The Fijian economy is projected to contract by 21.7 percent this year, which the Reserve Bank has described as the most severe in our modern history. [File Photo]

The Fijian economy is projected to contract by 21.7 percent this year, which the Reserve Bank has described as the most severe in our modern history.

Governor Ariff Ali says the spill-over of the COVID-19 pandemic has trickled down to the domestic economy given Fiji’s reliance on the global economy.

Ali adds the tourism industry which accounts for around 35percent of GDP has been devastated by travel-related restrictions and the consequent halt in international tourism.

As such, visitor arrivals are forecast to decline by 75 percent this year with the flow-on effects bringing tourism-dependent sectors to a standstill.

In particular, the accommodation & food services and the transport & storage sectors will suffer the brunt of the contraction in visitor arrivals.

He says this has culminated in a spike in unemployment as many businesses have scaled back or shut down operations.

The Governor says the retrenchment in consumption and investment activities along with the plunge in external trade will place additional downward pressure on Government’s tax collections.

Protracted weaknesses in aggregate demand arising from reduced disposable incomes, increased unemployment, subdued business confidence and constrained fiscal space are expected to have a compounding effect on wholesale & retail trade, finance & insurance, construction, manufacturing, and the public administration & defence sectors.

Investment spending is also forecast to fall to around 12.8 percent of GDP, from an average of around 20 percent in the preceding three years.

Private investment projects are likely to be halted or delayed given the uncertainty surrounding the economic outlook and resumption of global travel while there will be challenges on Government-funded capital projects due to limited fiscal space.

In the primary industries, the export-oriented forestry and fishing sectors are also bound to contract due to dampened external demand.

However, Ali says the agriculture, information & communication and health sectors are still expected to contribute positively to economic activity this year.