policyholders, assessment of complaints On the contrary, in 2007, there was a decline of 3.1 received were conducted. The Reserve Bank’s stance percent for the same. was made clear to both the insurer and the complainant ensuring fair treatment of policyholder complaints Total contributions collected by the FNPF in 2008, and claimants. fell by 2.9 percent to $289.3 million, compared to a growth of 4.8 percent for the same period in 2007. The Reserve Bank continued to examine and approve On the other hand, total withdrawals by members insurance cover to be placed with offshore insurers grew by 0.8 percent to $286.0 million, as compared where cover is not available locally, or where the local to a growth of 4.8 percent in 2007. premium is 15.0 percent more than that of offshore insurers. The number of approved applicants increased Meetings from 486 in 2007 to 647 for 2008. The total premi- ums remitted, however, experienced only a slight inc- Quarterly meetings with the Association of Banks in rease from $23.1 million in 2007 to $24.5 million, Fiji (ABIF) and the Association of Foreign Exchange indicating a softening of the insurance market offshore. Dealers continued in 2008. Meetings with the individual commercial banks, insurance companies Fiji National Provident Fund and the FNPF were also conducted. As at 31 December 2008, total assets of the FNPF In June 2008, the Bank facilitated the revival of the stood at $3.7 billion. This represented an annual collective Insurance Task Force with membership increase of 7.5 percent compared to 3.0 percent for comprising insurance companies, insurance brokers the same period in 2007. This growth is reflected and the Reserve Bank. At its quarterly meetings, the mainly in investments comprising customer term Task Force was further divided into two Sub-Comm- loans, Government securities and quasi Government ittees focusing on issues that affect the insurance bonds. industry, directly and indirectly. 26 Reserve Bank of Fiji MISSION : DEVELOP AN INTERNATIONALLY REPUTABLE FINANCIAL SYSTEM COMBATING MONEY LAUNDERING Fiji’s primary legislation for combating money laundering is the Financial Transactions Reporting (FTR) Act (2004). The FTR Act sets out certain measures that the Fiji Government and local financial institutions must implement to combat money laundering in Fiji. The Financial Intelligence Unit (FIU) is an agency established under Section 25 of the FTR Act (2004) that is responsible for administering and enforcing the FTR Act. The FIU is administered and funded by the Reserve Bank pursuant to the delegation of powers by the Minister for Justice to the Governor of the Reserve Bank of Fiji. The FIU is responsible to the Governor of the Reserve Bank in the discharge of its powers and functions. Implementation of the FTR Act and Regulations institutions to report any suspicious transactions to A lthough the FTR Act was enacted in 2004, its implementation was staggered over 36 months. This was to ensure that all stakeholders were well informed and prepared, in the FIU. The FIU receives these suspicious transaction reports (STRs) and analyses them for possible money laundering activities. Reports which the FIU reasonably believes to involve money laundering activities or other particular the commercial banks and other financial institutions that are covered under this legislation. serious offences are referred to the relevant law enfor- cement agencies for formal investigations. Most parts of the FTR Act were implemented on 1 In 2008, the FIU received 479 STRs from various January 2006 while the remaining provisions were financial institutions in Fiji. This was an increase of brought into force on 1 January 2008, as this required 78.7 percent from 2007 mainly as a result of better additional preparatory time for IT system develop- understanding of reporting obligations and inclusion ment. The FTR Regulations, which provide detailed of new reporting institutions. Some financial instit- guidelines on the implementation of customer due utions also began to report STRs electronically to the diligence and other measures for financial institutions, FIU. were also introduced in 2008. Suspicious Transactions Reported to the FIU In 2008, local financial institutions dedicated subs- Year 2000-2004 2005 2006 2007 2008 Total tantial resources and efforts in reviewing and develop- Total 865 280 215 268 479 2,107 ing systems, processes and policies to implement the STRs various requirements of the FTR Act and Regulations. Reporting Financial Institutions 2000-2008 The requirements related to identification of cust- Reporting Financial Entities or Persons No. of STRs omers, monitoring of customer transactions and Received reporting of certain types of transactions to the FIU. Commercial Banks 1,987 Finance Companies and Superannuation 21 To assist financial institutions in their implementation Public 22 Insurance Companies 4 programs, the FIU provided training, advice and 1 Money Remittance Service Providers 63 guidance on policy issues and initiated various Accounting Firms 2 meetings with financial institutions and industry Real Estate Agency 1 groups to discuss implementation issues and Regulatory Authorities 4 Law Firms 3 challenges. TOTAL 2,107 1 Includes foreign exchange dealers. Receipt and Analysis of Financial Information Source: Financial Intelligence Unit A key measure for combating money laundering in The FIU completed the analysis of 372 STRs in 2008 Fiji is the requirement under the FTR Act for financial which resulted in the dissemination of 202 case reports Annual Report 2008 27 MISSION : DEVELOP AN INTERNATIONALLY REPUTABLE FINANCIAL SYSTEM to relevant law enforcement agencies such as the Fiji with 15 adversely reported individuals and seven bus- Police Force, FIRCA and the Transnational Crime Unit. iness entities. Around 65.0 percent of cases were referred to FIRCA for possible tax related offences. In addition, one directive was sent to a local commercial bank instructing the financial institution to take certain Case Reports Disseminated to Law Enforcement Agencies precautionary measures in conducting transactions in Number of STR Case Reports Disseminated a bank account that allegedly held proceeds of crime. 2000-2004 2005 2006 2007 2008 TOTAL This particular case resulted in FIU issuing its first Inland Freezing Order under Section 25(2) of the FTR Act. Revenue Services 125 30 14 60 131 360 Assistance to Partner Agencies Police 21 17 12 12 25 87 Immigration 3 14 15 20 7 59 The FIU provides assistance to other Government Customs 3 0 0 0 4 7 agencies in the form of conducting background and Others 1 13 20 21 35 90 credibility checks on persons of interest. In 2008, there TOTAL 153 74 61 113 202 603 were 41 requests received from Government agencies Source: Financial Intelligence Unit for credibility checks on 61 business entities and 120 individuals (consisting mainly of foreign nationals). The FIU also receives other types of reports from financial institutions, namely: In addition, the FIU attended to 70 requests for inv- 1. reports of all cash transactions of $10,000 and estigative assistance from domestic and foreign law above; and enforcement agencies, including FIUs in other juris- 2. reports of all international electronic fund transfer dictions. The information and assistance provided to transactions. these agencies were related to investigations of money laundering and other serious offences. The FIU received 38,780 cash transaction reports and 94,911 international electronic fund transfer Fiji FIU Information Management System Online transactions in 2008. These reports were used by the FIU for analysis and gathering intelligence on possible A major achievement for the FIU in 2008 was the roll- money laundering activities or other serious offences out of its secure online electronic reporting system, and for building profiles on persons of interest to law Fiji FIU Information Management System Online enforcement agencies. (FFIMSO). This system enables financial institutions Measures for Detecting Currency Smuggling to report their transactions to the FIU electronically through the internet. A total of 26 financial institutions at Fiji’s Borders have been registered to report their suspicious, cash The FTR Act requires travellers into and out of Fiji to and electronic fund transfer transactions to the FIU declare to Customs officials at the borders if they are using FFIMSO. carrying currency or negotiable bearer instruments of $10,000 and above. These reports are then submitted FFIMSO is also a data management system which to the FIU for analysis for possible smuggling of enables the FIU to effectively store and manage the currency or proceeds of crime across Fiji’s borders. substantial financial data it receives from financial institutions. This provision came into force in January 2008. A total of 198 border currency declaration reports were Networking and Information Sharing received by the FIU in 2008. In 2008, the FIU signed Memoranda of Agreement FIU Alert Notices, Directives and Freezing Order (MOA) with the Ministry of Justice, the Fiji Islands Trade and Investment Bureau (FTIB) and the Fiji Police The FIU issued five alert notices to financial instit- Force. These MOA allow for networking and inform- utions advising them to undertake enhanced scrutiny ation exchange between the FIU and these agencies for and customer due diligence procedures when dealing the purpose of combating money laundering. 28 Reserve Bank of Fiji MISSION : DEVELOP AN INTERNATIONALLY REPUTABLE FINANCIAL SYSTEM 1990s 20 cents coin dated 1998. This will be replaced by the new coin series with existing design on 16 February 2009. National and International Initiatives viding short-term work attachments for FIU officials from the Solomon Islands and the Federated States of In relation to international initiatives in 2008, the FIU Micronesia. applied for membership to the Egmont Group7 which is expected to be finalised by mid-2009. Public Awareness The FIU and the Reserve Bank are members of the The FIU was actively involved in providing awareness National Anti-Money Laundering (AML) Council.8 and educating members of the public and customers The FIU provided secretarial support for the four of financial institutions on the requirements under meetings of the Council in 2008. The main focus of the FTR Act. The FIU website (www.fijifiu.gov.fj) was the Council’s activities during 2008 was implementing another awareness and educational tool that enabled recommendations of the 2006 Fiji Mutual Evaluation financial institutions to directly access information on Report by the World Bank. the FIU and AML policies. The FIU also contributed towards regional AML In 2008, there were featured appearances of FIU on initiatives by supporting the programs of the Asia national television, articles in the local print media Pacific Group (APG) on money laundering and pro- and Press Releases on Fiji’s AML framework. 7 The Egmont Group is an association of FIU’s from various jurisdictions. This Group aims to enable members to cooperate and exchange information and intelligence related to the investigation of money laundering activities. 8 The Council is established under Section 35 of the FTR Act and is responsible for advising Government and formulating national policies on AML matters. Annual Report 2008 29 MISSION : DEVELOP AN INTERNATIONALLY REPUTABLE FINANCIAL SYSTEM CURRENCY Pursuant to Section 4(a) of the Reserve Bank Act (1983), the Bank is charged with regulating the issue of currency in Fiji. The Bank is responsible for maintaining adequate supply of quality banknotes and coins in circulation. Reserve Bank issues banknotes and coins that are commensurate with demand for payment purposes and redeems any banknotes or coins that are mutilated and/or no longer needed and destroys them accordingly. It also determines the denomination and design of Fiji’s banknotes and coins with the approval of the Minister for Finance. Currency Strategic Review the Bank facilitated the collection of these coins from W ork continued on the Fiji Currency Strategic Review Part II, review of coins. around the country. A total of 120 tonnes of 1 and 2- In October 2008, the Reserve Bank cent coins with a face value of approximately $0.33 ceased the issue of the 1 and 2-cent coins and in million was collected. The Reserve Bank is indebted December 2008 the new coins were unveiled in a to the cooperation of the public and the commercial ceremony at the Bank by the former Governor, Mr. banks and looks forward to continuing this goodwill Savenaca Narube. during the more daunting task of collecting the existing coins after the changeover in February 2009. The new 5, 10, 20, 50 cents and $1 coins have the sa- me design as the existing coins for each denomination. Note Processing Machine They are, however, noticeably smaller, thinner, lighter and shinier without compromising durability. The To achieve a greater level of note processing efficiency new coins will be issued to the public in February for the new design and upgraded security banknotes, 2009 and will co-circulate with the existing coins until the Bank commissioned a new Note Processing Mac- 30 April, 2009. After this, with the exception of the hine in May 2008. The CPS1500 Currency Processing $1, the old 1, 2, 5, 10, 20 and 50 cents coins will be System was purchased through tender, awarded to De demonetised, or cease to be legal tender. Demonetised La Rue Cash Systems Pty Limited of Australia, for $1.5 currency can only be redeemed at face value, and only million. The tender was awarded on pricing, state-of- at the Reserve Bank. the-art note detection/authentication features, after sales service and support. The CPS1500 has the pot- During the course of the review, the Bank held wide ential throughput of counting 1,500 notes per minute, consultations with stakeholders right across the five times faster than its predecessor, the CPS300. The country. In a significant change such as this, adj- new machine also possesses a document imaging feat- ustments need to be made by the general public, the ure which photographs the obverse and reverse of each banks, the vending machine operators and municipal note during counting and sorting. At the back-end, the councils. The Reserve Bank has, however, emphasised CPS1500 is equipped with an on-line shredder which in its awareness campaign that the change to lighter maintains independent and verifiable processing re- and smaller coins is very much in the interest of the cords. country as they are significantly cheaper to mint. It is anticipated that organisations like commercial banks To accommodate the new machine the Note Processing and municipal councils will be able to save money due Room was refurbished to the specifications of the to lowering of transportation, handling and storage manufacturers of the CPS1500 and a two week inten- costs. sive off-site service and technical engineering support training was completed by the Technical Officer Cur- After the cessation of the 1 and 2-cent coins in October, rency in January 2008. 30 Reserve Bank of Fiji MISSION : DEVELOP AN INTERNATIONALLY REPUTABLE FINANCIAL SYSTEM 2000s 20 cents coin dated 2003. A special coin to commemorate the 2003 South Pacific Games. The Reserve Bank extends its appreciation to De La The issuance of the $100 note experienced the highest Rue Cash Systems for the supply and installation of decrease of 31.8 percent to $49.5 million following the CPS1500 which included bolting the system, fine- its initial release of the new denomination in 2007. tuning, conducting test runs and site acceptance tests There were more $20 and $50 notes issued due to over a period of six weeks. their predominant use in Automated Teller Machines (ATM). Currency in Circulation Notes Issued in 2008 (Total Value: $513.6 Million) Total currency in circulation increased in 2008 by 2.6 $100 $49.45m percent to $390.9 million with notes and coins $50 $225.25m accounting for $364.9 million and $26.0 million, $20 $12.57m respectively. $10 $15.32m $5 $77.54m $2 Notes & Coins in Circulation ($ Million) $133.44m 2006 2007 2008 Notes 328.0 354.6 364.9 Source: Reserve Bank of Fiji Coins 25.2 26.3 26.0 Currency in Circulation 353.2 380.9 390.9 For coins issued, the 10 cents denomination exper- Source: Reserve Bank of Fiji ienced the highest increase of 29.9 percent to $0.4 million. The issuance of 1 and 2-cent coins was discont- The $100 note experienced the highest increase of inued from 13 October 2008 with the approval of the 43.7 percent to $99.1 million and formed 25.4 percent Minister for Finance. The fluctuations in demand ref- of the value of notes in circulation. lect the pricing structure of goods and services. Coins Issued in 2008 (Total Value: $4.6 Million) The marginal decrease in the total coins in circulation over 2007 is attributed to the Coin Recall Program for $1 $0.15m the 1 and 2-cent coins initiated in October 2008 which 50c resulted in 13.5 million 1 cent coins and 9.5 million 20c $1.9m $0.21m 2-cent coins being withdrawn from circulation. 10c 5c $0.20m Cost of Currency 2c $0.97m 1c $0.81m $0.4m The cost of currency issued in 2008 decreased from $3.5 million to around $2.0 million of which about Source: Reserve Bank of Fiji $1.6 million and $0.4 million were for notes and coins, Arising from the cessation of issue of 1 and 2-cent respectively. The high cost in 2007 was mainly due to coins, the Bank issued a guideline on the “rounding- the introduction and high issuance of new design notes. off” principle to facilitate the absence of 1 and 2-cent coins. The Bank worked closely with the Prices and Cost of Currency Issued ($ Million) Incomes Board, Consumer Council of Fiji, Commerce 2006 2007 2008 Commission and FIRCA (VAT Unit) in ensuring roun- Notes 1.38 3.01 1.64 ding off was correctly applied. Coins 0.32 0.50 0.35 Total 1.70 3.51 1.99 Note Processing Operations Source: Reserve Bank of Fiji Commercial banks redeposited 24.3 million notes Banking Transactions valued at $417.8 million with the Reserve Bank. A to- tal of $418.8 million was processed over 2008 of which Currency issued to commercial banks decreased by 52.3 percent were reissued to commercial banks for 15.9 percent to $518.2 million, with $513.6 million issue into circulation. The balance deemed unfit for and $4.6 million in notes and coins, respectively. circulation was consequently destroyed. The higher Annual Report 2008 31 MISSION : DEVELOP AN INTERNATIONALLY REPUTABLE FINANCIAL SYSTEM percentage of notes reissued into circulation is attr- banknotes. The Reserve Bank continued to assist the ibuted to the new design banknotes with the improved Fiji Police Force in investigations in order to eradicate platinum® substrate. These notes have proved su- counterfeiting in Fiji. ccessful in increasing note circulation life. Counterfeits Summary Notes Processed 2007 2008 Value Number Value Number 2007 2008 ($) of Notes ($) of Notes Value Pieces Value Pieces ($ Million) (Million) ($ Million) (Million) $2 8 4 10 5 $5 115 23 30 6 Notes Fit 112.0 3.4 219.1 9.2 $10 390 39 90 9 Notes $20 740 37 660 33 Destroyed 302.2 17.5 199.7 11.6 $50 5,550 111 2,500 50 $100 200 2 2,000 20 Total Processed 414.2 20.9 418.8 20.8 Total 7,003 216 5,290 123 Source: Reserve Bank of Fiji Source: Reserve Bank of Fiji Mutilated Notes Numismatics Numismatic income increased in 2008 by 166.5 A total of $211,196 was reimbursed during the year, percent to $349,967 over $131,321 in 2007. The rise to commercial banks and individuals for mutilated in income is attributed to increase in royalty receipts currency including old design note claims. from coin programs internationally. Counterfeit Banknotes The Reserve Bank finalised the following coin programs with the New Zealand Mint during 2008: The $50 note continued to be the most counterfeited denomination, followed by the $20 and $100 deno- Coin Program minations. The $2 note remained the least count- erfeited denomination. The total value of counterfeits Number of Coins Minted in relation to the value of currency in circulation, how- Game Fish of the Pacific 20,000 ever, remained negligible at less than 1.0 percent. Famous Airships 80,000 Last Russian Royal Family 80,000 Training and media awareness campaigns were con- ducted prior to the introduction of the new design Source: Reserve Bank of Fiji 32 Reserve Bank of Fiji MISSION : DEVELOP AN INTERNATIONALLY REPUTABLE FINANCIAL SYSTEM 2000s 50 cents coin dated 2005. This will be replaced by the new coin series with existing design on 16 February 2009. Features of the new Fiji coins The new Fiji coins scheduled for issue on 16 February 2009 are on average nine percent smaller, 43 percent lighter and 21 percent thinner. Technical Specifications The 5 cents will now be the smallest sized coin, while the 10, 20 and 50-cent coins will be progressively larger. The $1 coin will retain its existing diameter. The existing colour of all denominations will remain the same with the 5, 10, 20 and 50 cents in silver and $1 in yellow. All coins will now be round, as round coins are easier to handle, are more readily acceptable in vending machines and more economical to produce. Designs The existing designs have been retained on the front (obverse) and back (reverse) of the coins as a public recognition feature to assist in the smooth transition and acceptance of the new coins. Multi-ply Technology The metal composition has changed and coins are manufactured in ‘multi-ply’ layers patented by the Royal Canadian Mint. The ‘multi-ply’ offers greater security, reliability and durability and gives the coins unique electromagnetic signatures (EMS). This technology enables coins to have different EMS as a vending machine recognition feature to reject foreign coins. The new coins have been successfully tested in parking meters and vending machines. Durability The Royal Canadian Mint’s rigorous tests confirm that the new coins are resistant to corrosion. On average, they have a life span of approximately 25 years. These tests have been corroborated by independent tests conducted by the Reserve Bank of New Zealand during their evaluation of similar coins used in New Zealand. Assistance for the Visually Impaired The new coins have varied edging designs which serve as an identification and differentiating feature for the visually impaired and the general public. The 5-cent coin has plain edging, the 10 cents has serrated or rough edging, the 20 cents has intermittent serrations and the 50 cents and $1 have serrated edgings. Cost Savings A cost savings of $5.0 million has been realised by not minting the 1 and 2-cent coins with a further $3.0 million saved by reducing the size, weight and metallic composition. These savings will also apply during coin reorders. Savings in Handling, Transportation and Storage In view of the significant reduction in size and weight of the new coins, individuals and businesses will save substantial costs in terms of transportation, handling and storage. Annual Report 2008 33 MISSION : DEVELOP AN INTERNATIONALLY REPUTABLE FINANCIAL SYSTEM FIJICLEAR FIJICLEAR, (Fiji’s Real Time Gross Settlement System) completed one year of its operations on 30 August 2008. A general upward trend in usage has been noted. The system continued to operate smoothly since going live a year ago. FIJICLEAR enables settlement of transactions on a real-time basis, hence substantially reducing systematic risk in the financial system. average gross value of payments rose by 40.8 percent FIJICLEAR Transactions Gross Payments No. of transactions to $5.2 billion. 7,000 2,500 The Bank worked very closely with the ABIF to increase 6,000 5,000 2,000 customer usage through its awareness programs. These $ Million Number 4,000 1,500 included presentations to stakeholders and availing 3,000 1,000 FIJICLEAR brochures to the commercial banks for 2,000 distribution to general public. All commercial banks 500 1,000 recorded growth in the number of transactions made 0 S O N D J F M A M J J A S O N D 0 through the system. In addition, given the benefits of 2007 2008 electronic payments, there was a notable increase in Source: Reserve Bank of Fiji small value customer payments made through FIJI- CLEAR. T he number of transactions as well as the value of payments rose in 2008. Average monthly transactions rose by 34.0 percent to 1,741. A record number of 2,325 transactions were made In order to further promote the usage of FIJICLEAR, a value-based FIJICLEAR fee structure has also been outlined. This comes into effect on 1 January 2009 and is lower than the current transaction fees charged through FIJICLEAR in December 2008. Similarly, the by the commercial banks. FIJICLEAR Payments and Transactions New Fee Structure for FIJICLEAR Transactions 2007 2008 % Change Value of FIJICLEAR Transactions Fee Average Gross Payments (Monthly) Up to $100 $2.00 $ Million 3,706.0 5,217.9 40.8 $101 - $1,000 $5.00 Average No. of $1,001 - $10,000 $10.00 Transactions (Monthly) 1,299 1,741 34.0 $10,000 plus $15.00 Source: Reserve Bank of Fiji Source: Reserve Bank of Fiji 34 Reserve Bank of Fiji MISSION : ENHANCE OUR ROLE IN THE DEVELOPMENT OF THE ECONOMY In addition to its core functions of monetary policy, financial stability and the issue of currency, the Reserve Bank becomes involved in various projects, with the objective of developing the economy. Assistance to the Export Sector made by the Reserve Bank in 2008 and net interest income earned from the portfolio rose by $0.9 million T he Reserve Bank continues to support the country’s export sector through the operation of its Export Finance Facility (EFF). In early 2008, the Bank enhanced awareness to commercial banks and the Fiji Development Bank (FDB) on to $8.4 million. Equities Market Unlike the trend in the global financial market, trading changes to the Facility implemented in 2007. In of equities on the SPSE rose during the year. A total addition, the EFF manual and brochures were updated of 18.4 million shares were traded valued at $26.1 and copies were distributed to the commercial banks, million compared with 2.7 million shares traded worth exporters and other stakeholders. The Bank will carry $3.6 million in 2007. During the year, R B Patel Group out further work in 2009 along with finalising a Limited (RBPGL) recorded the highest number of proposal on an export credit insurance/guarantee sch- trades while Amalgamated Telecom Holdings Limited eme. shares had the largest percentage price gain from $0.79 per share in December 2007 to $1.18 per share at the IMF Staff Visit end of December 2008. Fiji is a member of the IMF. Under Article IV of the On 14 April, Fijian Holdings Limited (FHL) ann- IMF’s Articles of Agreement, the IMF holds bilateral ounced the partial takeover of RBPGL by its subsidiary discussions with officials from the Reserve Bank, FHL Retailing Limited. As a result of this takeover Government, statutory bodies and private sector from process, FHL Retailing Limited now holds 50.2 percent time to time. There was a Staff Visit from 17-23 of the issued shares of RBPGL. September 2008 to follow up on developments after the Article IV Mission in 2007. At the end of 2008, market capitalisation of the listed companies on the SPSE increased by 23.8 percent to Secondary Bond Market around $1.0 billion over the previous year. The number of companies listed on the SPSE for 2008 remained at The Reserve Bank closely monitors activity in the 16. secondary bond market and has a domestic bond portfolio of its own. There was a marked decline in Remittances activity in the secondary bond market during the year. A total of 31 trades valued at $8.9 million were Personal remittances, Fiji’s second largest foreign recorded in contrast to 93 trades amounting to $30.9 exchange earner after tourism, fell by approximately million in 2007. The outturn was underpinned by 26.7 percent in 2008 to $187.9 million when high liquidity in the banking system as well as low compared to 2007. The outcome is consistent with yields. the trend over the past year. This could be attributed to various reasons, including the global financial crisis The nominal value of the Reserve Bank Domestic Bond and consequent economic downturn which is affecting Portfolio at the end of 2008 declined to $125.5 labour market conditions around the globe. million, from $140.2 million in the previous year, as $14.7 million in bonds matured. No purchases were The RBF continued to work with stakeholders to im- Annual Report 2008 35 MISSION : ENHANCE OUR ROLE IN THE DEVELOPMENT OF THE ECONOMY prove data collection. During the year, in collaboration RBF in the Community with the World Bank’s regional office in Australia, a round-table discussion was held in Fiji. This aimed to The Reserve Bank’s presence in the community facilitates encourage competition in the remittance market with better relations with the public, Government, businesses a view to reduce transaction costs. By the end of the and academia. year, a new product was launched in New Zealand to As part of the Bank’s efforts to keep the public informed of send money to Fiji and other Pacific Island countries. its assessment of the economy, the Governor and senior staff of the Bank regularly give presentations on the latest economic Small and Micro Enterprises (SME) developments to Government, businesses, community groups and education institutions. The Bank also makes available information on its website so that users can easily access The Reserve Bank continuously shows its support for information. SMEs with the sponsorship of a special award for Agriculture in the FTIB’s Exporter of the Year Awards Moreover, the Bank funds the chair of the Associate as well as in the FDB’s Small Business of the Year Professor/Senior Lecturer in Monetary Economics at the Awards. University of the South Pacific (USP). This agreement has been in place since February 1998. A “ Reserve Bank of Fiji” prize is also awarded to the outstanding Economics graduate In 2008, the Bank conducted a training workshop at the USP. which was held with the commercial banks, credit institutions and FDB. The workshop was aimed at In support of SMEs, the Bank sponsors awards in the FDB’s improving the quality of data collected and as a result Small Business and FTIB’s (Agriculture) Exporter of the Year the institutions have put in place improved measures Awards program. of data collection. The Bank makes donations to national charitable organ- isations as part of its corporate responsibility to the com- munity. The Bank in 2008, donated computers and printers to the Hilton Special School, St. Christopher’s Home, Police Crime Stoppers Unit and Vatukoula Convent School. Apart from the formal donations, RBF staff also voluntarily contri- bute and use their own time to participate in community projects. Some of the charitable projects undertaken by staff in 2008 include: • Donation to the Kidney Foundation • Donation of groceries, toiletries and stationery for Father Law Home residents • With assistance of Red Cross, donated food items to less fortunate families • Donated food items to Love Kitchen Ministry • Donated proceeds from walk-a-thon to the Vatukoula community • Donation to cancer patient, Josaia Temo • Christmas presents to Dilkusha Orphanage Home and St. Christopher’s Home • Hosted dinner at Gospel School of Destitute • Provided toiletries to patients of the Christian Comm- unity Health Fellowship Group and PJ Twommey Hospital and • Participated in the Red Cross Blood drive. The Bank’s Sports and Social Club organises social events and cultural activities for staff. The Bank also participated in various Business House sports competitions and staff took part in different corporate quiz competitions as well. 36 Reserve Bank of Fiji MISSION : PROVIDE PROACTIVE AND SOUND ADVICE TO GOVERNMENT The provision of policy advice to Government occurs in many forms. During 2008, the Governor met with the Minister for Finance on a number of occasions for discussions on various issues. Presentations on the economy are made to Cabinet, Ministries and other Government agencies as and when requested. Policy Coordination entation in the Debt and Cashflow Policy Committee which provides a link to banking and registry services T he Bank also assists Government through provided by the Reserve Bank to Government. The various Policy Committees. The Macroecon- Committee, which discusses and coordinates Gove- omic Policy Committee (MPC) and its Techn- rnment’s financing needs, met on eight occasions in ical Sub-Committees prepare projections on Fiji’s GDP, 2008. trade and balance of payments. These projections are critical inputs to monetary policy formulation and As and when requested, the Bank accepts invitations other national policy decision making. The MPC is and contributes to many Committees that are of nat- chaired by the Governor of the Reserve Bank and ional interest. comprises officials from the Ministry of Finance and National Planning, the Ministry of Commerce, Busin- The Reserve Bank liaised with relevant stakeholders ess Development & Investment, Fiji Islands Bureau of including the business community throughout the Statistics, the Prime Minister’s Office, the Ministry of year to discuss macroeconomic policy issues, as well Foreign Affairs, the FIRCA and the Reserve Bank. as to gather feedback on various socio-economic mat- There were three forecasting rounds, three MPC meet- ters. This was conducted through the Bank’s involve- ings and nine Macroeconomic Technical Committee ment in several committees and meetings. Information meetings in 2008. obtained from these consultations is used to supple- ment standard sources of information in forming the In addition to providing forecasts, the Committee also Bank’s assessment of the economy. provides policy advice to Government through a submission to the National Budget. Registry and Banking Services In preparation for the macroeconomic forecasting rounds, the Reserve Bank conducted several meetings The Reserve Bank provides registry services for debt with key industry groups in 2008. At these meetings, securities issued by Government and statutory cor- the Bank provided updates on the economy and porations. Services provided include issue, redemption received feedback from representatives on the and transfer of securities and interest payments on performance and prospects for their industry and the long-term debt instruments. The Bank also acts as a economy. Bank staff also met with representatives of fiscal agent for Government and provides banking serv- employers and private businesses and conducted on- ices, such as ways & means to the Government and ov- site industry visits to various companies in the Western ernight facilities to the commercial banks. Division. Information gathered from these meetings are used as a basis for forecasting national indicators As at 31 December 2008, the Reserve Bank managed as well as providing advice to Government through bonds with a nominal value of $2,826.8 million com- the MPC reports and input to the National Budget pared to $2,749.8 million in 2007. Outstanding Go- submission. vernment bonds rose by 6.8 percent to $2,346.3 mil- lion over the year as a result of net issues. In contrast, Debt and cashflow management is an important fun- outstanding statutory corporation bonds fell by 13.2 ction of the Ministry of Finance and National Planning. percent to $480.5 million over the year as redemptions The Bank provides input to this role through repres- exceeded issues. Annual Report 2008 37 MISSION : PROVIDE PROACTIVE AND SOUND ADVICE TO GOVERNMENT Outstanding Bonds in 2008 ($ Million) bonds was noted in 2008 in comparison to 2007. Issued Redeemed Outstanding Government 100.5 205.0 2,196.2 In 2008, interest rates in Government bond rose Fiji Development Bank 110.0 24.5 338.9 sharply when compared with the rates in 2007. The Fiji Electricity Authority 58.8 10.0 113.2 higher rates in the review period were underpinned Housing Authority - 9.7 98.9 by the tightening of liquidity as well as increased Fiji Pine Limited - 3.0 2.6 funding requirement by Government. The above chart Total 269.3 252.2 2,749.8 shows the interest rate on Government bonds in the Source: Reserve Bank of Fiji past two years. Total registry payments made by the Bank fell considerably by 17.4 percent to $1,008.0 million in Treasury Bills ($ Million) 2008. Lower payments largely resulted from a decrease 2006 2007 2008 in Treasury Bills redemptions by $227.6 million to Floatations 577.5 606.0 430.0 $468.9 million. The interest and redemption payments Allotments 537.5 692.5 392.0 on Government bonds also fell marginally. On the oth- er hand, a higher redemption of statutory corporation Redemptions 528.8 696.6 468.9 Outstanding 145.7 141.6 64.7 Gross on Government Securities Weighted Average Interest Rates Payments No. of Transactions Source: Reserve Bank of Fiji 10 8 There was a notable decline in Treasury Bills issuance 2008 in 2008, as Government instead turned to longer-term Percent 6 funding options to meet its financing needs. During 2007 4 the year, gross issues of Treasury Bills declined by 43.4 percent to $392.0 million. This was lower than the 2 total amount redeemed thus resulting in a decline in Maturity 0 (Years) the outstanding value of Treasury Bills at the end of 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 2008. Interest rates on Treasury Bills rose slightly Source: Reserve Bank of Fiji across the various maturities during the year. 38 Reserve Bank of Fiji MISSION : DISSEMINATE TIMELY AND QUALITY INFORMATION In line with the mission to disseminate timely and quality information to the public and relevant stakeholders, the Reserve Bank releases economic and financial information through its major publications: the monthly Economic Review, Quarterly Reviews, bi-annual Monetary Policy Statements and the Annual Reports. Financial Performance Operating Expenses by Type 12 Income Total Administrative Costs 10 8 $ Million D uring the 2008 financial year, total income 6 Staff Costs earned amounted to $53.0 million. This 4 equates to an increase of 7.9 percent from 2 2007 due to the high interest rates during late 2007 0 2008 2007 2003 2004 2005 2006 2006 2002 through to the third quarter of 2008. The average reserves in 2008 were also at a higher level compared Source: Reserve Bank of Fiji with 2007. Total Income vs Total Expenses Operating Profit and Payment to Government 60 50 The operating profit for the year was $30.4 million Income compared to $20.4 million in 2007. There was no $ Million 40 30 transfer to the General Reserves Account in 2008. 20 Expenditure Thus, as required under the RBF Act (1983), the total 10 operating profit will be transferred to Government in 0 2009. 2006 2005 2008 2002 2004 2006 2007 2003 The Act also requires the Reserve Bank to transfer one- Source: Reserve Bank of Fiji fifth of the RRA balance to Government. For 2008, Expenditure this amounts to a total of $2.6 million. Thus, the Bank will pay a total of $33.0 million to Government for its Total expenditure incurred in 2008 was $22.6 million, 2008 operations, compared with $22.2 million paid a decrease of $6.1 million or 21.3 percent from $28.7 for the previous year. The higher payment for 2008 million in 2007. This is mainly due to a decrease in reflects a larger profit for the year. This payment will monetary policy costs - interest expense associated be made in 2009. with SRD. Reserve Bank’s Profit Payable to Government ($ Million) Administrative expenditure in 2008 increased by 5.4 2005 2006 2007 2008 percent over 2007 and was mainly driven by staffing, Operating Profit 16.4 10.7 20.4 30.4 training and capacity building costs. Other expenses Less rose by 0.7 percent in 2008, compared with a growth Transfer to General Reserves 1.0 0.0 1.0 0.0 Balance Paid to Government 15.4 10.7 19.4 30.4 of 24.4 percent in 2007. The significant slowdown One-fifth Portion of RRA 4.9 4.2 2.8 2.6 in the annual growth of other expenses resulted from Total Paid to Government 20.3 14.9 22.2 33.0 lower costs of currency released for circulation in 2008 when compared with the previous year. Source: Reserve Bank of Fiji Annual Report 2008 39 MISSION : DISSEMINATE TIMELY AND QUALITY INFORMATION Publications/Press Releases Records Management The Reserve Bank continued to release economic and The Bank continued with its campaign to educate its financial information during the year through its major members on the importance of good recordkeeping. publications: the monthly Economic Review, Quarterly Continuing discussions were held with the IT team Reviews and the Annual Report. The Bank also issued for the upgrade of the Total Records Information Man- its bi-annual Monetary Policy Statements to inform agement (TRIM) system. The records project team the general public of the stance and rationale of its completed its task to sort and appraise the Bank records policies. In addition, the Reserve Bank published in storage. Preliminary preservation work on records newspaper articles and made numerous presentations identified for permanent retention is well underway. to various groups to explain its policy actions. A total Records for disposal were either shredded, incinerated of 34 Press Releases were issued during 2008. The or buried. 2007 Insurance Annual Report and the 2007 FIU’s Annual Report were also published during 2008. Library During 2008, the Bank also disseminated financial The Bank renewed its subscriptions to ProQuest and market information. Tender results of Treasury Bills improved its service by processing requests through and Government bonds were posted on the Reserve intranet and e-mail. A Library Week was also organised Bank website, Reuters and Bloomberg. Commercial in September with the theme “Libraries: Oasis of banks’ key disclosure statements are also made available Discoveries”which included the launching of an e-dict- on the Reserve Bank website. ionary on the Library Intranet page and library user education for both staff and families. The Reserve Bank continued to disseminate inform- ation available on its policies and activities through Domestic Relations media interviews, publications, brochures, speeches and its website. The website was continuously updated Various activities were organised during the year to include the latest information disseminated by the including educational visits to the Bank by students, Bank. teachers and parents of various schools. The Bank participated in the 2008 SPSE Annual During 2008, the Reserve Bank also convened three Report Competition. The 2006 Annual Report was Economics Association of Fiji meetings, to discuss awarded first prize in the Statutory Authorities, Gove- issues of concern and current interest to stakeholders rnment Bodies and Unlisted Trusts category. and members of the public. The topics of discussion were: “Remittances: Amplifying the Voice of Consum- Information Technology ers”; “The Global Effects of Rising Prices: What Can We Do?” and “The Impact of the Global Financial Cri- A bank-wide analysis of data requirements was carried sis”. out for the central database development project and a pilot was setup for the exchange control functions. International Relations The EPICOR Financial Accounting System was upgraded while the IMS Payroll and human resource Throughout 2008, the Bank maintained and fostered Personal Director Systems were integrated. Work international relations with multinational organisations continued with preparations for the BRS including and other central banks. Reserve Bank officials also planning infrastructure and replication of critical participated in a range of international conferences production systems and services to increase reliability and workshops. and availability. The filtering and monitoring firewall were upgraded together with security software to The Bank liaised with the IMF, World Bank, Asian enhance security. Development Bank (ADB) and central banks in the Pacific and South East Asia region. During the year, The Windows based software for the Bank’s foreign the Bank received technical assistance from inter- currency dealings, Hi-Portfolio/3 went live on 3 national institutions such as the IMF and the Australian November replacing the MS-DOS Impart System. Prudential Regulatory Authority (APRA), in the areas 40 Reserve Bank of Fiji MISSION : DISSEMINATE TIMELY AND QUALITY INFORMATION 1970s 50 cents coin dated 1979. A special coin to commemorate Food and Agricultural Organisation’s “Sugar for the World” Program and the “100th Anniversary of Arrival of the Girmits in Fiji”. of insurance, superannuation and banking supervision. SEACEN DORT Meeting. The Reserve Bank received distinguished visitors from the IMF, World Bank and Senior Reserve Bank officials attended annual meetings ADB. The Bank also coordinated the IMF Staff Visit of the joint IMF/World Bank, South East Asian Central in September. Banks (SEACEN) Governors, SEACEN Executive Co- mmittee, ADB Annual Meeting, Currency Conference, The Reserve Bank continued its association with the Bank of International Settlements Annual Meeting, Pacific Financial Technical Assistance Centre (PFTAC), SEACEN Directors of Research and Training (DORT) which continues to provide guidance in the areas of Meeting, South Pacific Central Banks and the South financial supervision, statistics and economic processes. Pacific Governors’ Meeting. The Reserve Bank also hosted attachments from the Bank of Papua New Guinea and FIU officials from the The Reserve Bank also hosted the Regional Workshop Central Bank of Solomon Islands and the Ministry of on Financial Soundness Indicators as well as the annual Justice of the Federated States of Micronesia. Annual Report 2008 41 MISSION : RECRUIT, DEVELOP AND RETAIN A PROFESSIONAL TEAM Human resources are the Bank’s greatest asset in the delivery of corporate goals. The Bank ensures that it has capable people, systems, structure and culture through Human Resources and Corporate Policies. The Governor’s Service Recognition and Long Service Award acknowledges dedicated long and meritorious service to the Bank. Staffing and the other as the Advisor to the Executive Director, IMF, Washington, D.C. One staff successfully compl- A t the end of 2008, the Bank employed 171 staff. The Bank recruited 13 new staff mainly in Economist, Examiner and Analyst posit- ions. Turnover was 8.8 percent (16 staff), with staff eted a Masters Degree in Applied Finance from Victoria University, Wellington, New Zealand. Three staff succ- essfully completed correspondence certification prog- rams from the Australian and New Zealand Institute mainly leaving to take up other employment, locally of Insurance and Finance (ANZIIF) and the Financial or emigrating. Services Institute of Australasia (FINISIA) while two staff completed Diplomas in Financial Services and RBF Staff Statistics (31 December) one completed a Certificate (IV) in General Insurance. 2004 2005 2006 2007 2008 Total Staff 165 156 169 178 1711 Three staff were granted overseas study leave to pursue Average Years of Service 8.1 8.7 8.0 7.8 9.1 Masters Degrees in Economics. The Bank continued Annual Staff Turnover % 5.5 12.2 10.1 7.9 8.8 to sponsor courses for staff through part-time and corr- Resignation 6 12 13 12 14 Emigration 3 3 10 8 6 espondence studies, short courses and seminars organ- Further Studies ised by technical institutions, locally by the Training • Overseas 0 0 2 0 0 and Productivity Authority of Fiji (TPAF) and overseas • Local 0 0 0 0 0 by the IMF at the Singapore Regional Training Instit- New Employment ute, Bank of Thailand, and the SEACEN Research and • Overseas 0 1 0 1 1 Training Centre. The Bank also sponsored staff on pro- • Local 3 8 1 3 7 fessional development programs with the Fiji Institute Retirement 3 5 3 1 1 of Bankers, Fiji Institute of Accountants, Fiji Institute • Age 55 years 2 3 2 1 0 • Age 45 years 1 2 1 0 1 of Internal Auditors and the Fiji Human Resources Ins- Contract Expiry 0 2 1 0 0 titute. Terminated 0 0 0 1 0 Deceased 0 0 0 0 1 Employment Relations Promulgation Total Staff Turnover 9 19 17 14 16 1 Actual staff number includes FIU. Human resources policies and activities were aligned Source: Reserve Bank of Fiji to the Employment Relations Promulgation that came into effect on 1 April 2008. The Bank and the Fiji Bank Staff Development and Finance Sector Employees Union agreed to the The Staff Development Policy and Staff Training extension of the Rewards & Recognition System for a Needs Analysis supports a continuous learning culture further four years (2008–2011). and the upskilling of Bank staff through on-the-job training, job rotations, part-time studies, correspon- Health and Safety in the Workplace dence and short courses at both local and overseas institutions. Staff are also granted study leave to pursue The Bank’s Occupational, Health & Safety (OHS) Com- relevant higher degrees. mittee comprising management and staff represent- atives met four times during the year. 15 staff received Two staff continued with secondments, one as the De- certificates after the successful completion of the OHS puty Governor at the National Reserve Bank of Tonga Fundamentals and OHS Risk Management training. 42 Reserve Bank of Fiji MISSION : RECRUIT, DEVELOP AND RETAIN A PROFESSIONAL TEAM 1990s $1 coin dated 1998. This will be replaced by the new coin series with existing design on 16 February 2009. A total of 17 Fire Wardens (tenants and staff) comp- and building effective work relationships. During leted the Fire Wardens training by the National Fire 2008, teams met on their own while some had cross- Authority. A Fire Drill exercise and assessment was functional meetings with other teams to review and completed in coordination with the National Fire Aut- strengthen the effectiveness of processes across the hority. The Bank also upgraded its fire alarm system Bank. and purchased safety attire and equipment to ensure work safety. General Services Salary Administration The Bank tendered and renewed its insurance risks during its annual insurance renewal program. Other The Bank implemented the results of the 2008 Price- general administration services of providing transport, waterhouseCoopers Market Survey with a change in reception, stationery and supplies, logistics for official salary structure effective from 1 January in accordance functions and meetings, were effectively managed thr- to the Memorandum of Understanding Salary Review oughout the year. Successor Agreement. Plant and Building Service Recognition The Building Retirement Plan (2007-2010) which The Governor’s Service Recognition and Long Service commenced in 2007 to review operating systems, pla- Loyalty Award acknowledges dedicated long and me- nt and equipment that have been in use for more than ritorious service to the Bank. Four staff achieved 20 10 years, continued in 2008. Improvements were also years of service in 2008, two were from Financial Ins- made to the cooling towers, water submersible and bo- titutions, one from Financial Markets and one from oster pumps, telephone and building management Currency & Corporate Services. Chief Managers also system. rewarded staff for exceptional service to their respective Group or the Bank. Acknowledgement Quality Performance Management The Board wishes to sincerely acknowledge the efforts and contribution of staff during 2008. The Reserve Bank continued to promote its quality performance management program in 2008, with the The Board’s gratitude is also extended to the Gover- objective of achieving higher quality performance nment of Fiji, the IMF, the World Bank, the ADB, SEA- through building effective teamwork. This was under CEN, PFTAC and regional central banks for their cont- the direction of Chief Managers, who are the major inued support and assistance during the year. drivers of this program. Furthermore, the Reserve Bank also wishes to articulate There are a total of 17 quality teams in the Bank and its sincere appreciation to the Fiji Bank and Finance members met regularly during the year. These self- Sector Employees Union for its support and assistance driven teams focused on work process improvements in industrial matters. Annual Report 2008 43 THE YEAR AHEAD Core responsibilities of the Bank will continue to be fulfilled in 2009. Listed below are areas where special effort will be focused. Monetary Policy Association of Financial Supervisors of Pacific Countries (AFSPC) I n 2009, monetary policy will continue to be a key focus of the Reserve Bank to achieve its twin The Annual Meeting and Workshop of the AFSPC objectives of low and stable inflation and an ade- will be hosted by the Bank in conjuction with PFTAC in quate level of foreign reserves. October 2009. This will be the second time that the Reserve Bank has hosted the meeting. Members of the In the first half of the year, a review of existing policies AFSPC include the Cook Islands, Federated States of will be undertaken. Micronesia, Fiji, Palau, Papua New Guinea, Republic of Marshall Islands, Samoa, Solomon Islands, Tonga and Asset Management Bank (AMB) Vanuatu. The Reserve Bank’s controllership of the AMB will Currency Review continue in 2009. The Controllership Committee will continue to wind down its operations and prepare On 16 February 2009, the Bank will issue the new series for the final winding up of the AMB. of coins (5, 10, 20, 50 cents and $1). Both the old and new coins will continue to co-circulate until 30 April Enhanced Supervisory 2009. From 1 May 2009, all old coins, except $1, will no longer be legal tender. Only the Reserve Bank will give The Bank is strengthening its capacity in its super- value for old coins after 30 April 2009. visory role. A Financial Stability Report will be pro- duced six monthly. Financial Literacy Furthermore, the Bank will enhance its stress testing The Reserve Bank will engage with relevant stakeholders work. This will commence with IMF Technical Assist- and work towards implementing a framework for ance in March 2009. promoting financial literacy in Fiji. 44 Reserve Bank of Fiji FINANCIAL STATEMENTS CONTENTS Directors’ report 46-47 Statement by directors 48 Independent auditors’ report to the Board of Directors of the Reserve Bank of Fiji 49 Income statement 50 Statement of changes in equity 51 Balance sheet 52 Statement of cash flows 53 Notes to and forming part of the financial statements 54-70 Annual Report 2008 45 RESERVE BANK OF FIJI DIRECTORS’ REPORT The directors present their report together with the financial statements of the Reserve Bank of Fiji (“the Bank”) for the year ended 31 December 2008 and the auditors’ report thereon. Directors The directors in office during the course of the financial year and up to the date of this report were: Savenaca Narube (Chairman and Governor) Peceli Vocea Kanti Tappoo, (OBE) (up to 31 December 2008) Ioane Naiveli Robin Yarrow Adish Narayan Chandra Dulare Deo Saran (from 11 February 2009) State of affairs In the opinion of the directors: • there were no significant changes in the state of affairs of the Bank during the financial year under review not otherwise disclosed in this report or the financial statements; • the accompanying balance sheet and statement of changes in equity give a true and fair view of the state of affairs of the Bank as at 31 December 2008 and the accompanying income statement and statement of cash flows give a true and fair view of the results of the Bank and its cash flows for the year then ended. Principal activities The Reserve Bank’s role as a central bank, as defined in the Reserve Bank of Fiji Act, is: (a) to regulate the issue of currency and the supply, availability and international exchange of money; (b) to promote monetary stability; (c) to promote a sound financial structure; (d) to foster credit and exchange conditions conducive to the orderly and balanced economic development of the country. Trading results The net profit of the Bank for the year ended 31 December 2008 was $30.46m (2007: $20.37m). Reserves There was no transfer (2007: $1.0m) to the General Reserves from net profit at year end as agreed between the Minister and the Board, in accordance with Section 8(1)(c) of the Reserve Bank of Fiji Act. Payable to government In accordance with the Reserve Bank of Fiji Act, the following amounts totalling $33.03m (2007: $22.15m) are payable to the Government of Fiji: Section 8(3): Net profit after transfer to General Reserves - $30.46m (2007: $19.37m) Section 34: One-fifth balance of Revaluation Reserve - $2.57m (2007: $2.78m) 46 Reserve Bank of Fiji RESERVE BANK OF FIJI DIRECTORS’ REPORT (continued) Bad and doubtful debt The directors took reasonable steps before the financial statements of the Bank were made out to ascertain that all known bad debts were written off and adequate allowance was made for doubtful debts. At the date of this report, the directors are not aware of any circumstances which would render the amount writ- ten off for bad debts, or the amount of the allowance for doubtful debts, inadequate to any substantial extent. Provisions There were no material movements in provisions during the year apart from the normal amounts set aside for such items as doubtful debts, depreciation and employee entitlements. Assets The directors took reasonable steps before the Bank’s financial statements were made out to ascertain that the assets of the Bank were shown in the accounting records at a value equal to or below the value that would be expected to be realised in the ordinary course of business. At the date of this report, the directors were not aware of any circumstances which would render the values attributable to the assets in the financial statements misleading. Directors’ benefit No director of the Bank has, since the end of the previous financial year, received or become entitled to receive a benefit by reason of contract made by the Bank with the director or with a firm of which the director is a member, or with a company in which the director has substantial financial interest. Events subsequent to balance date There has not arisen in the interval between the end of the financial year and the date of this report any item, transaction or event of a material and unusual nature likely, in the opinion of the directors of the Bank, to affect significantly the operations of the Bank, the results of those operations, or the state of affairs of the Bank, in future financial years. Other circumstances At the date of this report, the directors are not aware of any circumstances not otherwise dealt with in this report or financial statements which render amounts stated in the financial statements misleading. Dated at Suva this 30th day of March 2009. Signed in accordance with a resolution of the directors: Savenaca Narube Ioane Naiveli Governor Director Annual Report 2008 47 RESERVE BANK OF FIJI STATEMENT BY DIRECTORS In the opinion of the directors: (a) the accompanying income statement is drawn up so as to give a true and fair view of the results of the Bank for the year ended 31 December 2008; (b) the accompanying balance sheet is drawn up so as to give a true and fair view of the state of affairs of the Bank as at 31 December 2008; (c) the accompanying statement of changes in equity is drawn up so as to give a true and fair view of the movement in equity for the year ended 31 December 2008; (d) the accompanying cash flow statement is drawn up so as to give a true and fair view of the cash flows of the Bank for the year ended 31 December 2008. (e) the financial statements have been properly prepared in accordance with International Financial Reporting Standards except as noted in note 1(c) to the financial statements. In accordance with the provisions of Sec- tion 34 of the Reserve Bank of Fiji Act, 1983, exchange gains and losses are credited or charged directly to the Revaluation Reserve Account and are not included in the computation of annual profits or losses of the Bank. This is at variance with International Financial Reporting Standard IAS 21 “Effects of Changes in Foreign Exchange Rates” which requires that exchange gains and losses be credited or charged to the Income Statement. In the opinion of the directors, the accounting treatment adopted is appropriate in view of the requirement of Section 34 of the Reserve Bank of Fiji Act, 1983. For and on behalf of the Board of directors by authority of a resolution of the directors this 30th day of March 2009. Savenaca Narube Ioane Naiveli Governor Director 48 Reserve Bank of Fiji INDEPENDENT AUDITORS’ REPORT Suva Central PO Box 32 Telephone (679) 330 1155 Renwick Road Suva Fax (679) 330 1312 Suva Fiji Islands Email email@example.com Independent auditors’ report to the Board of Directors of the Reserve Bank of Fiji Scope We have audited the financial statements of Reserve Bank of Fiji for the year ended 31 December 2008, consisting of the income statement, statement of changes in equity, balance sheet, statement of cash flows and accompanying notes, set out on pages 50 to 70. The Bank's directors are responsible for the preparation and presentation of the financial statements and the information they contain. We have conducted an independent audit of these financial statements in order to express an opinion on them to the directors of the Bank. Our audit has been conducted in accordance with Fiji Standards on Auditing to provide reasonable assurance as to whether the financial statements are free of material misstatement. Our procedures included examination, on a test basis, of evidence supporting the amounts and other disclosures in the financial statements, and the evaluation of accounting policies and significant accounting estimates. These procedures have been undertaken to form an opinion as to whether, in all material respects, the financial statements are presented fairly in accordance with International Financial Reporting Standards and statutory requirements so as to present a view which is consistent with our understanding of the Bank's financial position and the result of its operations and its cash flows. Audit opinion In our opinion the financial statements give a true and fair view of the financial position of the Reserve Bank of Fiji as at 31 December 2008, and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards (“IFRS”) and the Reserve Bank of Fiji Act, 1983. Emphasis of matter Without qualification to the opinion expressed above, attention is drawn to Note 1(c) to the financial statements in respect of the accounting treatment of exchange gains and losses. Section 34 of the Reserve Bank of Fiji Act, 1983 requires exchange gains and losses to be credited or charged directly to the Revaluation Reserve Account. This policy is a departure from International Financial Reporting Standard IAS 21 “The Effects of Changes in Foreign Exchange Rates” which requires exchange gains and losses to be credited or charged to the Income Statement. The financial effect of this departure is disclosed in Note 1(c). Suva, Fiji Islands KPMG 30th March, 2009 Chartered Accountants KPMG, a Fiji Islands partnership, is part of the KPMG International network. KPMG International is a Swiss cooperative. Annual Report 2008 49 RESERVE BANK OF FIJI INCOME STATEMENT For the year ended 31 December 2008 Note 2008 2007 $000 $000 Income Interest income 2(a) 49,001 46,641 Net gains on realisation of securities 2,727 1,391 Other revenue 2(b) 1,282 1,077 Total income 53,010 49,109 Expenses Interest expense 2(c) 3,088 9,757 Net losses on currency trading 84 52 Amortisation of securities 1,656 1,885 Net losses on realisation of securities 1,417 1,387 Administration expenses 2(d) 11,811 11,198 Other expenses 2(e) 4,494 4,459 Total expenses 22,550 28,738 Net profit 8 30,460 20,371 The income statement is to be read in conjunction with the notes to and forming part of the financial statements set out on pages 54 to 70. 50 Reserve Bank of Fiji RESERVE BANK OF FIJI STATEMENT OF CHANGES IN EQUITY For the year ended 31 December 2008 Note 2008 2007 $000 $000 Paid-up capital Balance as at the beginning of the year 2,000 2,000 Movements during the year - - Balance as at the end of the year 2,000 2,000 General reserves Balance as at the beginning of the year 39,050 38,050 Movements during the year 13 - 1,000 Balance as at the end of the year 39,050 39,050 Revaluation reserve account - foreign currency Balance as at the beginning of the year 11,129 16,606 Net gain/(loss) arising during the year from translation of foreign currencies to Fiji currency 1,726 (2,695) One-fifth of remaining credit balance payable to the Government of the Fiji Islands (2,571) (2,782) Balance as at the end of the year 10,284 11,129 Available-for-sale reserve Balance as at the beginning of the year 8,290 (5,200) Fair value gains/(losses) 6,411 6,863 Fair value gain on investments transferred to held to maturity investments - 6,627 Balance as at the end of the year 14,701 8,290 Asset revaluation reserve Balance as at the beginning of the year - - Movements during the year 13 7,990 - Balance as at the end of the year 7,990 - Total capital and reserves 74,025 60,469 The statement of changes in equity is to be read in conjunction with the notes to and forming part of the financial statements set out on pages 54 to 70. Annual Report 2008 51 RESERVE BANK OF FIJI BALANCE SHEET As at 31 December 2008 Note 2008 2007 $000 $000 Foreign currency assets Short-term commercial paper and current accounts 3 250,129 467,484 Marketable securities 3 245,685 281,987 Gold 3 1,279 1,078 Accrued interest 9,997 14,640 International Monetary Fund - Reserve tranche position 3 42,963 38,430 - Special drawing rights 3 18,638 15,653 - Currency subscription 14 148,043 133,762 Total foreign currency assets 716,734 953,034 Local currency assets Cash on hand 603 668 Domestic securities 4 160,421 178,594 Other assets 5 19,691 22,501 Property, plant and equipment 6 23,748 14,753 Total local currency assets 204,463 216,516 Total assets 921,197 1,169,550 Foreign currency liabilities Accrued interest and charges 3 65 Demand deposits 7 8 82 IMF – Special drawing rights allocation 18,905 17,043 Total foreign currency liabilities 18,916 17,190 Local currency liabilities Demand deposits 7 66,068 359,453 Payable to government 8 33,031 22,153 Currency in circulation 9 390,913 382,267 Statutory reserve deposits 188,895 194,198 IMF – notes currency subscription 14 146,236 131,832 Other liabilities 10 3,113 1,988 Total local currency liabilities 828,256 1,091,891 Total liabilities 847,172 1,109,081 Net assets 74,025 60,469 Capital and reserves Paid-up capital 12 2,000 2,000 General reserves 13 39,050 39,050 Revaluation reserve account - foreign currency 13 10,284 11,129 Available-for-sale reserve 13 14,701 8,290 Asset revaluation reserve 13 7,990 - 74,025 60,469 Signed in accordance with the resolution of the directors: Savenaca Narube Ioane Naiveli Governor Director The balance sheet is to be read in conjunction with the notes to and forming part of the financial statements set out on pages 54 to 70. 52 Reserve Bank of Fiji RESERVE BANK OF FIJI STATEMENT OF CASH FLOWS For the year ended 31 December 2008 Note 2008 2007 $000 $000 Operating activities Rental lease income 348 364 Numismatic sales 350 131 Currency trading (84) (52) Interest received and securities trading income 54,954 37,018 Other income 725 564 Interest paid on RBF notes - (965) Other interest paid (3,149) (8,846) New currency payments - (862) Administration and other expenses (10,665) (9,206) Cash flows from operating activities 42,479 18,146 Investing activities Net movement of domestic securities 14,739 30,625 Purchase of property, plant and equipment (2,571) (1,367) Purchase/repaymentof bonds 35,229 (135,530) Net movement in gold prices (201) (202) Net movement in short-term commercial papers 124,492 (69,970) Net movement in fixed deposit accounts 9,117 (7,797) Net movement in International Monetary Fund accounts (5,532) (2,922) Net movement in staff loans and advances (137) (211) Cash flows from/(used in) investing activities 175,136 (187,374) Financing activities Net movement in currency in circulation 8,646 27,724 Net movement in demand deposits (293,459) 238,406 Net movement in statutory reserve deposits (5,304) (4,007) Payment to government (22,152) (14,912) Net movement in RBF notes - (250) Cash flows from/(used in) financing activities (312,269) 246,961 Net effect of exchange rate 1,726 (2,695) Net increase/(decrease) in cash (92,928) 75,038 Cash at the beginning of the financial year 258,804 183,766 Cash at the end of the financial year 11 165,876 258,804 The statement of cash flows is to be read in conjunction with the notes to and forming part of the financial statements set out on pages 54 to 70. Annual Report 2008 53 RESERVE BANK OF FIJI NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS For the year ended 31 December 2008 1. Statement of significant accounting policies The significant policies, which have been adopted in the preparation of these financial statements, are noted below: (a) Statement of compliance The financial statements have been drawn up in accordance with the provisions of the Reserve Bank of Fiji Act, 1983, International Financial Reporting Standards (“IFRS”) and other disclosure requirements of the Fiji Institute of Accountants except as detailed in note (c) below. (b) Basis of preparation Reserve Bank of Fiji (“the Bank”) operates under the Reserve Bank of Fiji Act, 1983. The financial state- ments are prepared on the historical cost basis except for the following: • available-for-sale financial assets are measured at fair value. • property is measured at fair value. The accounting policies as set out below have been applied consistently and, except where there is a change in accounting policy are consistent with those of the previous year. (c) Foreign currency Foreign currencies have been translated to Fiji currency at rates of exchange ruling at year end. In accordance with the provisions of Section 34 of the Reserve Bank of Fiji Act, 1983 exchange gains and losses are credited or charged directly to the Revaluation Reserve Account and are not included in the computation of annual profits or losses of the Bank. This is at variance with International Financial Reporting Standard IAS 21 “Effects of Changes in Foreign Exchange Rates” which requires that exchange gains and losses be credited or charged to the Income Statement. In accordance with Section 34, losses arising from such fluctuations are set off against any credit balance in the Revaluation Reserve Account; if such balance is insufficient to cover such losses, Government is required to transfer to the ownership of the Bank non-negotiable non-interest bearing securities to the extent of the deficiency. Any credit balance in the Revaluation Reserve Account at the end of each year is applied first, on behalf of Government, to the redemption of any non-negotiable non-interest bearing notes previously transferred to the Bank by Government to cover losses and thereafter one-fifth of any remaining balance is paid to Government. In the opinion of the directors, the accounting treatment adopted is appropriate in view of the require- ment of Section 34 of the Reserve Bank of Fiji Act, 1983. Had the Bank adopted IAS 21 there would have been a net profit of $32.186m, an increase of $1.726m, being the exchange gains for the year. The directors consider the effect of the departure from IAS 21 not material. (d) Financial assets and liabilities Investment securities The Bank defines its investment securities into the following three categories: held-to-maturity, held- for-trading and available-for-sale assets. Investment securities with fixed maturities where the Bank has both the intent and the ability to hold to maturity are classified as held-to-maturity. Investment securities to be held for an indefinite period of time, which may be sold in response to needs for liquidity or changes in interest rate, exchange rates or equity prices, are classified as held-for-trading. Investment securities that are not classified in any of the other categories are classified as available-for-sale. The Bank determines the appropriate classification of its investments at the time of the purchase. 54 Reserve Bank of Fiji RESERVE BANK OF FIJI NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS For the year ended 31 December 2008 1. Statement of significant accounting policies (continued) (d) Financial assets and liabilities (continued) Investment securities (continued) Investment securities are initially recognised at cost (which includes transactions costs). Held-for- trading financial assets are valued at market value. Unrealised gains and losses arising from the valuation adjustments of these securities at year end are included in the computation of annual profits or losses of the Bank. Held-to-maturity investments are carried at amortised cost. Any premium or discount on purchase is capitalised and amortised over the term of the maturity on a constant yield to maturity basis. Available-for-sale financial assets are carried at fair value. Unrealised gains and losses arising from changes in the fair value are recognised in a reserve. When available-for-sale financial assets are sold or impaired, the accumulated fair value adjustments are included in the income statement as gains and/or losses. All purchases and sales of investment securities are recognised at settlement date, which is the date that the asset is transferred to/from the Bank. Other financial assets and liabilities Local and foreign cash, deposits and short-term advances are valued at transaction date value. Reserve Bank of Fiji notes are valued at amortised cost. (e) Gold Gold is valued at the market price ruling at year end. (f) Numismatic items The Bank sells or receives royalties on notes and coins which are specifically minted or packaged as numismatic items. These numismatic items have not been accounted for as currency in circulation as they are not issued for monetary purposes. In terms of Section 55(2) of the Reserve Bank of Fiji Act, 1983 the Minister has specified by notice made under the provisions of paragraph (b) of the provision to Section 31 of the Act that the Bank shall not be required to include the face value of these numismatic items in circulation in its financial statements. It is considered that no material liability will arise in respect of these numismatic items. (g) Cash and cash equivalents For the purposes of the statement of cash flows, cash and cash equivalents includes cash held at bank, short-term commercial paper and current accounts. (h) Currency inventory Currency inventory relates to notes and coins purchased for circulation and include the new bank note design series. The amount expensed in the income statement is based on the cost of notes and coins that are issued for circulation. It is estimated that this supply will meet requirements up to the period 2014. (i) Loans and advances Loans are carried at recoverable amount represented by the gross value of the outstanding balance adjusted for an allowance for bad and doubtful debts. Annual Report 2008 55 RESERVE BANK OF FIJI NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS For the year ended 31 December 2008 1. Statement of significant accounting policies (continued) (i) Loans and advances (continued) A specific allowance for bad and doubtful debts is made based on the appraisal carried out at year end. Movement in the allowance is charged to the income statement. All known bad debts are written off against the allowances in the year in which they are recognised. Bad debts, in respect of which no specific allowances have been established, are charged directly to the income statement. (j) Demand deposits Demand deposits representing funds placed with the Bank by financial institutions and central banks are brought to account on a cost basis. These deposits are at call. (k) Currency in circulation The exclusive rights of national currency issue are vested with the Bank. Currency in circulation comprises bank notes and coins issued by the Bank and represent a claim on the Bank in favour of the holder. The liability for currency in circulation is recorded at face value. (l) Property, plant and equipment Recognition and measurement Items of property, plant and equipment are measured at cost less accumulated depreciation and impair- ment losses. The cost of property, plant and equipment at 1 January 2006, the date of transition to IFRSs, was determined by its fair value at that date. Costs include expenditures that are directly attrib- utable to the acquisition of the asset. Purchased software that is integral to the functionality of the related equipment is capitalised as part of the equipment. Depreciation Items of capital expenditure, with the exception of freehold land, are depreciated on a straight line basis over the following estimated useful lives (in years): Improvements 5-15 Freehold buildings 50 Motor vehicles 6 Computers and equipment 4-5 Plant & machinery, equipment & furniture & fittings 5-10 Assets are depreciated from the date of acquisition. Expenditure on repairs and maintenance of property, plant and equipment incurred which does not add to future economic benefits expected from the assets is recognised as an expense when incurred. (m) Statutory reserve deposit Under Section 40 of the Reserve Bank of Fiji Act, 1983, the Reserve Bank may specify the reserves required, by each financial institution, to be maintained against deposits and other similar liabilities. However, under Section 31 of the National Bank of Fiji Restructuring Act, 1996, this section does not apply to the Asset Management Bank (“AMB”). Interest was payable on this deposit at the rate of 4.25% per annum. Effective from 27 February 2008, the interest rate paid on this deposit is pegged to the preceding month’s weighted average 91-day treasury bill rate plus a margin of 50 basis points (2007: 4.25%). 56 Reserve Bank of Fiji RESERVE BANK OF FIJI NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS For the year ended 31 December 2008 1. Statement of significant accounting policies (continued) (n) Impairment The carrying amounts of the Bank’s assets are reviewed at balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the assets recoverable amount is estimated. An impairment loss is recognised whenever the carrying amount of an asset or its cash- generating unit exceeds its recoverable amount. Impairment losses are recognised in the income statement. (o) Employee entitlements Short-term benefits Short-term employee benefits comprising of annual leave are measured on an undiscounted basis and are expensed as the related service is provided. Other long-term employee benefits The Bank’s net obligation in respect of long-term benefits is the amount of future benefit that employees have earned in return for their service in the current and prior period; that benefit is discounted to determine its present value. The discount rate is based on the domestic bond portfolio. (p) Income tax The Bank is exempt from income tax in accordance with Section 57 of the Reserve Bank of Fiji Act, 1983. (q) Revenue recognition Interest income Interest income is brought to account on an accruals basis. Income from available-for-sale securities Gains and losses realised from the sale of available-for-sale securities are reflected in the income statement. (r) Operating leases Where the Bank is the lessee, the lease rentals payable on operating leases are recognised in the income statement over the term of the lease. Where the Bank is the lessor, the assets leased out are retained in property, plant & equipment. (s) Comparative figures Where necessary, comparative figures have been changed to conform to changes in presentation in the current year. (t) Rounding Amounts in the financial statements are rounded to the nearest thousand dollars unless otherwise stated. Annual Report 2008 57 RESERVE BANK OF FIJI NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS For the year ended 31 December 2008 2008 2007 $000 $000 2.(a) Interest income Overseas investments 37,024 33,340 Domestic securities 11,909 13,249 Loans and advances 68 52 49,001 46,641 (b) Other revenue Rent received 348 364 Numismatic sales 350 131 License and application fees 193 266 Other miscellaneous income 391 316 1,282 1,077 (c) Interest expense Reserve Bank of Fiji notes - 965 Statutory reserve deposits 2,444 8,082 International Monetary Fund 556 706 Other 88 4 3,088 9,757 (d) Administration expenses Staff costs 8,411 8,002 Other costs 3,400 3,196 11,811 11,198 Total number of employees at year end 171 178 (e) Other expenses Depreciation 1,567 925 Auditors remuneration 20 20 Board remuneration 41 39 Write down in cost of old coins 490 - Currency issue 2,363 3,427 Numismatic 13 33 Brokerage fees - 15 4,494 4,459 Brokerage fees were incurred in respect of the Government of Fiji foreign bonds issue in 2007. 58 Reserve Bank of Fiji RESERVE BANK OF FIJI NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS For the year ended 31 December 2008 3. External Reserves Under the provisions of Section 31 of the Reserve Bank of Fiji Act, 1983, the value of the External Reserves provided for in Section 30 shall not be less than 50% of the total demand liabilities of the Bank. At 31 December 2008, the value of the external reserves was 91.01% (2007: 96.4%) of total demand liabilities. External Reserves comprise the following: Note 2008 2007 $000 $000 Short-term commercial paper 140,981 357,887 Current accounts 109,148 109,597 11 250,129 467,484 Marketable securities - Fixed term deposits 59,294 68,411 - Bonds 186,391 213,576 245,685 281,987 Gold 1,279 1,078 International Monetary Fund - Reserve tranche position 42,963 38,430 - Special drawing rights 18,638 15,653 61,601 54,083 558,694 804,632 All fixed term deposits mature within twelve months. The Bonds are classified as “available-for-sale”. 4. Domestic Securities Held to maturity (a) 135,248 152,401 Available-for-sale (b) Government of Fiji bonds 25,173 26,132 Treasury bills - 61 25,173 26,193 160,421 178,594 (a) These securities have varying maturity dates up to 2021. These securities are purchased in the secondary market and it is the Bank’s intention to hold these investments to maturity. During the year, $1.656m (2007: $1.885m) was amortised in respect of securities held in this category. (b) Domestic securities underwritten by the Bank are classified as available-for-sale. These securities will mature in 2009. Annual Report 2008 59 RESERVE BANK OF FIJI NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS For the year ended 31 December 2008 2008 2007 $000 $000 4. Domestic Securities (continued) Reconciliation of available-for-sale financial assets Opening balance 26,193 66,419 Investments - - Redeemed at maturity - (9,119) Sold during the year - (2,000) Transfer to held to maturity financial assets - (42,384) Fair value gains/(losses) (1,020) 13,277 Total investments 25,173 26,193 5. Other assets Accrued interest 1,716 1,808 Currency inventory 16,628 19,482 Other assets and prepayments 55 56 18,399 21,346 Staff loans and advances 1,294 1,169 Allowance for doubtful debts on staff loans and advances (2) (14) 1,292 1,155 19,691 22,501 6. Property, plant and equipment Freehold Improvements Motor Computers Plant & Work in Total land and Vehicles and machinery, progress buildings equipment equipment & furniture & fittings $000 $000 $000 $000 $000 $000 $000 Cost/Valuation Balance at 1 January 2008 15,664 2,555 264 4,615 3,929 398 27,425 Revaluation 2,556 - - - - - 2,556 Additions - 102 - 472 1,596 401 2,571 Disposals - - - (24) (860) - (884) Balance at 31 December 2008 18,220 2,657 264 5,063 4,665 799 31,668 Accumulated depreciation Balance at 1 January 2008 5,150 2,188 63 2,379 2,892 - 12,672 Depreciation for the year 284 101 45 830 307 - 1,567 Depreciation on disposals - - - (25) (860) - (885) Reversal of accumulated depreciation upon revaluation (5,434) - - - - - (5,434) Balance at 31 December 2008 - 2,289 108 3,184 2,339 - 7,920 Carrying amount Balance at 1 January 2008 10,514 1,227 201 2,236 177 398 14,753 Balance at 31 December 2008 18,220 368 156 1,879 2,326 799 23,748 A valuation of the Bank’s freehold land and buildings was undertaken by a registered valuer, S. Navuta (BA – LM&D, Fiji and MBus (Property), Australia) of Rolle Associates. The valuation was carried out on the basis of the market value of the properties. The valuation was effective as at 31 December 2008. 60 Reserve Bank of Fiji RESERVE BANK OF FIJI NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS For the year ended 31 December 2008 2008 2007 $000 $000 7. Demand deposits Foreign International Monetary Fund 8 82 Local Banks’ exchange settlement balances 55,166 331,162 Fiji government 5,842 3,544 State NBF Trust account 1,030 1,490 International Monetary Fund 1,807 1,930 Other depositors 2,223 21,327 66,068 359,453 In accordance with an agreement dated 12 September 1996 between the Sovereign Democratic Republic of Fiji and the Reserve Bank of Fiji and NBF Asset Management Bank (AMB), the State established a trust account, known as the State NBF Trust Account, with the Reserve Bank of Fiji, on the basis, among other things, that all money in the trust account is the property of the State at all times. The purpose of the State NBF Trust Account is to meet the obligations of the AMB. The National Bank of Fiji Restructuring Act, 1996, provides that the State, the Reserve Bank of Fiji and AMB may at any time enter into one or more deeds, agreements, arrangements and understandings relating to the performance by the State of its obligations under the guarantees of deposits with AMB. From 1 April 2007, under Section 30(2)(c)(i) of the Banking Act 1995, Cabinet agreed that the Bank assume controllership and the ultimate winding down process of the AMB. It also permits the Bank to use money from the State NBF Trust Account to meet any controllership expenses. 8. Payable to government Net profit 30,460 20,371 Transfer to General Reserves - (1,000) 30,460 19,371 One-fifth balance of Revaluation Reserve 2,571 2,782 33,031 22,153 The amount payable to the Government of Fiji is made in accordance with Section 8(3) of the Reserve Bank of Fiji Act. 9. Currency in circulation Notes 364,864 355,955 Coins 26,049 26,312 390,913 382,267 The exclusive rights of national currency issue are vested with the Reserve Bank. Currency in circulation comprises bank notes and coins issued by the Reserve Bank. 10. Other liabilities Current Employee entitlements 762 930 Other liabilities 2,351 1,058 3,113 1,988 Annual Report 2008 61 RESERVE BANK OF FIJI NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS For the year ended 31 December 2008 11. Cash and cash equivalents Cash and cash equivalents included in the statement of cash flows comprise of the following: Note 2008 2007 $000 $000 Cash on hand - local currency 603 668 Cash and cash equivalents - foreign currency 3 165,273 258,136 165,876 258,804 Cash and cash equivalents – foreign currency forms part of short-term commercial paper and current accounts in Note 3. 12. Share capital Authorised capital stock 5,000 5,000 Issued and paid-up capital stock 2,000 2,000 13. Reserves Reserves are maintained to cover the broad range of risks to which the Bank is exposed. General reserve The General reserve provides for events which are contingent and which are non-foreseeable. Available- for- sale reserve This reserve records fair value gains and losses on available-for-sale investments of the Bank. Revaluation reserve account – foreign currency Exchange gains and losses arising from revaluation of foreign currencies are transferred to the Revaluation Reserve Account (refer note 1(c)). Asset revaluation reserve This reserve records movements between cost and fair value of property of the Bank. 14. International Monetary Fund The Bank was designated to serve with effect from 17 December 1976 as the Government of the Republic of Fiji Island's fiscal agent for the purposes of the International Monetary Fund, and assumed the Republic of Fiji Island's obligation of membership from that date. As at 31 December 2008, the Republic of Fiji Island's membership subscription to the International Monetary Fund remained at $191m (2007: $172.2m). Of this amount $42.9m (2007: $38.4m) is shown as Reserve Tranche Position and is included as part of the External Reserves of the Reserve Bank (refer note 3) and the balance representing the local currency subscription portion of $148.0m (2007: $133.8m) is held mainly in the form of a non-interest bearing notes payable on demand. 62 Reserve Bank of Fiji RESERVE BANK OF FIJI NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS For the year ended 31 December 2008 15. Principal activities The Reserve Bank’s role as a central bank, as defined in the Reserve Bank of Fiji Act, is: (a) to regulate the issue of currency and the supply, availability and international exchange of money; (b) to promote monetary stability; (c) to promote a sound financial structure; (d) to foster credit and exchange conditions conducive to the orderly and balanced economic development of the country. 16. Risk management policies The Bank identifies risks and implements controls in its operation and management of foreign reserves holdings. The main financial risks that the Bank faces are liquidity risk, exchange rate risk, interest rate risk, credit risk and operational risk. Policies for managing the above risks are outlined below. Like most central banks, the nature of the Bank’s operations creates exposures to a range of operational and reputational risks. Bank management seeks to ensure that strong and effective risk management and controls systems are in place for assessing, monitoring and managing risk exposures. Internal audit forms part of the Bank’s risk management framework. This function reports to the Governor and the Board Audit Committee on internal audit and related issues. All Bank groups are subject to periodic internal audit review. The Bank is subject to an annual external audit. Both external and internal audit arrangements are overseen by the Board Audit Committee comprising three of the Board’s directors. The Committee meets regularly and reports to the Board of directors on its activities. Liquidity risk management Liquidity risk relates to the difficulty in raising funds at short notice to meet commitments associated with financial instruments. To limit the liquidity risk, the Bank maintains an adequate level of reserves and taking into consideration the transaction demand on foreign exchange, ensures that an acceptable amount is maintained in current accounts at all times. The Bank invests in high quality instruments, including commercial paper and debt issued by Governments and Supranationals, all of which are easily converted to cash (refer note 18 for maturity analysis on liquidity). Exchange rate risk management Exchange rate risk relates to the risk of loss of foreign reserves arising from changes in the exchange rates against the Fiji dollar. The Bank has adopted a currency risk management policy, which maintains the Fiji dollar value of the foreign reserves and manage the fluctuations in the revaluation reserve account. Interest rate risk management Interest rate risk refers to the risk of loss arising from changes in interest rates. The Bank limits interest rate risk by modified duration targets. The benchmark modified duration for the total portfolio is twelve months. The duration of the portfolio is re-balanced regularly to maintain the targeted duration. Credit risk management Credit risk relates to the risk of loss from the failure of a counter-party to a transaction to perform according to the terms and conditions of the contract. Annual Report 2008 63 RESERVE BANK OF FIJI NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS For the year ended 31 December 2008 16. Risk management policies (continued) Credit risk management (continued) To limit this credit risk, the Bank prescribes minimum credit ratings acceptable for investment and specifies the maximum permissible credit exposure to individual banks and countries. In addition, the number of commercial banks, with whom the Reserve Bank may deal with in foreign exchange, is limited to six at any point in time and these banks must have minimum credit ratings of P1 for short- term debt and Aa3 for long-term debt. The Bank uses Standard and Poor’s, Moody’s and Fitch credit ratings for assessing the credit risk of foreign counterparties. The credit ratings of counterparties are on “watch” all the time and are updated as new market information is available. Foreign exchange limits per bank are imposed for all currency dealings. The total exposure of credit risk in the Bank’s portfolio is as follows: 2008 2007 $000 $000 Foreign currency assets Short-term commercial paper and current accounts 250,129 467,484 Marketable securities 245,685 281,987 International Monetary Fund 209,644 187,845 Local currency assets Domestic securities 160,421 178,594 Staff loans and advances 1,294 1,169 867,173 1,117,079 The Bank monitors credit risk by currency and sector. An analysis of concentrations of credit risk is shown below: 2008 2008 2007 2007 $000 % $000 % Concentration by currency United States 157,796 18% 213,943 19% Japan 31,260 4% 34,074 3% European countries 40,716 5% 69,562 6% Australia 159,042 18% 255,480 23% New Zealand 107,000 12% 176,412 16% Special Drawing Rights 209,644 24% 187,845 17% Fiji 161,715 19% 179,763 16% Total financial assets 867,173 100% 1,117,079 100% Concentration by sector Foreign currency assets Central banks 106,821 15% 101,082 11% Commercial banks 202,603 29% 440,032 47% Government 22,755 3% 35,291 4% Municipal 15,666 2% 13,527 1% Semi Government 51,486 7% 31,492 3% Supranational 75,589 11% 98,769 11% International Monetary Fund 209,644 30% 187,844 20% Others 20,894 3% 29,279 3% 705,458 100% 937,316 100% 64 Reserve Bank of Fiji RESERVE BANK OF FIJI NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS For the year ended 31 December 2008 16. Risk management policies (continued) Credit risk management (continued) 2008 2008 2007 2007 $000 % $000 % Local currency assets Government and statutory bodies 160,421 99% 178,594 99% Staff loans and advances 1,294 1% 1,169 1% 161,715 100% 179,763 100% Total financial assets 867,173 1,117,079 Operational Risk Management Operational risk refers to the activities that may expose the Bank to loss through error, lack of control or failure of internal processes and systems. Managing operational risk in the Bank is an integral part of day-to-day operations and oversight. This includes adherence to Bank wide corporate policies. There is also an active internal audit function carried out on a quarterly basis. To reduce operational risks in foreign reserves operations there is a clear separation of duties between the front office (dealing) and the back office (settlements function). The front office comprises authorised team of officers (dealers) who are duly authorised to transact on behalf of the Bank. The back office comprises officers who independently process and settle all the deals undertaken by the front office. 17. Fair values of financial assets and liabilities The fair value of an instrument is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arms length transaction. Quoted market values represent fair value when a financial instrument is traded in an organised and liquid market that is able to absorb a significant transaction without moving the price against the trader. Financial assets and liabilities The valuation of the Bank’s financial assets and liabilities are discussed below: External reserves The reported value of external reserves is considered to be its fair value due to the short-term nature of the financial assets. Bonds are valued at mark to market. Annual Report 2008 65 RESERVE BANK OF FIJI NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS For the year ended 31 December 2008 17. Fair values of financial assets and liabilities (continued) Financial assets and liabilities (continued) Domestic securities The fair value of the Bank’s domestic securities is $166.8m (2007: $186.1m), based on quoted market prices. Statutory reserve deposits The carrying value of statutory reserve deposits are considered to approximate their fair value as they are denominated in cash. Demand deposits The carrying value of deposits are considered to approximate their fair value as they are payable on demand. Reserve Bank of Fiji notes The carrying value of the Reserve Bank of Fiji notes are considered to approximate their fair value as they are redeemable on demand in accordance with the Bank’s policy. Currency in circulation The carrying value of currency in circulation is considered to be its fair value as reported in the accounts. Other Financial Assets and Liabilities The reported values of other financial assets and liabilities are considered to be its fair value. 66 Reserve Bank of Fiji RESERVE BANK OF FIJI NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS For the year ended 31 December 2008 18. Maturity analysis Maturity analysis as at 31 December 2008 0-3 3 - 12 1-5 Over 5 No Specific Total Maturity analysis Months Months Years Years Maturity $000 $000 $000 $000 $000 $000 Foreign currency assets Short-term commercial paper and current accounts 165,273 84,856 - - - 250,129 Fixed term deposits 28,993 30,301 - - - 59,294 Bonds 14,436 6,175 165,780 - - 186,391 Gold 1,279 - - - - 1,279 Accrued interest 9,997 - - - - 9,997 IMF: - Reserve tranche position 42,963 - - - - 42,963 - Special drawing rights 18,638 - - - - 18,638 - Currency subscription 148,043 - - - - 148,043 429,622 121,332 165,780 - - 716,734 Local currency assets Cash on hand 603 - - - - 603 Domestic securities 18,069 9,831 92,588 39,933 - 160,421 Other assets 2,237 1,328 10,147 5,979 - 19,691 Property, plant & equipment - - - - 23,748 23,748 20,909 11,159 102,735 45,912 23,748 204,463 Total assets 450,531 132,491 268,515 45,912 23,748 921,197 Foreign currency liabilities Accrued interest & charges 3 - - - - 3 Demand deposits 8 - - - - 8 IMF - Special drawing rights allocation - - - - 18,905 18,905 11 - - - 18,905 18,916 Local currency liabilities Demand deposits 66,068 - - - - 66,068 Payable to government 33,031 - - - - 33,031 Currency in circulation - - - - 390,913 390,913 Statutory reserve deposit - - - - 188,895 188,895 IMF - Notes currency subscription - - - - 146,236 146,236 Other liabilities 2,319 6 788 - - 3,113 101,418 6 788 - 726,044 828,256 Total liabilities 101,429 6 788 - 744,949 847,172 Net assets 74,025 Annual Report 2008 67 RESERVE BANK OF FIJI NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS For the year ended 31 December 2008 18. Maturity analysis (continued) Maturity analysis as at 31 December 2007 0-3 3 - 12 1-5 Over 5 No Specific Total Maturity analysis Months Months Years Years Maturity $000 $000 $000 $000 $000 $000 Foreign currency assets Short-term commercial paper and current accounts 258,136 209,348 - - - 467,484 Fixed term deposits 41,481 26,930 - - - 68,411 Bonds - 4,936 208,640 - - 213,576 Gold 1,078 - - - - 1,078 Accrued interest 14,640 - - - - 14,640 IMF: - Reserve tranche position 38,430 - - - - 38,430 - Special drawing rights 15,653 - - - - 15,653 - Currency subscription 133,762 - - - - 133,762 503,180 241,214 208,640 - - 953,034 Local currency assets Cash on hand 668 - - - - 668 Domestic securities 61 11,956 93,453 73,124 - 178,594 Other assets 2,634 2,726 14,312 2,829 - 22,501 Property, plant & equipment - - - - 14,753 14,753 3,363 14,682 107,765 75,953 14,753 216,516 Total assets 506,543 255,896 316,405 75,953 14,753 1,169,550 Foreign currency liabilities Accrued interest & charges 65 - - - - 65 Demand deposits 82 - - - - 82 IMF - Special drawing rights allocation - - - - 17,043 17,043 147 - - - 17,043 17,190 Local currency liabilities Demand deposits 359,453 - - - - 359,453 Reserve Bank of Fiji notes - - - - - - Payable to government 22,153 - - - - 22,153 Currency in circulation - - - - 382,267 382,267 Statutory reserve deposit - - - - 194,198 194,198 IMF - Notes currency subscription - - - - 131,832 131,832 Other liabilities 1,178 119 341 350 - 1,988 382,784 119 341 350 708,297 1,091,891 Total liabilities 382,931 119 341 350 725,340 1,109,081 Net assets 60,469 68 Reserve Bank of Fiji RESERVE BANK OF FIJI NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS For the year ended 31 December 2008 19. Related parties Identity of related parties The Bank has related party relationships with the board of directors, the executive management and the Government of the Republic of Fiji Islands. The board of directors during the financial year ended 31 December 2008 were Savenaca Narube (Chairman and Governor), Peceli Vocea, Kanti Tappoo (OBE), Ioane Naiveli, Robin Yarrow, Adish Narayan, Chandra Dulare and Deo Saran (from 11 February 2009). During the year the following persons were the executives identified as key management personnel, with the greatest authority and responsibility for planning and controlling the activities of the Bank: Savenaca Narube (Governor), Sada Reddy (Deputy Governor), Barry Whiteside (Chief Manager Financial Institutions), Lorraine Seeto (Chief Manager Corporate Planning and Assurance), Shajehan Hussein (Chief Manager Financial Markets), Esala Masitabua (Chief Manager Currency and Corporate Services), Annie Rogers (Advisor to Governors – up to 17 October 2008), Jitendra Singh (Acting Chief Manager Economics), Ariff Ali (Acting Chief Manager Financial Markets – from 3 November 2008), Razim Buksh (Director Financial Intelligence Unit), Uday Singh (Secretary to the Bank/Advisor Corporate Affairs). Transactions with related parties In the normal course of its operations, the Bank enters into transactions with related parties identified above. The transactions with the Board of directors and executive management include the payment of board remuneration and salaries, respectively. The transactions with the Government of the Republic of Fiji Islands include banking services, foreign exchange transactions, registry transactions and purchase of Government securities. During the year the Bank received $10.492m (2007: $9.650m) of interest income relating to their investments in Government securities. The Bank also paid $22.153m (2007: $14.912m) to the Government in accordance with Section 8(3) of the Reserve Bank of Fiji Act, 1983. The balance of the Bank’s investment in Government securities at year end amounted to $168.759m (2007: $181.391m). The Bank also provides an overnight standby facility to the Government of the Republic of Fiji Islands. At year end, the approved facility of $20m (2007: $20m) was not utilised. The transactions with the respective related parties are carried out on normal trading terms. During the year the following transactions were incurred with the related parties: 2008 2007 $000 $000 Board remuneration expenses 41 39 Short-term employee benefits 1,177 1,217 1,218 1,256 Annual Report 2008 69 RESERVE BANK OF FIJI NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS For the year ended 31 December 2008 20. Commitments Commitments not otherwise provided for in the financial statements and which existed at 31 December 2008 comprise: 2008 2007 $000 $000 Foreign exchange transactions: Commitments - Sales 5,702 2,854 - Purchases 6,715 - Capital commitments 27 16 21. Lease receivable The Bank leases out several floors of the Reserve Bank building. The operating lease rental receivable are as follows: Receivable not later than one year 278 195 Receivable later than one year but not later than five years 12 12 Receivable later than five years - - 290 207 22. Events subsequent to balance date Since the end of the financial year, the directors are not aware of any matter or circumstance not otherwise dealt with in the report or financial statements that will significantly or may significantly affect the operations of the Bank, the results of those operations or state of affairs of the Bank in sub- sequent financial years. 70 Reserve Bank of Fiji SELECTED EVENTS IN 2008 14-18 Jan. AUSTRAC Technical Assistance on FFIMSO prov- 27 Aug. Press Release on the Release of 2007 RBF Annual ided by Mr. Mathew Hannigan and Mr. Mark Schloss. Report. 23 Jan. - 29 Aug. Ordinary Board Meeting. 13 Feb. IMF Standard Reporting Format Technical Assistance 1 Sep. Press Release on Unchanged Monetary Policy Stance. provided by Mr. Ron Pearson. 4 Sep. Governor addressed the 2008 Prime Minister’s Mini 14 Feb. Special Board Meeting. Economic Summit, Tradewinds. 15 Feb. December 2007 Quarterly Review published. 8 Sep. Press Release on Relaxation of Policy on Prepayment 19 Feb. Governor opened Bank South Pacific, Nadi Branch. of Imports. AML Compliance Officers Forum. Governor addressed the Australia-Fiji Business 28 Feb. Ordinary Board Meeting. Council, Sydney, Australia. Press Release on Unchanged Monetary Policy Stance. 8-11 Sep. IMF/ADB/PFTAC/RBF Regional Workshop on 14 Mar. Press Release on Clarification of Foreign Exchange Financial Soundness Indicators. Holdings. 10 Sep. Governor spoke on radio-talk show, Australia. 27 Mar. Ordinary Board Meeting. RBF/ABIF Joint Meeting. Press Release on RBF Board Maintains Monetary 11 Sep. Press Release on Public Awareness on New Coinage Policy Stance. Structure. 31 Mar. The Operations Report and Financial Statements for 17-23 Sep. IMF Staff Visit. 31 December 2007 were submitted to Minister for 22 Sep. - Finance, National Planning, Sugar Industry and 3 Oct. APRA assisted on-site supervision with participants Public Utilities. from Papua New Guinea and Vanuatu. 7 Apr. Governor’s presentation at the Australia-Fiji Business 25 Sep. Ordinary Board Meeting. Council “Business Briefing and Workshop”. 26 Sep. Press Release on Unchanged Monetary Policy Stance. 15 Apr. Press Release on the Bank’s Transfer Profits to 29 Sep. Press Release on Relaxation of Exchange Control Government. Policies. 21 Apr. Press Release on Revised Economic Projections. 29-30 Sep. Governor was keynote speaker at Pacific Credit 24 Apr. Ordinary Board Meeting. Unions Technical Congress, Nadi. 25 Apr. Press Release on Relaxation of Control Policy by the 3 Oct. Deputy Governor addressed the Fiji-NZ Business Bank. Council, Holiday Inn, Suva. 29 Apr. - 7 Oct. Press Release on Global Financial Market Turmoil. 9 May IMF Technical Assistance on Superannuation 17 Oct. Press Release on Clarification of Issues on 1 cent and provided by Mr. Ron Bergeron. 13 May Economics Association of Fiji and PEGASES seminar 2-cent Coins. on “Remittances: Amplifying the Voices of Consum- 22-24 Oct. RBF hosted the SEACEN DORT Meeting in Fiji. ers” by Mr. Tomas Ernst. 29 Oct. Economics Association of Fiji panel discussion on 14 May Press Release on Policy Changes. “The Impact of the Global Financial Crisis” by Dr. T 15 May March 2008 Quarterly Review published. K Jayaraman, Mr. Laurie Mellsop and Mr. Bruce 16 May Press Release on Border Currency Reporting. Sutton. 22 May Governor opened Micro, Small Medium Enterprises 30 Oct. Ordinary Board Meeting. Forum, Tradewinds, Suva. 31 Oct. Press Release on Unchanged Monetary Policy Stance. 29 May Commissioning of New Note Processing Machine. 5-6 Nov. Governor was Chief Guest at the Fiji Indigenous Ordinary Board Meeting. Business Council/Fiji Holdings Limited Annual Press Release on Unchanged Monetary Policy Stance. Symposium 2008. 4 Jun. Governor launched “Yehdo”, a product of TransTel 12 Nov. Deputy Governor addressed the Fiji Employers’ at USP’s Oceanic Centre. Federation on the “Impact of the Global Crises on 5 Jun. Governor addressed TPAF Productivity Fiji’s Economy”. Symposium on “The Economic Challenges and 15 Nov. The Bank sponsored an award for Agriculture at the Lessons to Raise Fiji’s Competitiveness”, Holiday Inn, FTIB Exporter of the Year Awards. Suva. 21 Nov. Governor addressed 2nd SEACEN Advanced 13 Jun. Press Release on MOA signed between FIU and FTIB. Leadership Course on Managing Talent in Central 20 Jun. Governor opened Westpac MHCC Branch, Suva. Banks, Kuala Lumpur, Malaysia. 23 Jun. Press Release on Policy Changes. 26 Nov. Governor was Chief Guest at Dudley High School 24 Jun. Press Release on the Release of 2007 FIU Annual Prize Giving Ceremony. Report. 27 Nov. Ordinary Board Meeting. 26 Jun. Ordinary Board Meeting. 28 Nov. Press Release on Unchanged Monetary Policy Stance. 27 Jun. Press Release on Unchanged Monetary Policy Stance. Governor opened Dai-ichi Auto Home Limited’s new 30 Jun. Submission of 2007 Insurance Annual Report to Complex. Minister for Finance, National Planning, Sugar 2 Dec. 2007 Insurance Annual Report was tabled in Cabinet. Industry and Public Utilities. Governor addressed Fiji-Australia Business Council 2 Jul. Press Release on Monetary Policy Statement. Forum 2008 “Business Tomorrow in the Economy”, May 2008 Monetary Policy Statement Released. Nadi. 3 Jul. Press Release on MOA signed between FIU and the 3 Dec. September 2008 Quarterly Review published. Ministry of Justice. Press Release on 2007 Insurance Annual Report. 28 Jul. Economics Association of Fiji panel discussion on 5 Dec. Governor addressed South Pacific Governor’s “The Global Effects of Rising Prices: What Can We Conference on FIJICLEAR, Australia. Do?” by Dr. Mahendra Reddy, Mrs. Premila Kumar, 9 Dec. The Bank’s 2006 Annual Report won 1st prize at the Mr. Narasimhan Krishnan and Mr. Semiti Qalowasa. SPSE 2008 Annual Report Competition (Category 5 Aug. Deputy Governor opened Australia and New Zealand A: Statutory Bodies, Government Bodies and Unlisted Banking Group Limited’s (ANZ) ATM No. 70, Nasese. Trusts). 6 Aug. June 2008 Quarterly Review published. 10 Dec. Ground Breaking Ceremony – Bank’s BRS, Tamavua. 8 Aug. Press Release on High Court’s Dismissal of Claims 11 Dec. Ordinary Board Meeting. by the Auditor General against RBF. The Bank launched the new Fiji Coins. 14 Aug. Press Release on Policy Changes. Press Release on the Launching of Fiji’s New Coins 18-29 Aug. APRA assistance provided for on-site examination with Series. participants from Papua New Guinea and Cook Islands. 15 Dec. The Bank released its Monetary Policy Statement. 22 Aug. Deputy Governor spoke at ANZ Fiji’s Tourism Forum The Bank sponsored the Agriculture award at the 2008 “Meeting Change Together”. FDB Small Business Awards. 25 Aug. Press Release on Revised Economic Projections. Press Release on Monetary Policy Statement. 26 Aug. The 2007 Reserve Bank of Fiji Annual Report was 30 Dec. Press Release on Foreign Currency Accounts Scheme tabled in Cabinet. in Fiji. Annual Report 2008 71 FIJI: KEY ECONOMIC AND FINANCIAL INDICATORS 2004 2005 2006 2007 2008 I. GROSS DOMESTIC PRODUCT GDP at Market Price ($ Million) 4,726.8 5,010.0 5,483.3(r) 5,435.9(p) 5,895.9(e) Per Capita GDP at Current Factor Cost ($) 4,777.6 5,030.2 5,471.0(r) 5,462.7(p) 5,898.3(e) Constant Price GDP Growth Rate (%) 5.5(r) 0.6(r) 3.4(r) - 6.6(p) 0.2(e) II. LABOUR MARKET Labour Force 318,628(r) 321,336(r) 324,607(r) 326,988(r) 329,755(e) Wage and Salary Earners (mid-year) 121,900 123,900(r) 126,000(r) 128,800(r) 130,200(e) III. INFLATION (year-on-year % change) All Items 3.3 2.7 3.1 4.3 6.6 IV. GOVERNMENT FINANCE ($ Million) Total Revenue and Grants 1,176.2 1,221.9 1,401.3 1,288.2 1,435.9(r) Total Expenditure (excluding loan repayments) 1,322.5 1,391.0 1,558.5 1,384.4 1,527.9(r) V. EXTERNAL TRADE ($ Million) Current Account Balance - 641.9 - 670.3 - 1238.1 - 941.3(e) - 1,253.6(e) Capital & Financial Account Balance 242.7 402.9 941.3 237.6(e) 373.9(e) Current Account Balance as a percentage of GDP - 13.6 - 13.4 - 22.6 - 17.3(e) - 21.0(e) VI. FOREIGN EXCHANGE RESERVES ($ Million) Foreign Reserves 786.2 549.1 515.4 804.6 558.7 VII. MONEY AND CREDIT (year-on-year % change) Narrow Money 13.11 17.59 - 4.57 43.47 - 19.67 Currency in Circulation 11.57 11.01 5.04 - 1.32 8.40 Quasi-Money 8.07 12.76 42.01 - 9.79 5.58 Domestic Credit1 12.53 26.59 23.59 3.16 4.85 VIII. INTEREST RATES (% p.a.) Lending Rate 7.03 6.63 7.90 8.46 7.72 Savings Deposit Rate 0.36 0.40 0.84 0.64 0.64 Time Deposit Rate 1.77 2.03 9.05 4.45 3.00 91-Day RBF Note Rate2 1.75 2.25 4.25 4.25 n.i. Minimum Lending Rate 2.25 2.75 5.25 9.25 6.32 IX. EXCHANGE RATES (mid-rates, F$1 equals: end of period) United States dollar 0.6079 0.5731 0.6009 0.6447 0.5669 Real Effective Exchange Rate (January 1999 = 100) 100.43 100.31 102.29 104.34 107.45 Sources: Fiji Islands Bureau of Statistics, Reserve Bank of Fiji, Ministry of Finance and National Planning and Commercial Banks Notes: 1 Credit to the private sector is adjusted for NBF Asset Management Bank’s non-performing loans and advances. 2 In 2006, the rate is for October. In 2007, the rate is for June. There were no issues of 91-day RBF notes in December for both years. Key: (e): estimate n.i: no issue (p): provisional (r): revised 72 Reserve Bank of Fiji GLOSSARY ABIF - Association of Banks in Fiji ADB - Asian Development Bank AFSPC - Association of Financial Supervisors of Pacific Countries AMB - National Bank of Fiji Asset Management Bank AML - Anti-Money Laundering ANZ - Australia and New Zealand Banking Group Limited APG - Asia Pacific Group APRA - Australian Prudential Regulation Authority ATM - Automated Teller Machines BCP - Business Continuity Plan BRS - Business Resumption Site CNB - Colonial National Bank COC - Constitutional Offices Commission DORT - Directors of Research and Training EFF - Export Finance Facility EMS - Electromagnetic Signatures FDB - Fiji Development Bank FFIMSO - Fiji FIU Information Management System Online FIRCA - Fiji Islands Revenue and Customs Authority FIU - Financial Intelligence Unit FNPF - Fiji National Provident Fund FTIB - Fiji Islands Trade and Investment Bureau FTR - Financial Transactions Reporting GDP - Gross Domestic Product IMF - International Monetary Fund IT - Information Technology KPIs - Key Performance Indicators MPC - Macroeconomic Policy Committee NBFIs - Non-Bank Financial Institutions NEER - Nominal Effective Exchange Rate OHS - Occupational Health and Safety OMO - Open Market Operations PFTAC - Pacific Financial Technical Assistance Centre RBF - Reserve Bank of Fiji REER - Real Effective Exchange Rate RRA - Revaluation Reserve Account SDR - Special Drawing Rights SEACEN - South East Asian Central Banks SME - Small and Micro Enterprises SPSE - South Pacific Stock Exchange SRD - Statutory Reserves Deposit STRs - Suspicious Transactions Reports TPAF - Training and Productivity Authority of Fiji TRIM - Total Records Information Management System US - United States of America USP - University of the South Pacific VAT - Value Added Tax Annual Report 2008 73 Reserve Bank of Fiji The great double-hulled, ocean-going canoes (drua) of the ancient Fijians were remarkable crafts, capable of long voyages. The tagaga (pronounced “tanganga”) or masthead, was crucial for holding in place the sails, woven from the leaves of the pandanus tree. It was the tagaga which enabled the navigators to keep their drua sailing towards their destinations. For the Reserve Bank of Fiji, a logo based on the tagaga masthead, symbolises the Bank’s role in contributing towards a sure and steady course for Fiji’s economy. Reserve Bank of Fiji Postal: Private Mail Bag, Suva, Fiji Islands. Telephone: (679) 331 3611 Facsimile: (679) 330 1688 Email: firstname.lastname@example.org Website: www.rbf.gov.fj
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