Opinion: Narube on Economic Performance

In my opinion, we face serious issues in our economic manage­ment. First, because of the volatil­ity in our economic performance it makes sense to create a cushion or buffer, which
24 Mar 2018 11:00
Opinion: Narube on Economic Performance
Savenaca Narube

In my opinion, we face serious issues in our economic manage­ment.

First, because of the volatil­ity in our economic performance it makes sense to create a cushion or buffer, which we can lean on when we hit the bad years. This buffer can be a pool of cash which we put aside each year. We do not have this. This buffer can also be in a moder­ate debt position allowing us room to borrow when we hit an economic crisis. Again, we do not have this. Our debt is already high. Without this buffer, our economy is ex­tremely vulnerable right now.

Second, our growth over a long period of time has continually de­clined to two per cent. This is too low to create enough jobs for our school leavers. It is too low for our income to keep up with inflation. It is too low to provide enough sup­port to the poor.

Several studies have calculated that our potential growth rate is about five per cent. On average, we are performing at less than half of our potential. The reasons for this under performance have been overanalysed by many, but, to me, they boil down to one thing – poor and short-term decision-making by politicians.

To lift our long-term growth po­tential to say seven to eight per cent, we need to do two things.

First, we must raise productivity. The worsening traffic congestion inflicted upon us by Government policies is hurting productivity badly.

Second, we need to widen our eco­nomic base. We seem to be stuck with tourism. Agriculture, which everyone realises is where our po­tential is, languishes at less than 10 per cent of GDP from a peak of more than 20 per cent. No new in­dustry has emerged since garment and water in the early 1990s. Our economic base has been stagnant. Our traditional industries are de­clining problems.

Thirdly, because of the 2006 events, the economy did not start to grow again until 2010. Since then, we have had eight years of consecu­tive growth. But the average growth rate from 2008 to 2017 of 2.5 per cent is well below past performance.

We need to lift our average growth rate to more than four per cent, which we achieved in the 90s on the back of the garment industry and better performance by our tradi­tional resource sectors. But these traditional resource sectors are dying. Sugar and gold production are far lower than what they used to be. To double our average growth rate to four per cent, we need to dis­mantle barriers that shackle our economy through innovative solu­tions and structural reforms. And we need to do it now.

Fourthly, since 2006, our economy has been propped up largely by injection of millions of dollars by Government from its own operat­ing expenditures such as wages and salaries, populist giveaways, and withdrawals of members’ funds from the FNPF.

These cash injections are largely spent on consumption and there­fore do not last. To support growth over time, Government will need to continuously pump more money into the economy. While we enjoy growth as we are doing now, it will not last. We cannot afford to con­tinue to spend at this rate and keep increasing our debt. Ultimately, we will have to reduce spending.

The best way to grow the economy is through the private sector, which includes micro and small business­es. They provide more jobs, earn us valuable foreign exchange, and, most importantly, do not add to our national debt. To develop and grow a dynamic private sector requires that Government leaves them alone to do the things they do best. Tragi­cally, many anecdotes in the past 12 years clearly show that this Gov­ernment has heavily intervened in the private sector. We will not attract new investors and many of our school leavers will not find jobs in this climate of favouritism and victimisation.

The World Bank publishes the “Ease of Doing Business” which is a global indicator of how well gov­ernment supports the private sec­tor. The most recent result shows that Fiji has slipped very badly from being ranked 58 in 2012 to now 101. We must reverse this fast dete­riorating trend.

In conclusion, while the figures may look good in the short term, we are not building a firm founda­tion for growth. We must therefore take heed of the advice of the Inter­national Monetary Fund to build buffers and create a climate that supports investment and growth.

Feedback: jyotip@fijisun.com.fj

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