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ChinaTourism capped, growth falters
After a strong post-Covid rebound, Fiji's growth returned to its previous pace in 2024. It is still mainly based on tourism, which accounts for 40% of GDP, with the majority of visitors coming from Australia (46%), New Zealand (23%) and the US (11%). By 2022, the tourism sector had returned to its pre-pandemic level. However, the first signs of a slowdown observed in the first half of 2025 should be confirmed in the second half and in 2026. Labour shortages and delays in tourism infrastructure projects are limiting capacity due to emigration and supply constraints.
At the same time, the increase in US tariffs on Fijian products, announced at 32% but under negotiation, could reduce exports to the US, which is the country's main market, particularly for mineral water. However, the increase in public investment announced in the 2026 budget should stimulate growth.
Inflation began to fall in 2025 as the effect of the VAT hike in 2024 dissipated. The appreciation of the nominal exchange rate and the fall in global energy and food prices contribute to disinflation. This and the increase in civil servants' salaries in 2025 will stimulate household consumption, which accounts for an average of 70% of GDP.
Expansionary budget for 2026
The Covid crisis hit the Fijian economy hard, particularly the tourism sector, which felt the brunt of the pandemic from 2020 to 2022. Lower tax revenues and economic support measures widened the public deficit. Public debt rose from 49% of GDP in 2019 to 90% in 2022. In 2024, the increase in tax revenues on back of a rise in VAT, the (air)port departure tax and the corporate tax rate, as well as the abolition of certain exemptions enabled the deficit to narrow faster than expected, to 3.5% instead of the 4.8% announced. In 2025, increased investment in infrastructure, higher wages for civil servants and lower VAT on 22 essential products will force a widening of the deficit.
A further increase in the deficit has been announced for the 2026 financial year. A vast investment plan includes the renovation of roads, bridges and piers, and the construction of bus shelters and pedestrian crossings. Four bridges will be renovated at a total cost of USD 400 million, to be financed by loans from the World Bank and the Asian Development Bank. Work is also planned to repair pipes and improve water treatment. An 11% increase in the public works budget (USD 83 million) is also planned. At the same time, VAT will be lowered from 15% to 12.5%, and will remain at 0% on certain products to hedge against inflation. Public debt will therefore remain high, with its share of GDP expected to stabilise at around 80% in the coming years. The long maturity of Fiji’s debt (11.7 years on average), the fact that 62% of it is domestic, with the remainder held by bilateral and multilateral partners, mainly in the form of concessional loans, ease the sovereign risk.
Owing to its insularity, geographical isolation and low level of industrial development, Fiji's trade balance is structurally very negative: 30% of GDP in 2024. The surplus on the balance of services (20% of GDP), which essentially relates to tourism, and remittances from the diaspora are not enough to offset the trade deficit. The current account therefore remains in serious deficit. The latter is financed by the surplus on the financial account, which reflects net capital inflows (6.6% of GDP in 2024). These flows include modest foreign direct investment (FDI representing 1.6% of GDP) as the country struggles to attract foreign investors due to labour shortages, infrastructure deficiencies and exchange restrictions, as well as multilateral and bilateral financing (6.7% of GDP).
A democracy on the road to stabilisation
Although Fiji has been a parliamentary democracy since its independence in 1970, its political history has been marked by great instability, with four coups d'état taking place between 1987 and 2006, against a backdrop of ethno-religious tensions between Fijian and Indian communities. In 2013, democracy was reaffirmed when a new constitution was voted in. Although it still gives the army the power to intervene in domestic affairs and concentrates powers in the hands of the executive - partly explaining the Prime Minister's desire to reform it - it nevertheless represents a step towards the establishment of a genuine rule of law, laying the foundations for a more stable institutional framework and affirming certain fundamental democratic principles. After 16 years in power, Frank Bainimarama was forced to hand over the premiership to Sitiveni Rabuka following the national elections in December 2022. Rabuka leads a three-party coalition known as the People's Coalition and has a 29-seat majority in Parliament, with the opposition holding 26.
Since this election, Fiji has drawn closer to the West, in particular the US and New Zealand, after signing of military cooperation agreements, and Australia through an investment and development aid agreement. It has also renewed ties with the Commonwealth, offering an official apology to the British Crown for the 1987 coup d'état. Despite that, they have not broken with China. Relations with Israel have also intensified.
Maintaining strong diplomatic relations with countries in the region remains essential. While Fiji plays a central economic and logistical role for the smaller Pacific island states, it is also dependent on its larger neighbours, notably Australia and New Zealand, where over 60% of its diaspora live. The latter benefit in particular from seasonal visa arrangements. Aware of these challenges, the authorities have reaffirmed their commitment to the main regional institutions, such as the Pacific Community and the Pacific Islands Forum.
