A recent joint study by Reserve Bank of Fiji’s Krishal Prasad and Griffith University’s Parmendra Sharma and Samsul Alam begins to fill the gaps in the literature on financial development trends in Pacific Island Countries using Fiji as a case study.  The study also briefly tests the finance vis-à-vis economic growth, poverty, income inequality and health relationships.

A large and growing body of studies conclude that finance matters for the above socio-economic indicators.

The financial development literature, aimed at investigating trends, relationships, and making policy recommendations has expanded substantially over the last few decades and has spanned numerous countries and regions, both developed and less developed.  Financial sector reforms intended to expand scope and depth too have been a commonplace.  Reforms have not evaded the small island nations of the Pacific as well.  For example, in the case of Fiji, reforms have included major revisions to the banking act and prudential policies, guidelines and directives.

Yet, intriguingly, little rigorous academic research is available to systematically understand the trends, status, various relationships and policy recommendations in the PIC context.

To understand trends, the paper uses common measures such as private sector credit to GDP, financial sector deposit to GDP, stock market capitalisation, bank branches per 100,000 adults and bank credit to bank deposit ratio.  For a more meaningful insight, the paper then compares Fiji’s trends with comparable economies.  Fiji is an upper middle income, island economy; comparable economies thus include Guyana, Jamaica, Maldives, Panama as well as Pacific Island countries (PICs). Data sources include the Global Financial System Database, International Monetary Fund, World Bank and Reserve Bank of Fiji.

In addition, using the above several measures of financial development, the paper quickly tests a number of finance related relationships for Fiji.  Among these, the finance-health nexus is of keen interest as the literature on this is just beginning to emerge.

Results show that Fiji’s financial sector has been developing positively over the last 26 years and the performance has been encouraging against comparable economies.  Among others, positive growth in lending to the private sector, deposits to GDP, credit to deposit ratios, more access to financial services, coupled with reforms and policy initiatives seem to have contributed to the positive financial development.  Results also indicate positive relationships of finance with economic growth, poverty, income inequality and health.

While preliminary, this study provides a basis for further investigations into the finance vis-à-vis various socio-economic relationships.  The next study takes a deeper look into the finance—health relationship.

Krishal Prasad (Reserve Bank of Fiji), Samsul Alam and Parmendra Sharma (Griffith University).

NB. The views and opinions expressed in this study are those of the authors and do not reflect those of the Reserve Bank of Fiji or its Board.

The full article may be accessed from the Griffith Asia Institute or the Reserve Bank of Fiji websites.