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Update on the Fijian Economy and Fiscal Position

The following is the Minister for Economy’s Ministerial Statement Thank You Madam Speaker, I rise to provide an update on the performance and outlook of the Fijian economy and Govern­ment’s
10 Mar 2018 11:00
Update on the Fijian Economy and Fiscal Position
From left: Minister for Agriculture, Rural and Maritime Development, National Disaster Management and Meteorological Services, Inia Seruiratu, Minister for Forests Osea Naiqamu, Assistant Minister for Women, Children and Poverty Alleviation Veena Bhatnagar, Attorney-General Aiyaz Sayed-Khaiyum and Minister for Industry, Trade, Tourism, Lands and Mineral Resources Faiyaz Koya during Parliament in Suva on March 9, 2018. Photo: DEPTFO News

The following is the Minister for Economy’s Ministerial Statement

Thank You Madam Speaker, I rise to provide an update on the performance and outlook of the Fijian economy and Govern­ment’s fiscal position.

Unprecedented Economic Growth in Fijian History

Madam Speaker, the Fijian econo­my is on track to realise its ninth consecutive year of economic growth in 2018 – unprecedented in Fijian post-independence history, Madam Speaker. The economy, on average, has grown by more than 4 per cent in the last five years, ex­cluding the 0.4 per cent GDP growth in 2016 post TC Winston.

Madam Speaker, with this buoyant performance in our economy, nomi­nal GDP per person in 2017 stood at over $12,000, almost doubling from $6,419 in 2006. This is the highest ever we have seen in our history. Even real GDP per capita reached its highest ever level at around $8,000 last year.

Many record level performances

Many other record performances have taken place, Madam Speaker. These include:

  • Foreign reserves peaked at over $2.4 billion last year;
  • Visitor arrivals were at the highest level ever in 2017, about 842,884 visitors – almost close to our total population;
  • Tourism earnings for 2017 is again projected to reach a record level at close to $1.8 billion, shows that yield are increasing;
  • Madam Speaker, Government tax collections is at the high­est level despite having the lowest tax rates. We now have the lowest personal income tax rate, lowest corporate tax rate, lowest VAT rate and no dividend tax but still revenue collections continue to rise;

 

8 Corporate tax reduced to 20 per cent from 31 per cent in 2006 and 35 per cent in 2000;

8 Income tax threshold raised to $30,000 from $8,840 in 2006;

8 VAT dropped to 9 per cent.

  • Since 2007, Madam Speaker, over $4.8 billion has been in­jected in the education sector by Government. Spending on education in 2017/2018 was $964.4 million, including $170 million for school reha­bilitation. Fiji has one of the highest education spending to GDP ratio in the region. In fact its more than Australia and New Zealand at this point in time;
  • Over $100 million is allocated in 2017-2018 Budget to pro­tect the elderly, disabled and disadvantaged through So­cial Protection Programmes, Madam Speaker. Only $6 mil­lion was allocated in 1999, $19 million in 2006, $31 million in 2011, and today we have a $100 million allocated, Madam Speaker.

 

8 Madam Speaker, this has also seen the introduc­tion of the social pen­sion scheme in 2013 with those over 70 years quali­fying for a $30 allowance. The qualifying age grad­ually reduced to 65 years in 2017-2018 Budget with recipients getting $100 a month.

8 Madam Speaker, there are many women in par­ticular in Fiji who have never worked for anyone. When they are old, they have no social protection whatsoever, in terms of pension. There are many villagers, many farm­ers, wives, daughters of farmers, who have never worked formally. They do not have FNPF. These people today are looked after by Government. In a remote part of Kadavu, a couple who have spent all their lives in the vil­lage both of them above the age of 65 years and not worked formally for anyone, will get $100 each a month, Madam Speak­er.

8 Madam Speaker, we have also introduced allowance for persons with disabilities at $90 a month. We also have a food voucher programme for rural pregnant moth­ers.

  • Over $3 billion will be spent since 2007 to improve and modernise our roads, bridges and jetties. This is more than three times of what previ­ous Governments have spent from 1970 to 2006. The current annual allocation is almost ten-fold higher than $55 mil­lion allocated in 2004.
  • Over $1.8 billion has been allocated for water and en­ergy since 2007. Upgrading old aged water and sewerage infrastructure, investing in new water sources, reducing non-revenue water (leakage) and increasing connection to centralised sewerage system.
  • Madam Speaker, we have dis­covered asbestos in drinking water pipes at AFL when the airport was being upgraded. Recently when the Lautoka Hospital caught fire, we dug behind the walls and found asbestos in it. All of this, Madam Speaker, cost money. But through its improvement, we are improving our infra­structure and therefore it has a direct impact on the quality of facilities for those people who work there and those people who come to be served by them.

 

All this impressive performance, Madam Speaker, is largely attrib­uted to various political, economic and financial reforms and well-designed policies introduced by the Bainimarama Government and the FijiFirst Government under the leadership of the Honourable Prime Minister.

Shared Prosperity

Madam Speaker, we talk about shared prosperity. We have heard from the Opposition and Hon. Ga­voka said it again yesterday – that the ordinary Fijians are not ben­efiting from this unprecedented growth. But, Madam Speaker, every day people are telling us that their lives and living standards have im­proved. And indeed they have. Sta­tistics shows this, Madam Speaker.

Let me again elucidate further. Madam Speaker, the many daily experiences that we now take for granted is in fact reflecting the prosperity that we are all now en­joying. Any honest Fijian, Madam Speaker, would tell that they are better off now than they were 10 years ago. No person with integrity will refute this fact!

We now have many more Fijian households who own cars;

The volume of travel within the country and outbound – sea, air, land has significantly increased.

In fact the popularity and rise in the number of international fran­chisees in Fiji has also increased.

In every neighbourhood and street you will find new homes being built or refurbished, new apartment buildings, new offices and various other factories and warehouses be­ing build. It goes to show that there is confidence. When there is more construction, more jobs are cre­ated, Madam Speaker.

We now have, Madam Speaker, more Fijians spending on what we then called luxury items, like go­ing to cinemas, entertainment and recreational centres, coffee shops, malls and retail stores.

We also have, Madam Speaker, aid­ed development through the $1,000 grant for micro and small enter­prises that is boosting the MSME sector. This gives sustained liveli­hoods, Madam Speaker.

Madam Speaker, it also goes to show that more people are spend­ing. If people are spending, that means there is access to finance.

Unemployment, Madam Speaker, is at a 20 year low of 4.5 per cent and income inequality has declined as measured by the Gini coefficient. Let me quote from the latest IMF Article IV report that was released recently – “Fiji’s income inequality has declined in the last 15 years”, Madam Speaker, and it is “attrib­uted to improvements in the social safety net and in employment”.

Cost of Living

Madam Speaker, let me also clari­fy the issue of cost of living which unfortunately has been highly politicised. The reality is that no other Government has introduced the bold policies that the FijiFirst Government has implemented to deal with the everyday bread and butter issues and prudently man­age the economy.

Our policies have had a direct im­pact on the lives of Fijians.

  • Families no longer have to pay school fees for their chil­dren because we have made education free, they even don’t pay for student trans­portation or text books;
  • Medicine, electricity and wa­ter are either free or subsi­dised;
  • Anyone earning less than $30,000 does not have to pay income tax;
  • We have lowered the VAT rate to 9 per cent and removed zero rated items. The RBF confirmed that the reduction in VAT will reduce overall cost to citizens by 4.5 per cent and food cost by 0.4 per cent.
  • We have also reduced, Mad­am Speaker, fiscal duties on many items:

 

8 In 2012 we reduced du­ties from 32 to 5 per cent on cauliflower, carrots, peas/beans, mushrooms, spinach, capsicum, ol­ives, sweet corn, and lentils/chickpeas. In 2014, duty on food sup­plements, baby feeding bottles, adult sanitary diapers reduced from 32 to 0 per cent;

8 In 2016, we reduced duty on sewing machines & parts, day old chicks from 5 to 0 per cent, fer­tile eggs from 32 to 0 per cent. Why? Because we are growing the poultry industry. Why are we re­ducing duty on sewing machines? So women can actually buy these ma­chines and create a liveli­hood for themselves.

8 Duty on tea reduced from 15 to 5 per cent, new tyres from 32 to 5 per cent, bicycles 5 to 0 per cent, underpants and briefs from 32 to 5 per cent, baby garments from 32 to 5 per cent, deodorants 15 to 5 per cent, wireless modems from 5 to 0 per cent, fabrics from 5 to 0 per cent. Why, Madam Speaker? Because we do not just survive on those five or six food items that the Opposition talks about. As human beings, you also need things oth­er than flour and cooking oil. You need toothpaste, deodorant, sanitary pads, clothes. You also need access to other facilities that will encourage you to drive for higher in­come levels.

 

In the 2017/2018 Budget, duty on energy bars re­duced from 32 to 5 per cent, ready-made towels from 32 to 15 per cent, baby cots and baby shoes from 32 to 5 per cent, baby wipes from 32 to 0 per cent. Why? Because 50 per cent of our popu­lation is below the age of 27. When we have a young population there are more pregnancies, so we need to reduce the cost for them to raise their children, Madam Speaker.

8 Duty on new parts and new engines for motor vehicles reduced from 15 to 5 per cent and sardines from 32 to 15 per cent. And there are various other items where duty was reduced.

8 Duty on glues, epoxies, sealer & protective coat­ings, polishes, creams, microphones, speakers, and hailers were reduced from 15 to 5 per cent. Duty was reduced on gloves, wetsuits and neo­prene boots from 32 to 5 per cent.

8 Generally, Madam Speaker, food items not produced in Fiji attract either zero or very low duty like onions, garlic, potatoes, cooking oil, tea, baby food, nuts, dates, avocado, apple, pear, or­ange, mandarin, peach, plum, kiwifruit, straw­berry, blueberry, figs, grapefruit, grapes.

8 The cost of production of food in Fiji has also come down, like dalo has also come down after TC Winston because of ini­tiatives by the Ministry of Agriculture. The as­sistance provided by the respective Ministries – Industry and Trade, Agriculture, Rural and Maritime Development are fostering people to get into livelihood pro­grammes and that is why people now have access to cheaper vegetables.

Madam Speaker, but we continue to hear this simplistic view from the Opposition to zero rate VAT on food items – 15 items we under­stand from what the NFP is saying. And as we have said before, Madam Speaker, this does not treat the problem because there are also car­tel operators that still fix prices for certain products. And we made an announcement in the last budget that we will get to them.

This is why, Madam Speaker, re­cently, we are seeing certain su­permarkets cutting down prices substantially. The Fiji Revenue and Customs Service, the Fijian Compe­tition and Consumer Commission and Economic Intelligence Unit at Ministry of Economy are all work­ing behind the scene.

Duties on cereals have been re­duced, Madam Speaker. Let me highlight once again. When we reduced duties on cereals, we still found that prices on cereals did not come down because there are only one or two importers of cereals. They never passed on the duty re­duction so people continued to pay higher prices. We reduced VAT but people will continue to pay higher prices. We need to address the prob­lem. We need to get rid of the mo­nopolistic position in the market, which we are doing now, Madam Speaker.

Madam Speaker, let me reiterate what I said yesterday we still im­port a large number of food items, including butter, where prices are actually dictated by what prevails in the global market. We are not just focusing on policies to reduce prices but also increasing dispos­able incomes and peoples’ spending power.

Debt to GDP ratio at lowest level in last 15 years

Madam Speaker, the other issue that is being talked about is, and I have seen some videos by an Oppo­sition youth group. They are going around telling people that we are sinking into debt. Let me tell you the facts, Madam Speaker.

Madam Speaker, fiscal manage­ment and Government’s debt posi­tion which the Opposition contin­ues to harp on about. We want to correct this again today, Madam Speaker.

The reality, Madam Speaker, is that Government’s debt to GDP ra­tio has declined from 56 per cent in 2010 to 45.6 per cent at the end of the 2016/2017 financial year (which is July 2017). Madam Speaker, this is the lowest level of debt to GDP ratio in the last 15 years since 2002. Anybody can verify this.

This is a marked reduction of around 10 per centage points in just over 6 years, Madam Speaker. Just 6 years. Even the IMF has acknowl­edged our track record and commit­ment to fiscal prudence.

Let me quote, Madam Speaker, from the latest IMF Article IV re­port that was recently released:

The downward trajectory in the public debt-to-GDP ratio from around 56 per cent in 2010 to 46 per cent at the end of fiscal year 2016/2017 is indicative of the au­thorities’ commitment to fiscal disci­pline and sustainability”.

Madam Speaker, the FijiFirst Gov­ernment has been committed to prudent financial management by maintaining relatively low fiscal deficits. On average, fiscal deficit in the last 10 years has been around 2 per cent of GDP. The strong econo­my together with low fiscal deficits has ensured debt sustainability with reducing debt to GDP ratio over the years.

Madam Speaker, this statement by IMF validates that Government’s debt policies and debt position are sound and sustainable.

Madam Speaker, our debt position would be much lower if not for TC Winston in 2016. Government in to­tal will spend around $480 million (for both 2016-2017 and 2017-2018 Budget) on TC Winston rehabilita­tion and reconstruction works.

Madam Speaker, we continue to be mindful of the foreign exchange risk associated with offshore liabil­ities. Government has set a bench­mark of 70:30. In other words 70 per cent of our debt should be onshore and 30 per cent offshore (+/-5%). And, Madam Speaker, this mix is a good mix. In addition, Madam Speaker, the foreign debt as a pro­portion of GDP is less than 13 per cent.

Borrowings for capital expenditure

Madam Speaker, let me highlight some interesting statistics on in­vestment and borrowing for capital expenditure. It’s very important, Madam Speaker.

Previous Governments from 1980 to 2006 (26 years) spent around $3.5 billion in capital expenditure and increased debt by around $2.6 bil­lion. I will repeat that. Previous Governments from 1980 to 2006 (26 years) spent around $3.5 billion in capital expenditure and increased debt by around $2.6 billion.

However, the Bainimarama and FijiFirst Government from 2007 to this financial year, a span of 11 years will have spent over $7 bil­lion, increasing the nominal debt by around $2.5 billion.

What this means, Madam Speaker, is that in the 26 years prior to 2007, for every dollar of CAPEX (capi­tal expenditure), around 76 cents was borrowed. On the contrary, in the last 11 years for every dollar of CAPEX only 33 cents is borrowed. Why, Madam Speaker? Because the rest is financed by large operating savings. We are building the econ­omy, we are building the produc­tive capacity of the economy, the productive capacity of our people, Madam Speaker.

Had Government spent as low as previous Governments on capital expenditure – we would have actu­ally repaid our debt by now, Madam Speaker.

So, Madam Speaker, the FijiFirst Government has been spending to raise the productive capacity of the Fijian economy and ensure every Fijian has access to proper roads, bridges and jetties, electric­ity, clean water, education, health, legal services. That’s why we have the best capital expenditure mix at 41 per cent to total expenditure.

We are also making huge invest­ments, Madam Speaker, for the long term future of the country in sec­tors like ICT – cable laying to Vanua Levu, we have liberalised telecom­munications sector, digital TV, tele­centres, and back office processors. We are laying the platform to trans­form Fiji.

Madam Speaker, over the years, Government has also been register­ing large operating surplus of close to 6 to 8 per cent of GDP, with all borrowings directed towards capi­tal spending. Capital spending has increased with vast improvement in the capital to operating expendi­ture mix together with a steady growth in revenue collections.

National Development Plan

Madam Speaker, the impressive Fijian growth story does not stop here. This is just the trailer pre­sented by the FijiFirst Government under the visionary and strong leadership of our Hon. Prime Min­ister. We have much better things for Fijians in years to come.

Madam Speaker, we have laid out our collective vision in the 20 year and 5 Year National Development Plan that was launched by the Hon. Prime Minister in Bonn last year to “transform Fiji” towards a unified, prosperous, inclusive and progres­sive modern nation.

A copy of the NDP has been circu­lated to all the members. Or please go to www.economy.gov.fj or www.fiji.gov.fj. You will find the Devel­opment Plan. You can also do word searches online. For example you may have a particular topic you may be interested in, like tourism. You can do a word search and pull out everything related to tourism.

Madam Speaker, with those few comments i would like to conclude this brief update on the economy and fiscal position, Madam Speaker.

Thank you, Madam Speaker.

Feedback: jyotip@fijisun.com.fj

 

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