In the past month, it had granted study visas to senior members of Fiji's military regime, and allowed a regime member to play in last weekend's Rugby Seven tournament in Wellington.
"That wouldn't have happened a year ago. We're on a gradual path of normalising the relationship and recognising the progress,'' Mr McCully told Radio New Zealand.
Sporting sanctions on Fijian military personnel were lifted last year, but travel sanctions remain in place. However, New Zealand has discretion to provide temporary exemptions for individuals.
The study visas were granted to two Fijian ambassadors, Brigadier General Iowane Naivalurua and Ambassador Isikeli Mataitoga, who visited New Zealand at the end of last month.
Their visit was pat of a study tour to look at public sector reforms.
Mr McCully said New Zealand continued to review sanctions as further progress was made toward free and fair elections.
The ministerial statement said there were still logistical challenges facing Fiji's Elections Office. It also reiterated the need for political parties to be able to meet freely and campaign openly.
Ministers noted significant improvements since their last visit, but emphasised the importance of "ongoing improvements to media freedom, freedom of speech, association and assembly''.