The Reserve Bank of Fiji says the second wave of COVID-19 currently wreaking havoc in Viti Levu is concerning.

Due to this, there is sure to be an economic contraction this year according to the Reserve Bank of Fiji.

With the overnight policy rate of 0.25 percent, the RBF says the latest infections and the continued closure of international borders is weighing heavily on Fiji’s near term economic prospects.

RBF Governor, Ariff Ali, says while economic contraction is now likely for 2021, the outlook for 2022 remains uncertain.

This is a concern as earlier, the RBF had forecast the economy to start its recovery this year after the 2020 pandemic effect.

Ali says while the current containment measures are crucial to curb the virus spread, their persistence will exacerbate the downturn in sectoral output and suppress consumption and investment spending further.

He says the labour market conditions are also severely affected, with the Fiji National Provident Fund and Government continuing to provide some relief in this difficult economic environment.

The banking sector continues to have a weak consumer and business demand with a consistent contraction noted in private sector credit since July last year and an increase in non-performing loans.

On the bright side, Ali says this is being mitigated by sufficient levels of provisioning and adequate levels of capital.

In addition, banking system liquidity remains ample to date at $1,693.5 million.

The RBF says our economic recovery hinges on how soon the second wave of infections is contained locally and the resumption of international tourism and increased local vaccination will need to be urgently prioritised.

The Governor says assisting businesses to ride out the pandemic and ensuring vulnerable segments of society do not fall further into poverty is also imperative as this has long-term implications on economic recovery and growth.

The annual inflation rate stayed in negative territory in April, at -2.4%. Foreign reserves reached a historical high in May, surpassing the three billion-dollar mark and as of today stands at $3,134.0 million, sufficient to cover 9.7 months of imports.

There is expected to be some upward pressure on consumer prices in coming months.

This is due to factors such as consumable goods shortages induced by panic buying coupled with increased business costs as firms adhere to new COVID-19 operating protocols, as well as higher commodity and food prices internationally.