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IMF Recommends Base-Broadening Revenue Measures For Fiji

The International Monetary Fund has recommended that in order to enhance buffers and create space for needed public investment in Fiji, base-broadening revenue measures are needed. This should be alongside
15 Nov 2014 00:05
IMF Recommends Base-Broadening Revenue Measures For Fiji
An artist’s impression of the Momi Bay Redevelopment.

The International Monetary Fund has recommended that in order to enhance buffers and create space for needed public investment in Fiji, base-broadening revenue measures are needed.

This should be alongside the current spending restraint, it stressed.

This statement followed the conclusion reached by the IMF executive board on the 2014 Article IV Consultation with Fiji.

“These measures should include a significant reduction in income-tax holidays and tax incentives, within a general improvement in the investment climate,” it said.

The directors have called for the adoption of a tightening bias in the monetary stance to curb demand pressures, given strong credit growth and the positive output gap.

They advised a policy mix of targeted prudential measures, open market operations, increased reserve requirements, and if needed, a gradual adjustment of the policy rate.

Post election

The directors viewed the post-election environment as a window of opportunity.

This is to lay the foundation for moving toward a more flexible exchange rate designed to enhance external competitiveness and resilience to shocks.

They have encouraged the authorities to bring exchange restrictions in compliance with Article VIII requirements.

Macroeconomic management

The directors agreed that near-term macroeconomic management needs to be carefully calibrated, with the economy now growing above potential.

They noted that fiscal policy has been prudent and well focused in recent years, but that the 2014 budget is a departure from trend.

While welcoming the contingency plans developed by the authorities, the directors have cautioned against financing an expansion of recurrent expenditure with one-off asset sales.

Sound banking system

The directors have acknowledged the soundness of the banking system, but called for enhanced financial oversight to mitigate risks stemming from rapid credit expansion.

They recommended strengthening the financial sector’s supervisory and macroprudential frameworks and monitoring banking sector risks through regular stress testing.

The directors commended the success in increasing financial inclusion and encouraged further efforts in this regard.

Faster reforms

While welcoming recent progress, the directors supported deeper and faster structural reforms to lift Fiji’s potential growth, reduce external vulnerabilities, and alleviate poverty.

They suggested priority should be given to improving the investment climate.

This could be done by streamlining government regulations, relaxing price controls while protecting the most vulnerable, further enhancing the efficiency of land use, and upgrading infrastructure.

Efforts are also needed to boost the energy supply and ensure the viability of the sugarcane industry.

The directors also looked forward to continued improvements in data quality.

IMF Suggestions

– Significant reduction in income-tax holidays and tax incentives
– Tightening bias in the monetary stance
– Bring exchange restrictions in compliance with Article VIII requirements
– Enhanced financial oversight
– Strengthening the financial sector’s supervisory and macroprudential frameworks
– Priority should be given to improving the investment climate
– Efforts needed to boost the energy supply and ensure the viability of the sugarcane industry

Feedback:  rachnal@fijisun.com.fj

 




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